FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the Fiscal Year Ended
December 31, 2008
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Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the transition period
from to .
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MYLAN INC.
(Exact name of registrant as
specified in its charter)
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Pennsylvania
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25-1211621
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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1500
Corporate Drive, Canonsburg, Pennsylvania 15317
(Address
of principal executive offices)
Registrants telephone number, including area code:
(724) 514-1800
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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Common Stock, par value $0.50 per share
6.50% Mandatory Convertible Preferred Stock
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The NASDAQ Stock Market
The NASDAQ Stock Market
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check One):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the outstanding common stock,
other than shares held by persons who may be deemed affiliates
of the registrant, as of June 30, 2008, the last business
day of the registrants most recently completed second
fiscal quarter was approximately $3,668,813,108.
The number of outstanding shares of common stock of the
registrant as of February 16, 2009, was 304,704,472.
DOCUMENTS
INCORPORATED BY REFERENCE
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Parts of Form 10-K
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into which
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Document is
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Document
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Incorporated
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Proxy Statement for the 2009 Annual Meeting of Shareholders,
which will be filed with the Securities and Exchange Commission
within 120 days after the end of the registrants
fiscal year ended December 31, 2008.
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III
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MYLAN
INC.
INDEX TO
FORM 10-K
For the
Year Ended December 31, 2008
2
PART I
Mylan Inc. and its subsidiaries (the Company,
Mylan, our or we) comprise a
global pharmaceutical company that develops, licenses,
manufactures, markets and distributes generic, brand and branded
generic pharmaceutical products and active pharmaceutical
ingredients (API). The Company was incorporated in
Pennsylvania in 1970. The Company amended its articles of
incorporation to change its name from Mylan Laboratories Inc. to
Mylan Inc., effective October 2, 2007.
Effective October 2, 2007, the Company amended its bylaws,
to change the Companys fiscal year from beginning
April 1st and ending on March 31st, to beginning
January 1st and ending on December 31st.
Overview
Long considered a leader in the United States
(U.S.) generic pharmaceutical market, Mylan has
grown into a worldwide pharmaceutical leader, and is currently
the third largest generic pharmaceutical company in the world,
in terms of revenues. We hold top-five positions in 13 different
established markets worldwide and we are building a strong
presence in many emerging generics market. This evolution has
taken place through organic growth and through external
expansion. Organically, we have attained a position of
leadership in the U.S. generic pharmaceutical industry through
our ability to obtain Abbreviated New Drug Application
(ANDA) approvals and our reliable supply chain.
Through the acquisitions of Matrix Laboratories Limited
(Matrix) and Merck KGaAs generics business
(the former Merck Generics business), as further
discussed below, we have created a horizontally and vertically
integrated platform with global scale, a diversified product
portfolio and an expanded range of capabilities that position us
well for the future. We believe that as a result of these
acquisitions we are less dependent on any single market or
product and are able to compete successfully on a global basis.
Through Matrix, an Indian listed company in which we have a
71.5% controlling interest, we manufacture and supply low cost,
high quality API for our own products and pipeline, as well as
for third-parties. Matrix is the worlds third largest API
manufacturer with respect to the number of drug master files
(DMFs) filed with regulatory agencies, with
approximately 200 APIs in the market or under development.
Matrix is also a leader in supplying API for the manufacturing
of anti-retroviral drugs, which are utilized in the treatment of
HIV/AIDS. Additionally, 2008 marked the first full year of
operations for Matrixs newly launched finished dosage form
(FDF) business.
On October 2, 2007, Mylan completed its acquisition of the
former Merck Generics business to become one of the largest
quality generics and specialty pharmaceutical companies in the
world, with a global presence in more than 140 countries and
territories. The acquisition of the former Merck Generics
business immediately afforded Mylan a worldwide commercial
footprint including leadership positions in France and Australia
and several other key European and Asia Pacific markets. Mylan
markets more than 570 products to consumers in more than 140
countries and territories across the globe. Our products cover a
vast array of therapeutic categories, and we offer an extensive
range of dosage forms and delivery systems including oral
solids, controlled-release, steriles, injectables, topicals,
liquids, transdermals, semi-solids and high-potency products.
Our product portfolio includes several specialized dosage forms,
some of which are difficult to formulate and manufacture and
typically have longer product life cycles than traditional
generic pharmaceuticals. These dosage forms include high potency
formulations, steriles, injectables, transdermal patches,
controlled release and respiratory delivery products. We also
have the deepest pipeline and largest number of products pending
regulatory approval in the Companys history. Mylan will
benefit from substantial operational efficiencies and economies
of scale from increased sales volumes and its vertically and
horizontally integrated platform.
Mylan has three reportable segments, the Generics
Segment, the Matrix Segment and the
Specialty Segment, as determined in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and
Related Information. Refer to Note 17 to Consolidated
Financial Statements included elsewhere in this
Form 10-K
for additional information related to our segments.
3
Our
Operations
Our revenues are primarily derived from the sale of generic and
branded generic pharmaceuticals, specialty pharmaceuticals and
API. Our generic pharmaceutical business is conducted primarily
in the U.S. and Canada (collectively, North
America), Europe, the Middle East, and Africa
(collectively, EMEA), and Australia, Japan and New
Zealand (collectively, Asia Pacific). Our specialty
pharmaceutical business is conducted by Dey L.P.
(Dey), headquartered in Napa, California. Our API
business is conducted principally through our majority-owned
subsidiary, Matrix, which is headquartered in Hyderabad, India.
Docpharma, which is a subsidiary of Matrix, is primarily a
distributor of pharmaceutical products in the Benelux region of
Europe.
Mylan believes that the breadth and depth of its generics
business provides certain competitive advantages over many of
its competitors in major markets. These advantages include
global research and development and manufacturing facilities
that provide for additional technologies, economies of scale and
a broad product portfolio, as well as a proprietary API
business, which provides vertical integration efficiencies and a
high quality, stable supply.
Generics
Segment
North
America
Prescription pharmaceutical products in the U.S. are
generally marketed as either brand or generic drugs. Brand
products are marketed under brand names through marketing
programs that are designed to generate physician and consumer
loyalty. Brand products generally are patent protected, which
provides a period of market exclusivity during which time they
are sold with little or no competition for the compound, and
there typically are other participants in the therapeutic area.
Additionally, brand products may benefit from other periods of
non-patent, market exclusivity. Exclusivity generally provides
brand products with the ability to maintain their profitability
for relatively long periods of time. Brand products generally
continue to have a significant role in the market after the end
of patent protection or other market exclusivities due to
physician and consumer loyalties.
Generic pharmaceutical products are the chemical and therapeutic
equivalents of reference brand drugs. A reference brand drug is
an approved drug product listed in the U.S. Food and Drug
Administration (FDA) publication entitled
Approved Drug Products with Therapeutic Equivalence
Evaluations, popularly known as the Orange Book.
The Drug Price Competition and Patent Term Restoration Act of
1984 (Hatch-Waxman Act) provides that generic drugs
may enter the market after the approval of an ANDA and the
expiration, invalidation or circumvention of any patents on the
corresponding brand drug, or the end of any other market
exclusivity periods related to the brand drug. Generic drugs are
bioequivalent to their brand name counterparts. Accordingly,
generic products provide a safe, effective and cost-efficient
alternative to users of these brand products. Branded generic
pharmaceutical products are generic products that are more
responsive to the promotion efforts generally used to promote
brand products. Growth in the generic pharmaceutical industry
has been and will continue to be driven by the increased market
acceptance of generic drugs, as well as the number of brand
drugs for which patent terms
and/or other
market exclusivities have expired.
We obtain new generic products primarily through internal
product development. Additionally, we license or co-develop
products through arrangements with other companies. New generic
product approvals are obtained from the FDA through the ANDA
process, which requires us to demonstrate bioequivalence to a
reference brand product. Generic products are generally
introduced to the marketplace at the expiration of patent
protection for the brand product or at the end of a period of
non-patent market exclusivity. However, if an ANDA applicant
files an ANDA containing a certification of invalidity,
non-infringement or unenforceability related to a patent listed
in the Orange Book with respect to a reference drug product,
that generic equivalent may be able to be marketed prior to the
expiration of patent protection for the brand product. Such
patent certification is commonly referred to as a
Paragraph IV certification. An ANDA applicant that is first
to file a Paragraph IV certification is eligible for a
period of generic marketing exclusivity. This exclusivity, which
under certain circumstances may be required to be shared with
other applicable ANDA sponsors with Paragraph IV
certifications, lasts for 180 days, during which the FDA
cannot grant final approval to other ANDA sponsors holding
applications for the same generic equivalent.
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An increasing trend in the pharmaceutical industry involves the
practice of authorized generics. This occurs when
the patent or New Drug Application (NDA) holder
sells its brand product as a generic, often through a licensing
agreement with a generic company or through a subsidiary, at the
same time other generic competition enters the market. This
practice has the most significant impact on a generic company
that is entitled to the
180-day
exclusivity period described above or that would otherwise be
the only company on the market with a generic product being sold
under an approved ANDA. This practice may effectively eliminate
the 180-day
exclusivity period if an authorized generic is launched at the
beginning of the generic companys exclusivity period and,
exclusivity aside, could significantly lower the price at which
the generic company could otherwise sell its product upon
launch. Additionally, this could affect the extent to which
Paragraph IV challenges are pursued by generic companies.
In the U.S., our sales are derived principally through Mylan
Pharmaceuticals Inc. (MPI) and UDL Laboratories,
Inc. (UDL), our wholly-owned subsidiaries. MPI is
our primary U.S. pharmaceutical research, development,
manufacturing, marketing and distribution subsidiary. MPIs
net revenues are derived primarily from the sale of solid oral
dosage products. Additionally, MPIs net revenues are
augmented by transdermal patch products that are developed and
manufactured by Mylan Technologies, Inc. (MTI), our
wholly-owned transdermal technology subsidiary. UDL primarily
re-packages and markets products either obtained from MPI or
purchased from third-parties, in unit dose formats, for use
primarily in hospitals and other medical institutions. In
addition, UDL sells several brand products.
In the U.S., we have one of the largest product portfolios among
all generic pharmaceutical companies, consisting of
approximately 204 products, of which approximately 195 are in
capsule or tablet form in an aggregate of approximately 503
dosage strengths. Included in these totals are 22 extended
release products in a total of 55 dosage strengths.
In addition to those products that we manufacture in the U.S.,
we also market, principally through UDL, 73 generic products in
a total of 129 dosage strengths under supply and distribution
agreements with other pharmaceutical companies. We believe that
the breadth of our product offerings helps us to successfully
meet our customers needs and to better compete in the
generic industry over the long term.
Our U.S. product portfolio also includes four transdermal
patch products in a total of 22 dosage strengths that are
developed and manufactured by MTI. MTIs fentanyl
transdermal system was the first AB-rated generic alternative to
Duragesic®
(fentanyl transdermal system) on the market and was also the
first generic class II narcotic transdermal product ever
approved. MTIs fentanyl product currently remains the only
AB-rated generic alternative approved in all strengths.
We believe that the future growth of our U.S. generics
business is partially dependent upon continued increasing
acceptance of generic products as low cost alternatives to
branded pharmaceuticals, a trend which is largely out of our
control. However, we believe that we can maximize the
profitability of our generic product opportunities by continuing
with our proven track record of bringing to market products that
are difficult to formulate or manufacture or for which the API
is difficult to obtain. Over the last 10 years, in addition
to fentanyl, we have successfully introduced generic products
with high barriers to entry, including our launches of, among
others, extended phenytoin sodium, levothyroxine sodium,
oxybutynin and paroxetine. Several of these products continued
to be meaningful contributors to our business several years
after their initial launch, due to their high barriers to entry.
Additionally, we expect to achieve growth in our
U.S. business by launching new products for which we may
attain FDA first-to-file status with Paragraph IV
certification.
Through Genpharm ULC (Genpharm), our wholly-owned
Canadian subsidiary acquired as part of the former Merck
Generics business acquisition, we manufacture and market generic
pharmaceuticals in Canada. Genpharm is the sixth largest generic
pharmaceutical company in Canada.
EMEA
Our generic pharmaceutical sales in EMEA are derived from our
wholly-owned subsidiaries acquired through the acquisition of
the former Merck Generics business. We have operations in 25
countries in EMEA. Of the top five
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generic pharmaceutical markets in Europe, we hold a top three
market share position in four, consisting of France, the United
Kingdom (U.K.), Spain and Italy.
In France, we market our products through our subsidiaries,
Mylan S.A.S. and Qualimed S.A.S., using a sales force of
approximately 325 representatives. The French generic
pharmaceutical market is primarily a company branded generics
market, with pharmacists serving as the key decision makers.
France has the third largest generic retail pharmaceutical
market in Europe with sales of approximately $3.17 billion
during the twelve months ended October 2008, and we hold the
number one market share position, with approximately 200
products in the market.
In the U.K., our subsidiary, Generics [U.K.] Limited, offers a
broad product portfolio of more than 385 pharmaceutical
products. The U.K. generics pharmaceutical market is a highly
competitive traditional generics substitution market, with the
wholesalers and pharmacies serving as the key decision makers.
The generic retail prescription market had sales of
approximately $3.50 billion for the twelve months ended
October 2008, making the U.K. the second largest market in
Europe. Prices at the wholesale dealing level are significantly
lower. As of October 2008, Generics [U.K.] Limited held an
estimated market share of approximately 11%, at the wholesaler
dealing level, ranking it as the number two company in the
reimbursement market. Generics [U.K.] Limited is well positioned
as a preferred supplier to wholesalers and is also focused on
areas such as multiple independent retail pharmacies.
In Spain, where we market our products through our subsidiary
Mylan Pharmaceuticals S.L., we are the number three ranked
company in terms of generic pharmaceutical market share. The
Spanish generics market is a company branded generic market,
with physicians
and/or
pharmacists as the key decision makers, depending on the region.
The market is focused on brand quality and service level
(reliable supply, customer orientation), and it is important to
be first-to-market in order to capture market share. The generic
retail prescription market in Spain had sales of approximately
$1.10 billion during the twelve months ended October 2008,
making it the fourth largest generic market in Europe. The
generic market made up approximately 8% of the total Spanish
retail pharmaceutical market by sales for the twelve months
ended October 2008 and is expected to continue to grow at double
digit rates.
In Italy, we are the number three ranked company in terms of
generic pharmaceutical market share. The Italian generics market
is a branded generic market with a focus on brand quality and
the importance of being first-to-market in order to capture and
maintain market share. The generic retail prescription market in
Italy had sales of approximately $950.0 million during the
twelve months ended October 2008. We believe that the Italian
generic market is underpenetrated, with generics representing
only 6% of the Italian pharmaceutical retail market. The Italian
government has put forth measures aimed at encouraging generic
use; however, the scope of these measures is limited and generic
substitution is still in its early stages. Some industry
observers have projected that the market will grow at
approximately 11% per year over the next five years.
In Germany, we market our products through our Mylan dura
subsidiary. Most generic products in Germany are sold as brands,
with the physician and pharmacist serving as the key decision
makers and more recently, with health insurance companies
starting to play a major role. The German generic retail
prescription market had sales of approximately
$6.20 billion during the twelve months ended October 2008
and is the largest generic market in Europe. As of October 2008,
Mylan dura ranked seventh in terms of generic pharmaceuticals
market share in Germany. Mylan duras key therapeutic area
strengths include the cardiovascular areas, metabolic disorders,
and central nervous system.
We also operate in several other European markets, including
Portugal, where we hold a number one ranking, and Belgium, where
we hold a number two ranking. We also have a notable presence in
the Netherlands, Scandinavia and Ireland. Additionally, we have
an export business which is focused on Africa and the Middle
East. Our balanced geographical position, leadership standing in
many established and growing markets, and the vertically
integrated platform which Matrix provides, will all be keys to
our future growth and success in EMEA.
In connection with Mylans acquisition of the former Merck
Generics business, Mylan had the option to acquire several new
and emerging Merck Generics businesses within Central and
Eastern Europe (CEE). On June 2, 2008, Mylan
acquired Merck KGaAs CEE generics businesses, which
consisted of operations in Poland, Hungary, Slovakia, Slovenia
and the Czech Republic.
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In conjunction with the acquisition of the former Merck Generics
business, the Company entered into a transitional services
agreement (TSA) with Merck KGaA that provided for
certain general and administrative support in certain countries
through October 2, 2008. By September 30, 2008, the
various support services being performed under the TSA were
terminated as planned. The Company is now performing such
services utilizing enhanced support systems.
Asia
Pacific
Similar to EMEA, generic pharmaceutical sales in Asia Pacific
are derived principally through wholly-owned subsidiaries
acquired through the acquisition of the former Merck Generics
business. We hold the number one market positions in both
Australia and New Zealand and the number four market position in
Japan.
Alphapharm, our Australian subsidiary, is the largest supplier
by volume of prescription pharmaceuticals in Australia. It is
also the generics market leader in Australia, holding an
estimated 60% market share by sales volume as of December 2008,
and offering the largest portfolio of generic pharmaceutical
products in the Australian market. The Australian generics
market is a branded generics market, with the pharmacist serving
as the key decision maker. The generics market in Australia is
underdeveloped, and as a result, the government is increasingly
focused on promoting generics in an effort to reduce costs. The
generic pharmaceutical market had sales of approximately
$630.0 million in 2008. Some industry observers have
projected that the market will grow at approximately 7% per year
over the next five years. In New Zealand, our business operates
under the name Pacific Pharmaceuticals Ltd. and is the largest
generics company in New Zealand.
Mylan Seiyaku, our Japanese subsidiary, offers a broad portfolio
of more than 400 products, with a focus on antibiotics,
anti-diabetics, oncology and skin and allergy medications. We
have a manufacturing and research and development facility
located in Japan, which is key to serving the Japanese market.
Japan is the second largest pharmaceutical market in the world
and the sixth largest generic market worldwide. The market is
currently mostly hospitals, but is expected to move into
pharmacies as generic substitution becomes more prevalent. The
Japanese generic pharmaceutical market had sales of
approximately $4.1 billion in 2007. Recent pro-generics
government actions include higher patient co-pays, fixed
hospital reimbursement for certain procedures, and pharmacy
substitution. Some industry observers have projected that the
generic market will grow at almost 7% per year through 2010.
These actions are expected to be key drivers of our future
growth and profitability in Japan, which we see as our primary
growth driver in Asia Pacific.
Approximately 31% and 14% of our Generics Segment net revenues
for the nine-month period ended December 31, 2007 and
fiscal year ended March 31, 2007, were attributable to
calcium channel blockers, primarily nifedipine and amlodipine.
Approximately 29% and 19% of our Generics Segment net revenues
during the nine-month period ended December 31, 2007, and
fiscal year ended March 31, 2007 were attributable to
narcotic agonist analgesics, primarily fentanyl.
Specialty
Segment
Our specialty pharmaceutical business is conducted through Dey,
which competes primarily in the respiratory and severe allergy
markets. Deys products are primarily branded specialty
nebulized and injectable products for life-threatening
conditions. Deys revenues since our acquisition have been
derived primarily through the sale of
EpiPen®.
EpiPen, which is used in the treatment of severe allergies, is
an epinephrine auto-injector which has been sold in the United
States since 1980 and internationally since the mid-1980s.
EpiPen is the number one prescribed treatment for severe
allergic reactions with a U.S. market share of more than 95%.
The strength of the EpiPen brand name and the promotional
strength of the Dey sales force have enabled us to maintain our
market share.
Perforomist®
Inhalation Solution, Deys formoterol fumarate inhalation
solution, was launched on October 2, 2007. Perforomist is a
long-acting beta2-adrenergic agonist (LABA)
indicated for long-term, twice-daily administration in the
maintenance treatment of bronchoconstriction in chronic
obstructive pulmonary disease (COPD) patients,
including those with chronic bronchitis and emphysema. Dey has
been issued several U.S. and international patents
protecting Perforomist.
7
We believe we can continue to drive the long-term growth of our
Specialty Segment by successfully managing our existing product
portfolio, growing our newly launched products and bringing to
market other product opportunities.
Approximately 57% and 27% of the Companys Specialty
Segment net revenues for the calendar year ended
December 31, 2008 and the nine-month period ended
December 31, 2007 were attributable to allergy agents,
primarily EpiPen. Approximately 31% and 61% of the
Companys Specialty Segment net revenues were attributable
to bronchodilators, primarily
DuoNeb®,
Perforomist and albuterol for the calendar year ended
December 31, 2008 and the nine-month period ended
December 31, 2007.
Matrix
Segment
We conduct our API business through Matrix, in which we own a
71.5% interest. Matrix is the worlds third largest API
manufacturer with respect to the number of DMFs filed with
regulatory agencies. Matrix currently has more than 200 APIs in
the market or under development, and focuses its marketing
efforts on regulated markets such as the U.S. and the
European Union (EU).
Matrix produces API for use in the manufacture of our
pharmaceutical products, as well as for use by third-parties, in
a wide range of categories, including anti-bacterials, central
nervous system agents, anti-histamine/anti-asthmatics,
cardiovasculars, anti-virals, anti-diabetics, anti-fungals,
proton pump inhibitors and pain management drugs. Also included
in Matrixs product portfolio are anti-retroviral
(ARV) APIs, used in the treatment of HIV. Matrix is
a leading supplier of generic ARV APIs.
Matrix has 10 API and intermediate manufacturing facilities and
one FDF facility. Of these, eight, including the FDF facility,
are FDA approved, making Matrix one of the largest companies in
India in terms of FDA-approved API manufacturing capacity.
Matrix has manufacturing facilities in China and a distribution
facility in Europe.
Our future success in API is dependent upon continuing to
leverage our research and development capabilities to produce
high-quality, low-cost API, while capitalizing on the greater
API volumes afforded through our horizontally and vertically
integrated platform.
Additionally, we view the continued growth of Matrixs FDF
business, launched in late 2007, as a key driver of growth,
particularly in the ARV market.
Research
and Development
Research and development efforts are conducted on a global
basis, primarily to enable us to develop, manufacture and market
approved pharmaceutical products in accordance with applicable
government regulations. In the U.S., our largest market, the FDA
is the principal regulatory body with respect to pharmaceutical
products. Each of our other markets has separate pharmaceutical
regulatory bodies.
With the acquisitions of the former Merck Generics business and
a controlling interest in Matrix, we have significantly
bolstered our global research and development capabilities. Our
research and development strategy includes the following areas:
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development of controlled-release technologies and the
application of these technologies to reference products;
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development of both NDA and ANDA products;
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development of drugs that are technically difficult to formulate
or manufacture because of either unusual factors that affect
their stability or bioequivalence or unusually stringent
regulatory requirements;
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development of drugs that target smaller, specialized or
underserved markets;
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development of generic drugs that represent first-to-file
opportunities;
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expansion of our existing solid oral dosage product portfolio,
including with respect to additional dosage strengths;
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completion of additional preclinical and clinical studies for
approved NDA products required by the FDA, known as
post-approval (Phase IV) commitments; and
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conducting life-cycle management studies intended to further
define the profile of products subject to pending or approved
NDAs.
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During the calendar year ended December 31, 2008, we
received 38 application approvals from the FDA, consisting of 24
final ANDA approvals, 13 tentative ANDA approvals and one
supplemental ANDA approval.
We have a robust generic product pipeline. In calendar year
2008, we submitted 154 product submissions, which include 72
ANDAs submitted to the FDA. As of December 31, 2008,
including Matrix, we had 120 product applications pending at the
FDA, representing approximately $88.0 billion in
U.S. sales for the 12 months ended June 30, 2008
for the brand name equivalents of these products, according to
IMS Health data. Thirty-two of these applications were
first-to-file Paragraph IV ANDA patent challenges, which
offer the opportunity for 180 days of generic marketing
exclusivity if approved by the FDA and if we are successful in
the patent challenge.
Product
Development and Government Regulation
Generics
Segment
North
America
All applications for FDA approval must contain information
relating to product formulation, raw material suppliers,
stability, manufacturing processes, packaging, labeling and
quality control. Information to support the bioequivalence of
generic drug products or the safety and effectiveness of new
drug products for their intended use is also required to be
submitted. There are generally two types of applications used
for obtaining FDA approval of new products:
NDA. An NDA is filed when approval is sought
to market a drug with active ingredients that have not been
previously approved by the FDA. NDAs are filed for newly
developed branded products and, in certain instances, for a new
dosage form, a new delivery system, or a new indication for
previously approved drugs.
ANDA. An ANDA is filed when approval is sought
to market a generic equivalent of a drug product previously
approved under an NDA and listed in the FDAs Orange
Book or for a new dosage strength or a new delivery system
for a drug previously approved under an ANDA.
One requirement for FDA approval of NDAs and ANDAs is that our
manufacturing procedures and operations conform to FDA
requirements and guidelines, generally referred to as current
Good Manufacturing Practices (cGMP). The
requirements for FDA approval encompass all aspects of the
production process, including validation and recordkeeping, and
involve changing and evolving standards.
Facilities, procedures, operations
and/or
testing of products are subject to periodic inspection by the
FDA, the Drug Enforcement Administration (DEA) and
other authorities. In addition, the FDA conducts pre-approval
and post-approval reviews and plant inspections to determine
whether our systems and processes are in compliance with cGMP
and other FDA regulations. Our suppliers are subject to similar
regulations and periodic inspections.
FDA approval of an ANDA is required before marketing a generic
equivalent of a drug approved under an NDA in the U.S. or
for a previously unapproved dosage strength or delivery system
for a drug approved under an ANDA. The ANDA development process
is generally less time-consuming and complex than the NDA
development process. It typically does not require new
preclinical and clinical studies, because it relies on the
studies establishing safety and efficacy conducted for the drug
previously approved through the NDA process. The ANDA process,
however, does require one or more bioequivalence studies to show
that the ANDA drug is bioequivalent to the previously approved
drug. Bioequivalence compares the bioavailability of one drug
product with that of another formulation containing the same
active ingredient. When established, bioequivalence confirms
that the rate of absorption and levels of concentration in the
bloodstream of a formulation of the previously approved drug and
the generic drug are equivalent. Bioavailability indicates the
rate and extent of absorption and levels of concentration of a
drug product in the bloodstream needed to produce the same
therapeutic effect.
9
Supplemental ANDAs are required for approval of various types of
changes to an approved application, and these supplements may be
under review for six months or more. In addition, certain types
of changes may only be approved once new bioequivalence studies
are conducted or other requirements are satisfied.
A large number of high-value branded pharmaceutical patent
expirations are expected over the next several years. These
patent expirations should provide additional generic product
opportunities. We intend to concentrate our generic product
development activities on branded products with significant
sales in specialized or growing markets or in areas that offer
significant opportunities and other competitive advantages. In
addition, we intend to continue to focus our development efforts
on technically difficult-to-formulate products or products that
require advanced manufacturing technology.
Medicaid requires all pharmaceutical manufacturers to rebate a
percentage of their revenues arising from Medicaid-reimbursed
drug sales to individual state Medicaid agencies. The required
rebate is currently 11% of the average manufacturers price
for sales of Medicaid-reimbursed products marketed under ANDAs.
Sales of
Medicaid-reimbursed
products marketed under NDAs require manufacturers to rebate
the greater of approximately 15% of the average
manufacturers price or the difference between the average
manufacturers price and the best price during a specific
period. We believe that federal or state governments may
continue to enact measures aimed at reducing the cost of drugs
to the public.
Under Part D of the Medicare Modernization Act, which
became effective January 1, 2006, Medicare beneficiaries
are eligible to obtain discounted prescription drug coverage
from private sector providers. As a result, usage of
pharmaceuticals has increased, a trend which we believe will
continue to benefit the generic pharmaceutical industry.
However, such potential sales increases may be offset by
increased pricing pressures, due to the enhanced purchasing
power of the private sector providers that are negotiating on
behalf of Medicare beneficiaries.
The primary regulatory approval required for API manufacturers
selling APIs for use in FDFs to be marketed in the United States
is approval of the manufacturing facility in which the APIs are
produced, as well as the manufacturing processes and standards
employed in that facility. The FDA requires that the
manufacturing operations of both API and FDF manufacturers,
regardless of where in the world they are located, comply with
cGMP.
In Canada, the registration process for approval of all generic
pharmaceuticals has two tracks which proceed in parallel. The
first track is concerned with the quality, safety and efficacy
of the proposed generic product, and the second track concerns
patent rights of the brand drug owner. Companies may submit an
application called an abbreviated new drug submission
(ANDS) to Health Canada for sale of the drug in
Canada by comparing the drug to another drug marketed in Canada
under a Notice of Compliance (NOC) issued to a first
person. When Health Canada is satisfied that the generic
pharmaceutical product described in the ANDS satisfies the
statutory requirements, it issues a NOC for that product for the
uses specified in the ANDS, subject to any court order that may
be made in the second track of the approval process.
The first track of the process involves an examination of the
ANDS by Health Canada to ensure that the quality, safety and
efficacy of the product meet Canadian standards and
bioequivalence.
The second track of the approval process is governed by the
Patented Medicines NOC Regulations (Regulations).
The owner or exclusive licensee, or originator, of patents
relating to the brand drug for which it has a NOC may have
established a list of patents administered by Health Canada
enumerating all the patents claiming the medicinal ingredient,
formulation, dosage form or the use of the medicinal ingredient.
It is possible that even though the patent for the API may have
expired, the originator may have other patents on the list which
relate to new forms of the API, a formulation or additional
uses. Most brand name drugs have an associated patent list
containing one or more unexpired patents claiming the medicinal
ingredient itself or a use of the medicinal ingredient (a claim
for the use of the medicinal ingredient for the diagnosis,
treatment, mitigation or prevention of a disease, disorder or
abnormal physical state or its symptoms). In its ANDS, a generic
applicant must make at least one of the statutory allegations
with respect to each patent on the patent list, for example,
alleging that the patent is invalid or would not be infringed
and explaining the basis for that allegation. In conjunction
with filing its ANDS, the generic applicant is required to serve
on the originator a Notice of Allegation (NOA),
which gives a detailed statement of the factual and legal basis
for its allegations in the ANDS. The originator may commence a
court application within 45 days after it has been served
with the NOA, if it takes the position that the allegations are
not justified. When the application is filed in court
10
and served on Health Canada, Health Canada may not issue a NOC
until the earlier of the determination of the application by the
court after a hearing or the expiration of 24 months from
the commencement of the application. The period may be shortened
or lengthened by the court in certain circumstances. A NOC can
be obtained for a generic product only if the applicant is
successful in defending the application under the Regulations in
court. The legal costs incurred in connection with the
application could be substantial.
Section C.08.004.1 of the Food and Drug Regulations is the
so-called data protection provision, and the current version of
this section applies in respect of all drugs for which a NOC was
issued on or after June 17, 2006. A subsequent applicant
for approval to market a drug for which a NOC has already been
issued does not need to perform duplicate clinical trials
similar to those conducted by the first NOC holder, but is
permitted to demonstrate safety and efficacy by submitting data
demonstrating that its formulation is bioequivalent to the
formulation that was issued for the first NOC. The first party
to obtain a NOC for a drug will have an eight-year period of
exclusivity starting from the date it received its NOC based on
those clinical data. A subsequent applicant for approval who
seeks to establish safety and efficacy by comparing its product
to the product that received the first NOC will not be able to
file its own application until six years following the issuance
of the first NOC have expired. The Minister of Health will not
be permitted to issue a NOC to that applicant until eight years
following the issuance of the first NOC have expired
this additional two-year period will correspond in most cases to
the 24-month
automatic stay under the Regulations. If the first person
provides the Minister with the description and results of
clinical trials relating to the use of the drug in pediatric
populations, it will be entitled to an extra six months of data
protection. A drug is only entitled to data protection so long
as it is being marketed in Canada.
Facilities, procedures, operations
and/or
testing of products are subject to periodic inspection by Health
Canada and the Health Products and Food Branch Inspectorate. In
addition, Health Canada conducts pre-approval and post-approval
reviews and plant inspections to determine whether our systems
are in compliance with the good manufacturing practices in
Canada, Drug Establishment Licensing (EL)
requirements and other provisions of the Regulations.
Competitors are subject to similar regulations and inspections.
The provinces and territories in Canada operate drug benefit
programs through which eligible recipients receive drugs through
public funding; these drugs are listed on provincial Drug
Benefit Formularies. Eligible recipients include seniors,
persons on social assistance, low-income earners, and those with
certain specified conditions or diseases. To be considered for
listing in a provincial or territorial Formulary, drug products
must have been issued a NOC and must be approved through a
national common drug review process. The listing recommendation
is made by the Canadian Expert Drug Advisory Committee and must
be approved by the applicable provincial/territorial health
ministry.
The primary regulatory approval for pharmaceutical
manufacturers, distributors and importers selling
pharmaceuticals to be marketed in Canada is the issuance of an
EL. An EL is issued once Health Canada has approved the facility
in which the pharmaceuticals are manufactured, distributed or
imported. A key requirement for approval of a facility is
compliance with the good manufacturing practices in Canada. For
pharmaceuticals that are imported, the license for the importing
facility must list all foreign sites at which imported
pharmaceuticals are manufactured. To be listed, a foreign site
must demonstrate compliance with the good manufacturing
practices in Canada
EMEA
The EU presents complex challenges from a regulatory
perspective. There is over-arching legislation which is then
implemented at a local level by the 27 individual member states,
Iceland, Liechtenstein and Norway. Between 1995 and 1998, the
legislation was revised in an attempt to simplify and harmonize
product registration. This revised legislation introduced the
mutual recognition (MR) procedure, whereby after
submission and approval by the authorities of the so-called
reference member state (RMS), further applications
can be submitted into the other chosen member states (known as
concerned member states (CMS)). Theoretically, the
authorization of the RMS should be mutually recognized by the
CMS. More typically, however, a degree of re-evaluation is
carried out by the CMS. In November 2005, this legislation was
further optimized. In addition to the MR procedure, the new
decentralized procedure was introduced. This second procedure is
also led by the RMS, but applications are simultaneously
submitted to all selected countries. From 2005, the Centralized
Procedure operated by the European
11
Medicines Agency (EMA) became available for generic
versions of innovator products approved by the Centralized
Procedure.
In Europe, as well as many other locations around the world, the
manufacture and sale of pharmaceutical products is regulated in
a manner substantially similar to that of the U.S. Legal
requirements generally prohibit the handling, manufacture,
marketing and importation of any pharmaceutical product unless
it is properly registered in accordance with applicable law. The
registration file relating to any particular product must
contain medical data related to product efficacy and safety,
including results of clinical testing and references to medical
publications, as well as detailed information regarding
production methods and quality control. Health ministries are
authorized to cancel the registration of a product if it is
found to be harmful or ineffective or if it is manufactured or
marketed other than in accordance with registration conditions.
Pursuant to the MR procedure, a marketing authorization is first
sought in one member state from the national regulatory agency
(the RMS). The RMS makes its assessment report on the quality,
efficacy and safety of the medicinal product available to the
other CMSs where marketing authorizations are also sought under
the MR procedure.
The decentralized procedure is based on the same fundamental
idea as the MR procedure. In contrast to the MR procedure,
however, the decentralized procedure does not require a national
marketing authorization to have been granted for the medicinal
product. The pharmaceutical company applies for marketing
authorization simultaneously in all the member states of the EU
in which it wants to market the product. After consultation with
the pharmaceutical company, one of the member states concerned
in the decentralized procedure will become the RMS. The
competent agency of the RMS undertakes the scientific evaluation
of the medicinal product on behalf of the other CMSs and
coordinates the procedure. If all the member states involved
(RMS and CMS) agree to grant marketing authorizations, this
decision forms the basis for the granting of the national
marketing authorizations in the respective member states.
Neither the MR or decentralized procedures result in automatic
approval in all member states. If any member state has
objections, particularly in relation to potential serious risk
to public health, which cannot be resolved within the procedure
scope and timelines, they will be referred to the coordination
group for MR and decentralized procedures (CMD) and
reviewed in a
60-day
procedure. If this
60-day
procedure does not result in a consensus by all member states,
the product can be marketed in the countries whose health
authorities agree that the product can be licensed. The issue
raised will then enter a second referral procedure.
As with the MR procedure, the advantage of the decentralized
procedure is that the pharmaceutical company receives identical
marketing authorizations for its medicinal product in all the
member states of the EU in which it wants to market the product.
This leads to considerable streamlining of all regulatory
activities in regard to the product. Variations, line
extensions, renewals, etc. are also handled in a coordinated
manner with the RMS leading the activity.
Once a decentralized procedure has been completed, the
pharmaceutical company can subsequently apply for marketing
authorizations for the medicinal product in additional EU member
states by means of the MR procedure.
All products, whether centrally authorized or authorized by the
MR or decentralized procedure, may only be sold in other member
states if the product information is in the official language of
the state in which the product will be sold, which effectively
requires specific repackaging and labeling of the product.
Under the national procedure, a company applies for a marketing
authorization in one member state. The national procedure can
now only be used if the pharmaceutical company does not seek
authorization in more than one member state. If it does seek
wider marketing authorizations, it must use the MR or
decentralized procedure.
Before a generic pharmaceutical product can be marketed in the
EU, a marketing authorization must be obtained. If a generic
pharmaceutical product is shown to be essentially the same as,
or bioequivalent to, one that is already on the market and which
has been authorized in the EU for a specified number of years,
as explained in the section on data exclusivity below, no
further pre-clinical or clinical trials are required for that
new generic pharmaceutical product to be authorized. The generic
applicant can file an abridged application for marketing
authorization, but in order to take advantage of the abridged
procedure, the generic manufacturer must demonstrate
12
specific similarities, including bioequivalence, to the already
authorized product. Access to clinical data of the reference
drug is governed by the European laws relating to data
exclusivity, which are outlined below. Other products, such as
new dosages of established products, must be subjected to
further testing, and bridging data in respect of
these further tests must be submitted along with the abridged
application.
In addition to obtaining approval for each product, in most EU
countries the pharmaceutical product manufacturers
facilities must obtain approval from the national supervisory
authority. The EU has a code of good manufacturing practice,
with which the marketing authorization holder must comply.
Regulatory authorities in the EU may conduct inspections of the
manufacturing facilities to review procedures, operating systems
and personnel qualifications.
In order to control expenditures on pharmaceuticals, most member
states in the EU regulate the pricing of products and in some
cases limit the range of different forms of drugs available for
prescription by national health services. These controls can
result in considerable price differences between member states.
In addition, in past years, as part of overall programs to
reduce healthcare costs, certain European governments have
prohibited price increases and have introduced various systems
designed to lower prices. Some European governments have also
prescribed minimum targets for generics dispensing.
Certain markets in which the Company does business have recently
undergone, some for the first time, or will soon undergo,
government-imposed price reductions or similar pricing pressures
on pharmaceutical products. This is true in France and other
places, such as Australia, though this issue is not limited to
solely these markets. In addition, a number of markets in which
we operate have implemented or may implement tender
systems for generic pharmaceuticals in an effort to lower
prices. Such measures are likely to have a negative impact on
sales and gross profit in these markets. However, some
pro-generic government initiatives in certain markets could help
to offset some of this unfavorability by potentially increasing
generic substitution.
An applicant for a generic marketing authorization currently
cannot avail itself of the abridged procedure in the EU by
relying on the originator pharmaceutical companys data
until expiry of the relevant period of exclusivity given to that
data. For products first authorized prior to October 30,
2005, this period is six or ten years (depending on the member
state in question) after the grant of the first marketing
authorization sought for the relevant product, due to data
exclusivity provisions which have been in place. From
October 30, 2005, the implementation of a new EU directive
(2004/27/EC) harmonized the data exclusivity period for
originator pharmaceutical products throughout the EU member
states, which were legally obliged to have implemented the
directive by October 30, 2005. The new regime for data
exclusivity provides for an eight-year data exclusivity period
commencing from the grant of first marketing authorization.
After the eight-year period has expired, a generic applicant can
refer to the data of the originator pharmaceutical company in
order to file an abridged application for approval of its
generic equivalent product. Yet, conducting the necessary
studies and trials for an abridged application, within the data
exclusivity period, is not regarded as contrary to patent rights
or to supplementary protection certificates for medicinal
products. However, the applicant will not be able to launch its
product for an additional two years. This ten-year total period
may be extended to 11 years if the original marketing
authorization holder obtains, within those initial eight years,
a further authorization for a new therapeutic use of the product
which is shown to be of significant clinical benefit. Further, a
specific data exclusivity for one year may be obtained for a new
indication for a well-established substance, provided that
significant pre-clinical or clinical studies were carried out in
relation to the new indication. This new regime for data
exclusivity applies to products first authorized after
October 30, 2005.
Asia
Pacific
The pharmaceutical industry is one of the most highly regulated
industries in Australia. The Australian government is heavily
involved in the operation of the industry, as it is the main
purchaser of pharmaceutical products. The Australian government
also regulates the quality, safety and efficacy of therapeutic
goods.
The government exerts a significant degree of control over the
pharmaceuticals market through the Pharmaceutical Benefits
Scheme (PBS), which is a governmental program for
subsidizing the cost of pharmaceuticals to Australian consumers.
Over 80% of all prescription medicines sold in Australia are
reimbursed by the PBS. The PBS is operated under the National
Health Act 1953 (Cth). This act governs such matters as who may
sell pharmaceutical products, the prices at which pharmaceutical
products may be sold and governmental subsidies.
13
For pharmaceutical products listed on the PBS, the price is
determined through negotiations between the Pharmaceutical
Benefits Pricing Authority (a governmental agency) and
pharmaceutical manufacturers. The Australian governments
purchasing power is used to obtain lower prices as a means of
controlling the cost of the program. The PBS also caps the
wholesaler margin for drugs listed on the PBS. Wholesalers
therefore have little pricing power over the majority of their
product range and as a result are unable to increase
profitability by increasing prices or margins. There have been
recent changes to the pricing regime for PBS-listed medicines,
which have decreased the margin wholesalers can charge. However,
the Australian government has established a fund to compensate
wholesalers under certain circumstances for the impact on the
wholesale margin resulting from the new pricing arrangements.
Australia has a five-year data exclusivity period, whereby any
data relating to a pharmaceutical product cannot be referred to
in another companys dossier until five years after the
original product was approved.
Manufacturers of pharmaceutical products are also regulated by
the Therapeutic Goods Administration (TGA), under
the Therapeutic Goods Act 1989 (Cth) (Act). The TGA
regulates the quality, safety and efficacy of pharmaceuticals
supplied in Australia. The TGA carries out a range of assessment
and monitoring activities to ensure that therapeutic goods
available in Australia are of an acceptable standard, with a
goal of ensuring that the Australian community has access,
within a reasonable time, to therapeutic advances. Australian
manufacturers of all medicines must be licensed under
Part 4 of the Act, and their manufacturing processes must
comply with the principles of the good manufacturing practices
in Australia.
All therapeutic goods manufactured for supply in Australia must
be listed or registered in the Australian Register of
Therapeutic Goods (ARTG), before they can be
supplied. The ARTG is a database of information about
therapeutic goods for human use that are approved for supply in,
or export from, Australia. Whether a product is listed or
registered in the ARTG depends largely on the ingredients, the
dosage form of the product and the promotional or therapeutic
claims made for the product.
Medicines assessed as having a higher level of risk must be
registered, while those with a lower level of risk can be
listed. The majority of listed medicines are self-selected by
consumers and used for self-treatment. In assessing the level of
risk, factors such as the strength of a product, side effects,
potential harm through prolonged use, toxicity and the
seriousness of the medical condition for which the product is
intended to be used are taken into account.
Labeling, packaging and advertising of pharmaceutical products
are also regulated by the TGA.
In Japan, we are governed by various laws and regulations,
including the Pharmaceutical Law and the Products Liability Law.
Under the Pharmaceutical Law, the retailing or supply of a
pharmaceutical that a person has manufactured (including
manufacturing under license) or imported is defined as
marketing, and in order to market pharmaceuticals,
one has to obtain a license, which we refer to herein as a
Marketing License, from the Ministry of Health, Labour and
Welfare (Ministry). A Marketing License includes a
manufacturing license. There are two types of Marketing Licenses
according to the pharmaceuticals to be marketed. The authority
to grant the Marketing License is delegated to prefectural
governors; therefore, the relevant application must be filed
with the relevant prefectural governor. A Marketing License will
not be granted if the quality control system for the
pharmaceutical for which the Marketing License has been applied
or the post-marketing safety management system for the relevant
pharmaceutical does not comply with the standards specified by
the relevant Ministerial Ordinance made under the Pharmaceutical
Law.
In addition to the Marketing License, a person intending to
market a pharmaceutical must, for each product, obtain marketing
approval from the Minister with respect to such marketing, which
we refer to herein as Marketing Approval. Marketing Approval is
granted subject to examination of the name, ingredients,
quantities, structure, dosage, method of use, indications and
effects, performance and adverse reactions, and the quality,
efficacy and safety of the pharmaceutical. A person intending to
obtain Marketing Approval must attach materials, such as data
related to the results of clinical trials (including a
bioequivalency study) or conditions of usage in foreign
countries. Japan provides for market exclusivity through a
re-examination system, which prevents the entry of generic
pharmaceuticals until the end of the re-examination period,
which can be up to eight years.
14
The authority to grant Marketing Approval in relation to
pharmaceuticals for certain specified purposes (e.g., cold
medicines and decongestants) is delegated to the prefectural
governors by the Minister, and applications in relation to such
pharmaceuticals must be filed with the governor of the relevant
prefecture where the relevant companys head office is
located. Applications for pharmaceuticals for which the
authority to grant the Marketing Approval remains with the
Ministry must be filed with the Pharmaceuticals and Medical
Devices Agency. When an application is submitted for a
pharmaceutical whose active ingredients, quantities,
administration and dosage, method of use, indications and
effects are distinctly different from those of pharmaceuticals
which have already been approved, the Ministry must seek the
opinion of the Pharmaceutical Affairs and Food Sanitation
Council.
The Pharmaceutical Law provides that when the pharmaceutical
that is the subject of an application is shown not to result in
the indicated effects or performance indicated in the
application, or when the pharmaceutical is found to have no
value as a pharmaceutical because it has harmful effects
outweighing its indicated effects or performance, Marketing
Approval shall not be granted.
The Ministry can order the cancellation or amendment of a
Marketing Approval when (1) it is necessary to do so from
the viewpoint of public health and hygiene, (2) the
necessary materials for re-examination or re-valuation, which
the Minister has ordered considering the character of
pharmaceuticals, have not been submitted, false materials have
been submitted or the materials submitted do not comply with the
criteria specified by the Ministry, (3) the relevant
companys Marketing License has expired or has been
canceled (a Marketing License needs to be renewed every five
years), (4) the regulations regarding investigations of
facilities in relation to manufacturing management standards or
quality control have been violated or (5) the conditions
set in relation to the Marketing Approval have been violated.
Doctors and pharmacists providing medical services pursuant to
state medical insurance are prohibited from using
pharmaceuticals other than those specified by the Ministry. The
Ministry also specifies the standards of pharmaceutical prices,
which we refer to herein as Drug Price Standards. The Drug Price
Standards are used as the basis of the calculation of the price
paid by medical insurance for pharmaceuticals. The governmental
policy relating to medical services and the health insurance
system, as well as the Drug Price Standards, are revised every
two years.
Specialty
Segment
The process required by the FDA before a pharmaceutical product
with active ingredients that have not been previously approved
may be marketed in the United States generally involves the
following:
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laboratory and preclinical tests;
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submission of an Investigational New Drug (IND)
application, which must become effective before clinical studies
may begin;
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adequate and well-controlled human clinical studies to establish
the safety and efficacy of the proposed product for its intended
use;
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submission of an NDA containing the results of the preclinical
tests and clinical studies establishing the safety and efficacy
of the proposed product for its intended use, as well as
extensive data addressing matters such as manufacturing and
quality assurance;
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scale-up to
commercial manufacturing; and
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FDA approval of an NDA.
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Preclinical tests include laboratory evaluation of the product
and its chemistry, formulation and stability, as well as
toxicology and pharmacology studies to help define the
pharmacological profile of the drug and assess the potential
safety and efficacy of the product. The results of these studies
are submitted to the FDA as part of the IND. They must
demonstrate that the product delivers sufficient quantities of
the drug to the bloodstream or intended site of action to
produce the desired therapeutic results, before human clinical
trials may begin. These studies must also provide the
appropriate supportive safety information necessary for the FDA
to determine whether the clinical studies proposed to be
conducted under the IND can safely proceed. The IND
automatically becomes effective
15
30 days after receipt by the FDA unless the FDA, during
that 30-day
period, raises concerns or questions about the conduct of the
proposed trials, as outlined in the IND. In such cases, the IND
sponsor and the FDA must resolve any outstanding concerns before
clinical trials may begin. In addition, an independent
institutional review board must review and approve any clinical
study prior to initiation.
Human clinical studies are typically conducted in three
sequential phases, which may overlap:
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Phase I: The drug is initially introduced into
a relatively small number of healthy human subjects or patients
and is tested for safety, dosage tolerance, mechanism of action,
absorption, metabolism, distribution and excretion.
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Phase II: Studies are performed with a limited
patient population to identify possible adverse effects and
safety risks, to assess the efficacy of the product for specific
targeted diseases or conditions, and to determine dosage
tolerance and optimal dosage.
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Phase III: When Phase II evaluations
demonstrate that a dosage range of the product is effective and
has an acceptable safety profile, Phase III trials are
undertaken to evaluate further dosage and clinical efficacy and
to test further for safety in an expanded patient population at
geographically dispersed clinical study sites.
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The results of the product development, preclinical studies and
clinical studies are then submitted to the FDA as part of the
NDA. The NDA drug development and approval process could take
from three to more than ten years.
All pharmaceutical manufacturers are subject to extensive,
complex and evolving regulation by the federal government,
principally the FDA and, to a lesser extent, other federal and
state government agencies. The Federal Food, Drug, and Cosmetic
Act, the Controlled Substances Act, the Hatch-Waxman Act, the
Generic Drug Enforcement Act, and other federal government
statutes and regulations govern or influence the testing,
manufacturing, packaging, labeling, storage, recordkeeping,
safety, approval, advertising, promotion, sale and distribution
of products.
A sponsor of an NDA is required to identify in its application
any patent that claims the drug or a use of the drug that is the
subject of the application. Upon NDA approval, the FDA lists the
approved drug product and these patents in the Orange
Book. Any applicant that files an ANDA seeking approval of
a generic equivalent version of a referenced brand drug before
expiration of the referenced patent(s) must certify to the FDA
either that the listed patent is not infringed or that it is
invalid or unenforceable (a Paragraph IV certification). If
the holder of the NDA sues, claiming infringement or
invalidation, within 45 days of notification by the
applicant, the FDA may not approve the ANDA application until
the earlier of the rendering of a court decision favorable to
the ANDA applicant or the expiration of 30 months.
In addition to patent exclusivity, the holder of the NDA for the
listed drug may be entitled to a period of non-patent market
exclusivity, during which the FDA cannot approve an application
for a bioequivalent product. If the listed drug is a new
chemical entity, the FDA may not accept an ANDA for a
bioequivalent product for up to five years following approval of
the NDA for the new chemical entity. If it is not a new chemical
entity, but the holder of the NDA conducted clinical trials
essential to approval of the NDA or a supplement thereto, the
FDA may not approve an ANDA for a bioequivalent product before
the expiration of three years. Certain other periods of
exclusivity may be available if the listed drug is indicated for
treatment of a rare disease or is studied for pediatric
indications.
Facilities, procedures, operations
and/or
testing of products are subject to periodic inspection by the
FDA, the DEA and other authorities. In addition, the FDA
conducts pre-approval and post-approval reviews and plant
inspections to determine whether our systems and processes are
in compliance with good manufacturing practices in the
U.S. and other FDA regulations. Certain suppliers are
subject to similar regulations and periodic inspections.
Matrix
Segment
The regulatory process by which API manufacturers generally
register their products for commercial sale in the U.S. and
other similarly regulated countries is via the filing of a DMF.
DMFs are confidential documents containing information on the
manufacturing facility and processes used in the manufacture,
characterization, quality control, packaging and storage of an
API. The DMF is reviewed for completeness by the FDA, or other
16
similar regulatory agencies in other countries, in conjunction
with applications filed by FDF manufacturers, requesting
approval to use the given API in the production of their drug
products. During the calendar year ended December 31, 2008,
Matrix filed 20 DMFs in the U.S. and 42 DMFs/Certification
of Suitability of European Pharmacopoeia Monographs in the rest
of the world.
Patents,
Trademarks and Licenses
We own or license a number of patents in the U.S. and other
countries covering certain products and have also developed
brand names and trademarks for other products. Generally, the
brand pharmaceutical business relies upon patent protection to
ensure market exclusivity for the life of the patent. We
consider the overall protection of our patents, trademarks and
license rights to be of material value and act to protect these
rights from infringement. However, our business is not dependent
upon any single patent, trademark or license.
In the branded pharmaceutical industry, the majority of an
innovative products commercial value is usually realized
during the period in which the product has market exclusivity.
In the U.S. and some other countries, when market
exclusivity expires and generic versions of a product are
approved and marketed, there can often be very substantial and
rapid declines in the products sales. The rate of this
decline varies by country and by therapeutic category; however,
following patent expiration, branded products often continue to
have market viability based upon the goodwill of the product
name, which typically benefits from trademark protection.
A products market exclusivity is generally determined by
two forms of intellectual property: patent rights held by the
innovator company and any regulatory forms of exclusivity to
which the innovator is entitled.
Patents are a key determinant of market exclusivity for most
branded pharmaceuticals. Patents provide the innovator with the
right to exclude others from practicing an invention related to
the medicine. Patents may cover, among other things, the active
ingredient(s), various uses of a drug product, pharmaceutical
formulations, drug delivery mechanisms and processes for (or
intermediates useful in) the manufacture of products. Protection
for individual products extends for varying periods in
accordance with the expiration dates of patents in the various
countries. The protection afforded, which may also vary from
country to country, depends upon the type of patent, its scope
of coverage and the availability of meaningful legal remedies in
the country.
Market exclusivity is also sometimes influenced by regulatory
intellectual property rights. Many developed countries provide
certain non-patent incentives for the development of medicines.
For example, the U.S., the EU and Japan each provide for a
minimum period of time after the approval of a new drug during
which the regulatory agency may not rely upon the
innovators data to approve a competitors generic
copy. Regulatory intellectual property rights are also available
in certain markets as incentives for research on new
indications, on orphan drugs and on medicines useful in treating
pediatric patients. Regulatory intellectual property rights are
independent of any patent rights that we may possess and can be
particularly important when a drug lacks broad patent
protection. However, most regulatory forms of exclusivity do not
prevent a competitor from gaining regulatory approval prior to
the expiration of regulatory data exclusivity on the basis of
the competitors own safety and efficacy data on its drug,
even when that drug is identical to that marketed by the
innovator.
We estimate the likely market exclusivity period for each of our
branded products on a
case-by-case
basis. It is not possible to predict the length of market
exclusivity for any of our branded products with certainty
because of the complex interaction between patent and regulatory
forms of exclusivity, and inherent uncertainties concerning
patent litigation. There can be no assurance that a particular
product will enjoy market exclusivity for the full period of
time that the Company currently estimates or that the
exclusivity will be limited to the estimate.
In addition to patents and regulatory forms of exclusivity, we
also market products with trademarks. Trademarks have no effect
on market exclusivity for a product, but are considered to have
marketing value. Trademark protection continues in some
countries as long as used; in other countries, as long as
registered. Registration is for fixed terms and can be renewed
indefinitely.
As part of the former Merck Generics business acquisition, we
entered into a Brand License Agreement with Merck KGaA which
generally grants us the right to use the Merck name for the
acquired businesses for a period of up to two years from the
date the acquisition was consummated. As such, the Company has
developed and is implementing a country by country re-branding
plan that includes regulatory, logistical and marketing aspects,
17
including renaming certain of the acquired businesses,
re-labeling certain products and incurring certain other related
costs.
Customers
and Marketing
Generics
Segment
In North America, we market products directly to wholesalers,
distributors, retail pharmacy chains, mail order pharmacies and
group purchasing organizations. We also market our generic
products indirectly to independent pharmacies, managed care
organizations, hospitals, nursing homes, pharmacy benefit
management companies and government entities. These customers,
called indirect customers, purchase our products
primarily through our wholesale customers.
In EMEA and Asia Pacific, generic pharmaceuticals are sold to
wholesalers, pharmacy groups, independent pharmacies and, in
certain countries, directly to hospitals. Through a broad
network of sales representatives, we adapt our marketing
strategy to the different markets as dictated by their
respective regulatory and competitive landscapes.
During the calendar year ended December 31, 2008, sales to
McKesson Corporation and Cardinal Health, Inc. represented 12%
and 10% of consolidated net revenues. Sales to Cardinal Health,
Inc. and McKesson Corporation represented 11% and 16% of
consolidated net revenues during the nine months ended
December 31, 2007. Sales to AmerisourceBergen Corporation,
Cardinal Health, Inc. and McKesson Corporation represented
approximately 13%, 18% and 19%, respectively, of consolidated
net revenues in fiscal 2007.
Matrix
Segment
Our APIs are sold primarily to generic FDF manufacturers
throughout the world.
Specialty
Segment
Dey markets its products to the same types of customers as our
Generics Segment. Additionally, national and regional health
home care are important customers for our nebulized products.
Through our approximately 280 employee field-based sales
force, we market to health care practitioners, to increase their
understanding of the unique clinical characteristics of our
branded products.
Consistent with industry practice, we have a return policy that
allows our customers to return product within a specified period
prior to and subsequent to the expiration date. See the
Application of Critical Accounting Policies section of our
Managements Discussion and Analysis of Results of
Operations and Financial Condition for a discussion of
several of our revenue recognition provisions.
Competition
Our primary competitors include other generic companies (several
major multinational generic drug companies and various local
generic drug companies) and branded drug companies that continue
to sell or license branded pharmaceutical products after patent
expirations and other statutory expirations.
Competitive factors in the major markets in which we participate
can be summarized as follows:
United States. The U.S. pharmaceutical
industry is very competitive. Our competitors vary depending
upon therapeutic areas and product categories. Primary
competitors include the major manufacturers of brand name and
generic pharmaceuticals.
The primary means of competition are innovation and development,
timely FDA approval, manufacturing capabilities, product
quality, marketing, customer service, reputation and price. To
compete effectively on the basis of price and remain profitable,
a generic drug manufacturer must manufacture its products in a
cost-effective manner. Our competitors include other generic
manufacturers, as well as brand companies that license their
products to generic manufacturers prior to patent expiration or
as relevant patents expire. No further regulatory
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approvals are required for a brand manufacturer to sell its
pharmaceutical products directly or through a third-party to the
generic market, nor do such manufacturers face any other
significant barriers to entry into such market.
The U.S. pharmaceutical market is undergoing, and is
expected to continue to undergo, rapid and significant
technological changes, and we expect competition to intensify as
technological advances are made. We intend to compete in this
marketplace by (1) developing therapeutic equivalents to
branded products that offer unique marketing opportunities, are
difficult to formulate
and/or have
significant market size, (2) developing or licensing brand
pharmaceutical products that are either patented or proprietary
and (3) developing or licensing brand pharmaceutical
products that are primarily for indications having relatively
large patient populations or that have limited or inadequate
treatments available.
Our sales can be impacted by new studies that indicate that a
competitors product has greater efficacy for treating a
disease or particular form of a disease than one of our
products. Our sales also can be impacted by additional labeling
requirements relating to safety or convenience that may be
imposed on our products by the FDA or by similar regulatory
agencies in different countries. If competitors introduce new
products and processes with therapeutic or cost advantages, our
products can be subject to progressive price reductions
and/or
decreased volume of sales.
France. Generic penetration in France is
relatively low compared to other large pharmaceutical markets,
with low prices resulting from government initiatives. As
pharmacists are the primary customers in this market,
established relationships, driven by breadth of portfolio and
effective supply chain management, are key competitive
advantages.
United Kingdom. The U.K. is one of the most
competitive markets, with low barriers to entry and a high
degree of fragmentation. Competition among manufacturers, along
with indirect control of pricing by the government, has led to
strong downward pricing pressure. Companies in the U.K. will
continue to compete on price, with consistent supply chain and
breadth of product portfolio also coming into play.
Germany. The German market has become highly
competitive as a result of a large number of generic players and
one of the highest generic penetration rates in Europe. The
German market is primarily branded generics, with physicians and
pharmacists having a great deal of influence over which
companys products are dispensed. Recent legislation has
resulted in pricing pressures, which, along with the desire by
health insurers to deal with a select number of generic
suppliers, should drive near-term competition.
Spain. Spain is a rapidly growing, highly
fragmented generic market with over 100 market participants.
Certain regions permit generic substitution by pharmacists,
while others do not. As such, physicians
and/or
pharmacists are the key drivers of generic usage depending upon
the region. Companies compete in Spain based on name
recognition, service level and a consistent supply of quality
products.
Italy. The Italian generic market is
relatively small due in part to low prices on available
brand-name drugs. Also to be considered is the fact that the
generic market in Italy suffered a certain delay compared to
other European countries due to extended patent protection. The
Italian government has put forth measures aimed at increasing
generic usage; however, generic substitution is still in its
early stages.
Australia. The Australian generic market is
small by international standards, in terms of prescriptions,
value and the number of active participants. Patent extensions
that delayed patent expiration are somewhat responsible for
under-penetration of generic products.
Japan. The Japanese generic market is small by
international standards. Historically, government initiatives
have kept all drug prices low, resulting in little incentive for
generic usage. More recent pro-generic actions by the government
should lead to growth in the generics market, in which doctors,
pharmacists and hospital purchasers will all play a key role.
India. Intense competition by other API
suppliers in the Indian pharmaceuticals market has, in recent
years, led to increased pressure on prices. We expect that
Indian pharmaceutical industry growth will be led by the export
of API and generic FDF products to developed markets. The
success of Indian pharmaceutical companies is attributable to
established development expertise in chemical synthesis and
process engineering, availability of highly skilled labor and
the low-cost manufacturing base.
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Product
Liability
Product liability litigation represents an inherent risk to
firms in the pharmaceutical industry. Our insurance coverage at
any given time reflects market conditions, including cost and
availability, existing at the time the policy is written, and
the decision to obtain insurance coverage or to self-insure
varies accordingly.
We utilize a combination of self-insurance (through our
wholly-owned captive insurance subsidiary) and traditional
third-party insurance policies to cover product liability
claims. We are self-insured for the first $15.0 million of
costs incurred relating to product liability claims and maintain
third-party insurance that provides, subject to specified
co-insurance requirements, significant coverage limits in excess
of our initial self-insured layer. Furthermore, outside of the
U.S., we purchased a commercial insurance policy in each country
that complies with the local country insurance laws and is
reinsured to our wholly-owned captive insurance subsidiary.
Additionally, certain subsidiaries in highly regulated countries
maintain commercial coverage up to $15.0 million with
minimal retentions.
Raw
Materials
Mylan utilizes a global approach to managing relationships with
its suppliers. The purchase of a controlling interest in Matrix
provides Mylan with significant vertical integration
opportunities that have been significantly enhanced with the
purchase of the former Merck Generics business. The APIs and
other materials and supplies used in our pharmaceutical
manufacturing operations are generally available and purchased
from many different domestic and foreign suppliers, including
Matrix. However, in some cases, the raw materials used to
manufacture pharmaceutical products are available only from a
single supplier. Even when more than one supplier exists, we may
choose, and in some cases have chosen, only to list one supplier
in our applications submitted to the FDA. Any change in a
supplier not previously approved must then be submitted through
a formal approval process with the FDA.
Seasonality
Our business is not materially affected by seasonal factors.
Environment
We believe that our operations comply in all material respects
with applicable laws and regulations concerning the environment.
While it is impossible to predict accurately the future costs
associated with environmental compliance and potential
remediation activities, compliance with environmental laws is
not expected to require significant capital expenditures and has
not had, and is not expected to have, a material adverse effect
on our earnings or competitive position.
Employees
We currently employ more than 15,000 people globally, made
up of approximately 12,000 permanent employees and approximately
3,000 temporary employees. The production and maintenance
employees at our manufacturing facility in Morgantown, West
Virginia, are represented by the United Steelworkers of America
(USW) (AFL-CIO) and its Local Union 957 AFL-CIO under a contract
that expires on April 15, 2012. In addition, there are
non-U.S. Mylan
locations, primarily concentrated in Europe and India, that have
employees who are unionized or part of works councils or trade
unions.
Securities
Exchange Act Reports
The Company maintains an Internet website at the following
address: www.mylan.com. We make available on or through our
Internet website certain reports and amendments to those reports
that we file with the Securities and Exchange Commission (the
SEC) in accordance with the Securities Exchange Act
of 1934. These include our annual reports on
Form 10-K,
our quarterly reports on
Form 10-Q
and our current reports on
Form 8-K.
We make this information available on our website free of
charge, as soon as reasonably practicable after we
electronically
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file the information with, or furnish it to, the SEC. The
contents of our website are not incorporated by reference in
this Report on
Form 10-K
and shall not be deemed filed under the Securities
Exchange Act of 1934. The public may also read and copy any
materials that we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information about
the Public Reference Room by contacting the SEC at
1-800-SEC-0330.
Reports filed with the SEC are also made available on the SEC
website (www.sec.gov).
The following risk factors could have a material adverse effect
on our business, financial position or results of operations and
could cause the market value of our common stock to decline.
These risk factors may not include all of the important factors
that could affect our business or our industry or that could
cause our future financial results to differ materially from
historic or expected results or cause the market price of our
common stock to fluctuate or decline.
CURRENT ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR
INDUSTRY, BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS
AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO
DECLINE.
The global economy is currently undergoing a period of
unprecedented volatility, and the future economic environment
may continue to be less favorable than that of recent years.
This has led, and could further lead, to reduced consumer
spending in the foreseeable future, and this may include
spending on healthcare. While generic drugs present an ideal
alternative to higher-priced branded products, our sales could
be negatively impacted if patients forego obtaining healthcare.
In addition, reduced consumer spending may drive us and our
competitors to decrease prices. These conditions may adversely
affect our industry, business, financial position and results of
operations and may cause the market value of our common stock to
decline.
OUR ACQUISITION OF THE FORMER MERCK GENERICS BUSINESS
INVOLVES A NUMBER OF INTEGRATION RISKS. THESE RISKS COULD CAUSE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION
AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF
OUR COMMON STOCK TO DECLINE.
Our acquisition of the former Merck Generics business involves a
number of integration risks, including but not limited to:
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difficulties in successfully integrating the operations and
personnel of the former Merck Generics business with our
historical business and corporate culture;
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difficulties in achieving identified financial and operating
synergies;
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diversion of managements attention from our ongoing
business concerns to integration matters;
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the potential loss of key personnel or customers;
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difficulties in consolidating information technology platforms
and business applications and the build up of additional
corporate infrastructure;
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difficulties in transitioning the former Merck Generics business
and products from the Merck name to achieve a global
brand alignment;
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our substantial indebtedness and assumed liabilities;
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the incurrence of significant additional capital expenditures,
operating expenses and non-recurring acquisition-related charges;
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challenges in operating in other markets outside of the United
States that are new to us; and
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unanticipated effects of export controls, exchange rate
fluctuations, domestic and foreign political conditions or
domestic and foreign economic conditions.
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These factors could impair our growth and ability to compete,
require us to focus additional resources on integration of
operations rather than other profitable areas, or otherwise
cause a material adverse effect on our
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business, financial position and results of operations and could
cause a decline in the market value of our common stock.
WE MAY FAIL TO REALIZE THE EXPECTED COST SAVINGS, GROWTH
OPPORTUNITIES AND OTHER BENEFITS ANTICIPATED FROM THE
ACQUISITIONS OF THE FORMER MERCK GENERICS BUSINESS AND A
CONTROLLING INTEREST IN MATRIX. ANY SUCH FAILURE MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND
RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR
COMMON STOCK TO DECLINE.
The success of the acquisitions of the former Merck Generics
business and a controlling interest in Matrix will depend, in
part, on our ability to realize anticipated cost savings,
revenue synergies and growth opportunities from integrating the
businesses. We expect to benefit from operational cost savings
resulting from the consolidation of capabilities and elimination
of redundancies as well as greater efficiencies from increased
scale and market integration.
There is a risk, however, that the businesses may not be
combined in a manner that permits these costs savings or
synergies to be realized in the time currently expected, or at
all. This may limit or delay our ability to integrate the
companies manufacturing, research and development,
marketing, organizations, procedures, policies and operations.
In addition, a variety of factors, including, but not limited
to, wage inflation and currency fluctuations, may adversely
affect our anticipated cost savings and revenues.
Also, we may be unable to achieve our anticipated cost savings
and synergies without adversely affecting our revenues. If we
are not able to successfully achieve these objectives, the
anticipated benefits of these acquisitions may not be realized
fully, or at all, or may take longer to realize than expected.
These factors could impair our growth and ability to compete,
require us to focus additional resources on integration of
operations rather than other profitable areas, or otherwise
cause a material adverse effect on our business, financial
position and results of operations and could cause a decline in
the market value of our common stock.
WE HAVE GROWN AT A VERY RAPID PACE. OUR INABILITY TO PROPERLY
MANAGE OR SUPPORT THIS GROWTH MAY HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS
AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO
DECLINE.
We have grown very rapidly over the past few years, through our
acquisitions of the former Merck Generics business and a
controlling interest in Matrix. This growth has put significant
demands on our processes, systems and people. We expect to make
further investments in additional personnel, systems and
internal control processes to help manage our growth.
Attracting, retaining and motivating key employees in various
departments and locations to support our growth is critical to
our business, and competition for these people can be intense.
If we are unable to hire and retain qualified employees and if
we do not continue to invest in systems and processes to manage
and support our rapid growth, there may be a material adverse
effect on our business, financial position and results of
operations, and the market value of our common stock could
decline.
OUR GLOBAL EXPANSION THROUGH THE ACQUISITIONS OF THE FORMER
MERCK GENERICS BUSINESS AND A CONTROLLING INTEREST IN MATRIX
EXPOSES US TO ADDITIONAL RISKS WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
With our acquisitions of the former Merck Generics business and
a controlling interest in Matrix, our operations extend to
numerous countries outside the United States. Operating globally
exposes us to certain additional risks including, but not
limited to:
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compliance with a variety of national and local laws of
countries in which we do business, including restrictions on the
import and export of certain intermediates, drugs and
technologies;
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changes in laws, regulations, and practices affecting the
pharmaceutical industry and the healthcare system, including but
not limited to imports, exports, manufacturing, cost, pricing,
reimbursement, approval, inspection, and delivery of healthcare;
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fluctuations in exchange rates for transactions conducted in
currencies other than the functional currency;
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adverse changes in the economies in which we operate as a result
of a slowdown in overall growth, a change in government or
economic liberalization policies, or financial, political or
social instability in such countries that affects the markets in
which we operate, particularly emerging markets;
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wage increases or rising inflation in the countries in which we
operate;
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supply disruptions, and increases in energy and transportation
costs;
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natural disasters, including droughts, floods and earthquakes in
the countries in which we operate;
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communal disturbances, terrorist attacks, riots or regional
hostilities in the countries in which we operate; and
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government uncertainty, including as a result of new or changed
laws and regulations.
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We also face the risk that some of our competitors have more
experience with operations in such countries or with
international operations generally. Certain of the above factors
could have a material adverse effect on our business, financial
position and results of operations and could cause a decline in
the market value of our common stock.
OUR FUTURE REVENUE GROWTH AND PROFITABILITY ARE DEPENDENT
UPON OUR ABILITY TO DEVELOP AND/OR LICENSE, OR OTHERWISE
ACQUIRE, AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS IN
RELATION TO OUR COMPETITORS PRODUCT INTRODUCTIONS. OUR
FAILURE TO DO SO SUCCESSFULLY COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF
OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK
TO DECLINE.
Our future revenues and profitability will depend, to a
significant extent, upon our ability to successfully develop
and/or
license, or otherwise acquire and commercialize, new generic and
patent or statutorily protected pharmaceutical products in a
timely manner. Product development is inherently risky,
especially for new drugs for which safety and efficacy have not
been established and the market is not yet proven. Likewise,
product licensing involves inherent risks including
uncertainties due to matters that may affect the achievement of
milestones, as well as the possibility of contractual
disagreements with regard to terms such as license scope or
termination rights. The development and commercialization
process, particularly with regard to new drugs, also requires
substantial time, effort and financial resources. We, or a
partner, may not be successful in commercializing any of such
products on a timely basis, if at all, which could adversely
affect our business, financial position and results of
operations and could cause the market value of our common stock
to decline.
Before any prescription drug product, including generic drug
products, can be marketed, marketing authorization approval is
required by the relevant regulatory authorities
and/or
national regulatory agencies (for example the FDA in the United
States and the EMA in the EU). The process of obtaining
regulatory approval to manufacture and market new and generic
pharmaceutical products is rigorous, time consuming, costly and
largely unpredictable. Outside the United States, the approval
process may be more or less rigorous, and the time required for
approval may be longer or shorter than that required in the
United States. Bioequivalency studies conducted in one country
may not be accepted in other countries, and the approval of a
pharmaceutical product in one country does not necessarily mean
that the product will be approved in another country. We, or a
partner, may be unable to obtain requisite approvals on a timely
basis for new generic or branded products that we may develop,
license or otherwise acquire. Moreover, if we obtain regulatory
approval for a drug it may be limited with respect to the
indicated uses and delivery methods for which the drug may be
marketed, which could in turn restrict our potential market for
the drug. Also, for products pending approval, we may obtain raw
materials or produce batches of inventory to be used in efficacy
and bioequivalence testing, as well as in anticipation of the
products launch. In the event that regulatory approval is
denied or delayed, we could be exposed to the risk of this
inventory becoming obsolete. The timing and
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cost of obtaining regulatory approvals could adversely affect
our product introduction plans, business, financial position and
results of operations and could cause the market value of our
common stock to decline.
The approval process for generic pharmaceutical products often
results in the relevant regulatory agency granting final
approval to a number of generic pharmaceutical products at the
time a patent claim for a corresponding branded product or other
market exclusivity expires. This often forces us to face
immediate competition when we introduce a generic product into
the market. Additionally, further generic approvals often
continue to be granted for a given product subsequent to the
initial launch of the generic product. These circumstances
generally result in significantly lower prices, as well as
reduced margins, for generic products compared to branded
products. New generic market entrants generally cause continued
price and margin erosion over the generic product life cycle.
In the United States, the Hatch-Waxman Act provides for a period
of 180 days of generic marketing exclusivity for each ANDA
applicant that is first-to-file an ANDA containing a
certification of invalidity, non-infringement or
unenforceability related to a patent listed with respect to a
reference drug product, commonly referred to as a
Paragraph IV certification. During this exclusivity period,
which under certain circumstances may be required to be shared
with other applicable ANDA sponsors with Paragraph IV
certifications, the FDA cannot grant final approval to other
ANDA sponsors holding applications for the same generic
equivalent. If an ANDA containing a Paragraph IV
certification is successful and the applicant is awarded
exclusivity, the applicant generally enjoys higher market share,
net revenues and gross margin for that product. Even if we
obtain FDA approval for our generic drug products, if we are not
the first ANDA applicant to challenge a listed patent for such a
product, we may lose significant advantages to a competitor that
filed its ANDA containing such a challenge. The same would be
true in situations where we are required to share our
exclusivity period with other ANDA sponsors with
Paragraph IV certifications. Such situations could have a
material adverse effect on our ability to market that product
profitably and on our business, financial position and results
of operations, and the market value of our common stock could
decline.
In Europe, there is no exclusivity period for the first generic.
The EMA or national regulatory agencies may grant marketing
authorizations to any number of generics. However, if there are
other relevant patents when the core patent expires, for
example, new formulations, the owner of the original brand
pharmaceutical may be able to obtain preliminary injunctions in
certain European jurisdictions preventing launch of the generic
product, if the generic company did not commence proceedings in
a timely manner to invalidate any relevant patents prior to
launch of its generic.
In addition, in jurisdictions other than the United States, we
may face similar regulatory hurdles and constraints. If we are
unable to navigate our products through all of the regulatory
hurdles we face in a timely manner it could adversely affect our
product introduction plans, business, financial position and
results of operations and could cause the market value of our
common stock to decline.
IF THE INTERCOMPANY TERMS OF CROSS BORDER ARRANGEMENTS WE
HAVE AMONG OUR SUBSIDIARIES ARE DETERMINED TO BE INAPPROPRIATE,
OUR TAX LIABILITY MAY INCREASE, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
We have potential tax exposures resulting from the varying
application of statutes, regulations and interpretations which
include exposures on intercompany terms of cross border
arrangements among our subsidiaries in relation to various
aspects of our business, including manufacturing, marketing,
sales and delivery functions. Although our cross border
arrangements between affiliates are based upon internationally
accepted standards, tax authorities in various jurisdictions may
disagree with and subsequently challenge the amount of profits
taxed in their country, which may result in increased tax
liability, including accrued interest and penalties, which would
cause our tax expense to increase. This could have a material
adverse effect on our business, financial position and results
of operations and could cause the market value of our common
stock to decline.
OUR APPROVED PRODUCTS MAY NOT ACHIEVE EXPECTED LEVELS OF
MARKET ACCEPTANCE, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR PROFITABILITY,
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BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND
COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.
Even if we are able to obtain regulatory approvals for our new
pharmaceutical products, generic or branded, the success of
those products is dependent upon market acceptance. Levels of
market acceptance for our new products could be impacted by
several factors, including but not limited to:
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the availability of alternative products from our competitors;
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the price of our products relative to that of our competitors;
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the timing of our market entry;
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the ability to market our products effectively to the retail
level; and
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the acceptance of our products by government and private
formularies.
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Some of these factors are not within our control. Additionally,
continuing studies of the proper utilization, safety and
efficacy of pharmaceutical products are being conducted by the
industry, government agencies and others. Such studies, which
increasingly employ sophisticated methods and techniques, can
call into question the utilization, safety and efficacy of
previously marketed products. In some cases, studies have
resulted, and may in the future result, in the discontinuance of
product marketing or other risk management programs such as the
need for a patient registry. These situations, should they
occur, could have a material adverse effect on our
profitability, business, financial position and results of
operations, and could cause the market value of our common stock
to decline.
A RELATIVELY SMALL GROUP OF PRODUCTS MAY REPRESENT A
SIGNIFICANT PORTION OF OUR NET REVENUES, GROSS PROFIT OR NET
EARNINGS FROM TIME TO TIME. IF THE VOLUME OR PRICING OF ANY OF
THESE PRODUCTS DECLINES, IT COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS
AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO
DECLINE.
Sales of a limited number of our products often represent a
significant portion of our net revenues, gross profit and net
earnings. If the volume or pricing of our largest selling
products declines in the future, our business, financial
position and results of operations could be materially adversely
affected, and the market value of our common stock could decline.
WE FACE VIGOROUS COMPETITION FROM OTHER PHARMACEUTICAL
MANUFACTURERS THAT THREATENS THE COMMERCIAL ACCEPTANCE AND
PRICING OF OUR PRODUCTS. SUCH COMPETITION COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
The generic pharmaceutical industry is highly competitive. We
face competition from many U.S. and international
manufacturers, some of whom are significantly larger than we
are. Our competitors may be able to develop products and
processes competitive with or superior to our own for many
reasons, including but not limited to the possibility that they
may have:
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proprietary processes or delivery systems;
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larger research and development and marketing staffs;
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larger production capabilities in a particular therapeutic area;
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more experience in preclinical testing and human clinical trials;
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more products; or
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more experience in developing new drugs and greater financial
resources, particularly with regard to manufacturers of branded
products.
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25
Any of these factors and others could have a material adverse
effect on our business, financial position and results of
operations and could cause the market value of our common stock
to decline.
BECAUSE THE PHARMACEUTICAL INDUSTRY IS HEAVILY REGULATED, WE
FACE SIGNIFICANT COSTS AND UNCERTAINTIES ASSOCIATED WITH OUR
EFFORTS TO COMPLY WITH APPLICABLE REGULATIONS. SHOULD WE FAIL TO
COMPLY, WE COULD EXPERIENCE MATERIAL ADVERSE EFFECTS ON OUR
BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE
MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.
The pharmaceutical industry is subject to regulation by various
governmental authorities. For instance, we must comply with
requirements of the FDA and similar requirements of similar
agencies in our other markets with respect to the manufacture,
labeling, sale, distribution, marketing, advertising, promotion
and development of pharmaceutical products. Failure to comply
with regulations of the FDA and other regulators can result in
fines, disgorgement, unanticipated compliance expenditures,
recall or seizure of products, total or partial suspension of
production
and/or
distribution, suspension of the applicable regulators
review of our submissions, enforcement actions, injunctions and
criminal prosecution. Under certain circumstances, the
regulators may also have the authority to revoke previously
granted drug approvals. Although we have internal regulatory
compliance programs and policies and have had a favorable
compliance history, there is no guarantee that these programs,
as currently designed, will meet regulatory agency standards in
the future. Additionally, despite our efforts at compliance,
there is no guarantee that we may not be deemed to be deficient
in some manner in the future. If we were deemed to be deficient
in any significant way, our business, financial position and
results of operations could be materially affected and the
market value of our common stock could decline.
In Europe we must also comply with regulatory requirements with
respect to the manufacture, labeling, sale, distribution,
marketing, advertising, promotion and development of
pharmaceutical products. Some of these requirements are
contained in EU regulations and governed by the EMA. Other
requirements are set down in national laws and regulations of
the EU Member States. Failure to comply with the regulations can
result in a range of fines, penalties, product
recalls/suspensions or even criminal liability. Similar laws and
regulations exist in most of the markets in which we operate.
In addition to the new drug approval process, government
agencies also regulate the facilities and operational procedures
that we use to manufacture our products. We must register our
facilities with the FDA and other similar regulators. Products
manufactured in our facilities must be made in a manner
consistent with current good manufacturing practices, or similar
standards in each territory in which we manufacture. Compliance
with such regulations requires substantial expenditures of time,
money and effort in such areas as production and quality control
to ensure full technical compliance. The FDA and other agencies
periodically inspect our manufacturing facilities for
compliance. Regulatory approval to manufacture a drug is
site-specific. Failure to comply with good manufacturing
practices at one of our manufacturing facilities could result in
an enforcement action brought by the FDA or other regulatory
bodies which could include withholding the approval of our
submissions or other product applications of that facility. If
any regulatory body were to require one of our manufacturing
facilities to cease or limit production, our business could be
adversely affected. Delay and cost in obtaining FDA or other
regulatory approval to manufacture at a different facility also
could have a material adverse effect on our business, financial
position and results of operations and could cause the market
value of our common stock to decline.
We are subject, as are generally all manufacturers, to various
federal, state and local laws regulating working conditions, as
well as environmental protection laws and regulations, including
those governing the discharge of materials into the environment.
We are also required to comply with data protection and data
privacy rules in many countries. Although we have not incurred
significant costs associated with complying with environmental
provisions in the past, if changes to such environmental laws
and regulations are made in the future that require significant
changes in our operations or if we engage in the development and
manufacturing of new products requiring new or different
environmental controls, we may be required to expend significant
funds. Such changes could have a material adverse effect on our
business, financial position and results of operations and could
cause the market value of our common stock to decline.
OUR REPORTING AND PAYMENT OBLIGATIONS UNDER THE MEDICARE
AND/OR MEDICAID REBATE PROGRAM AND OTHER GOVERNMENTAL PURCHASING
AND REBATE PROGRAMS
26
ARE COMPLEX AND MAY INVOLVE SUBJECTIVE DECISIONS THAT COULD
CHANGE AS A RESULT OF NEW BUSINESS CIRCUMSTANCES, NEW REGULATORY
GUIDANCE, OR ADVICE OF LEGAL COUNSEL. ANY DETERMINATION OF
FAILURE TO COMPLY WITH THOSE OBLIGATIONS COULD SUBJECT US TO
PENALTIES AND SANCTIONS WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF
OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD
DECLINE.
The regulations regarding reporting and payment obligations with
respect to Medicare
and/or
Medicaid reimbursement and rebates and other governmental
programs are complex. As discussed elsewhere in this
Form 10-K
and other reports we file with the SEC, we and other
pharmaceutical companies are defendants in a number of suits
filed by state attorneys general and have been notified of an
investigation by the United States Department of Justice with
respect to Medicaid reimbursement and rebates. While we cannot
predict the outcome of the investigation, possible remedies
which the United States government could seek include treble
damages, civil monetary penalties and exclusion from the
Medicare and Medicaid programs. In connection with such an
investigation, the United States government may also seek a
Corporate Integrity Agreement (administered by the Office of
Inspector General of Health and Human Services) with us which
could include ongoing compliance and reporting obligations.
Because our processes for these calculations and the judgments
involved in making these calculations involve, and will continue
to involve, subjective decisions and complex methodologies,
these calculations are subject to the risk of errors. In
addition, they are subject to review and challenge by the
applicable governmental agencies, and it is possible that such
reviews could result in material changes. Further, effective
October 1, 2007, the Centers for Medicaid and Medicare
Services, or CMS, adopted new rules for Average
Manufacturers Price (AMP) based on the
provisions of the Deficit Reduction Act of 2005
(DRA). While the matter remains subject to
litigation and proposed legislation, one potential significant
change as a result of the DRA is that AMP would need to be
disclosed to the public. AMP was historically kept confidential
by the government and participants in the Medicaid program.
Disclosing AMP to competitors, customers, and the public at
large could negatively affect our leverage in commercial price
negotiations.
In addition, as also disclosed herein, a number of state and
federal government agencies are conducting investigations of
manufacturers reporting practices with respect to Average
Wholesale Prices (AWP) in which they have suggested
that reporting of inflated AWP has led to excessive payments for
prescription drugs. We and numerous other pharmaceutical
companies have been named as defendants in various actions
relating to pharmaceutical pricing issues and whether allegedly
improper actions by pharmaceutical manufacturers led to
excessive payments by Medicare
and/or
Medicaid.
Any governmental agencies that have commenced, or may commence,
an investigation of the Company could impose, based on a claim
of violation of fraud and false claims laws or otherwise, civil
and/or
criminal sanctions, including fines, penalties and possible
exclusion from federal health care programs including Medicare
and/or
Medicaid. Some of the applicable laws may impose liability even
in the absence of specific intent to defraud. Furthermore,
should there be ambiguity with regard to how to properly
calculate and report payments and even in the
absence of any such ambiguity a governmental
authority may take a position contrary to a position we have
taken, and may impose civil
and/or
criminal sanctions. Any such penalties or sanctions could have a
material adverse effect on our business, financial position and
results of operations and could cause the market value of our
common stock to decline.
WE EXPEND A SIGNIFICANT AMOUNT OF RESOURCES ON RESEARCH AND
DEVELOPMENT EFFORTS THAT MAY NOT LEAD TO SUCCESSFUL PRODUCT
INTRODUCTIONS. FAILURE TO SUCCESSFULLY INTRODUCE PRODUCTS INTO
THE MARKET COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET
VALUE OF OUR COMMON STOCK COULD DECLINE.
Much of our development effort is focused on technically
difficult-to-formulate products
and/or
products that require advanced manufacturing technology. We
conduct research and development primarily to enable us to
manufacture and market approved pharmaceuticals in accordance
with applicable regulations. Typically, research expenses
related to the development of innovative compounds and the
filing of marketing authorization applications for innovative
compounds (such as NDAs in the United States) are significantly
greater than those expenses
27
associated with the development of and filing of marketing
authorization applications for generic products (such as ANDAs
in the United States and abridged applications in Europe). As we
continue to develop new products, our research expenses will
likely increase. Because of the inherent risk associated with
research and development efforts in our industry, particularly
with respect to new drugs our, or a partners, research and
development expenditures may not result in the successful
introduction of new pharmaceutical products approved by the
relevant regulatory bodies. Also, after we submit a marketing
authorization application for a new compound or generic product,
the relevant regulatory authority may request that we conduct
additional studies and, as a result, we may be unable to
reasonably determine the total research and development costs to
develop a particular product. Finally, we cannot be certain that
any investment made in developing products will be recovered,
even if we are successful in commercialization. To the extent
that we expend significant resources on research and development
efforts and are not able, ultimately, to introduce successful
new products as a result of those efforts, our business,
financial position and results of operations may be materially
adversely affected, and the market value of our common stock
could decline.
A SIGNIFICANT PORTION OF OUR NET REVENUES IS DERIVED FROM
SALES TO A LIMITED NUMBER OF CUSTOMERS. ANY SIGNIFICANT
REDUCTION OF BUSINESS WITH ANY OF THESE CUSTOMERS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND
RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK
COULD DECLINE.
A significant portion of our net revenues is derived from sales
to a limited number of customers. If we were to experience a
significant reduction in or loss of business with one such
customer, or if one such customer were to experience difficulty
in paying us on a timely basis, our business, financial position
and results of operations could be materially adversely
affected, and the market value of our common stock could decline.
THE USE OF LEGAL, REGULATORY AND LEGISLATIVE STRATEGIES BY
COMPETITORS, BOTH BRAND AND GENERIC, INCLUDING AUTHORIZED
GENERICS AND CITIZENS PETITIONS, AS WELL AS THE
POTENTIAL IMPACT OF PROPOSED LEGISLATION, MAY INCREASE OUR COSTS
ASSOCIATED WITH THE INTRODUCTION OR MARKETING OF OUR GENERIC
PRODUCTS, COULD DELAY OR PREVENT SUCH INTRODUCTION AND/OR COULD
SIGNIFICANTLY REDUCE OUR PROFIT POTENTIAL. THESE FACTORS COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET
VALUE OF OUR COMMON STOCK TO DECLINE.
Our competitors, both branded and generic, often pursue
strategies to prevent or delay competition from generic
alternatives to branded products. These strategies include, but
are not limited to:
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entering into agreements whereby other generic companies will
begin to market an authorized generic, a generic equivalent of a
branded product, at the same time generic competition initially
enters the market;
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filing citizens petitions with the FDA or other regulatory
bodies, including timing the filings so as to thwart generic
competition by causing delays of our product approvals;
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seeking to establish regulatory and legal obstacles that would
make it more difficult to demonstrate bioequivalence;
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initiating legislative efforts to limit the substitution of
generic versions of brand pharmaceuticals;
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filing suits for patent infringement that may delay regulatory
approval of many generic products;
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introducing next-generation products prior to the
expiration of market exclusivity for the reference product,
which often materially reduces the demand for the first generic
product for which we seek regulatory approval;
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obtaining extensions of market exclusivity by conducting
clinical trials of brand drugs in pediatric populations or by
other potential methods;
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persuading regulatory bodies to withdraw the approval of brand
name drugs for which the patents are about to expire, thus
allowing the brand name company to obtain new patented products
serving as substitutes for the products withdrawn; and
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seeking to obtain new patents on drugs for which patent
protection is about to expire.
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In the United States, some companies have lobbied Congress for
amendments to the Hatch-Waxman legislation that would give them
additional advantages over generic competitors. For example,
although the term of a companys drug patent can be
extended to reflect a portion of the time an NDA is under
regulatory review, some companies have proposed extending the
patent term by a full year for each year spent in clinical
trials rather than the one-half year that is currently permitted.
If proposals like these in the United States, Europe or in other
countries where we operate were to become effective, our entry
into the market and our ability to generate revenues associated
with new products may be delayed, reduced or eliminated, which
could have a material adverse effect on our business, financial
position and results of operations and could cause the market
value of our common stock to decline.
WE HAVE SUBSTANTIAL INDEBTEDNESS AND WILL BE REQUIRED TO
APPLY A SUBSTANTIAL PORTION OF OUR CASH FLOW FROM OPERATIONS TO
SERVICE OUR INDEBTEDNESS. OUR SUBSTANTIAL INDEBTEDNESS MAY HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION
AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF
OUR COMMON STOCK TO DECLINE.
We incurred significant indebtedness to fund a portion of the
consideration for our acquisition of the former Merck Generics
business. Our high level of indebtedness could have important
consequences, including but not limited to:
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increasing our vulnerability to general adverse economic and
industry conditions;
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requiring us to dedicate a substantial portion of our cash flow
from operations and proceeds of any equity issuances to payments
on our indebtedness, thereby reducing the availability of cash
flow to fund working capital, capital expenditures, acquisitions
and investments and other general corporate purposes;
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making it difficult for us to optimally capitalize and manage
the cash flow for our businesses;
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limiting our flexibility in planning for, or reacting to,
changes in our businesses and the markets in which we operate;
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making it difficult for us to meet the leverage and interest
coverage ratios required by our Senior Credit Agreement;
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limiting our ability to borrow money or sell stock to fund our
working capital, capital expenditures, acquisitions and debt
service requirements and other financing needs;
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increasing our vulnerability to increases in interest rates in
general because a substantial portion of our indebtedness bears
interest at floating rates;
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requiring us to sell assets in order to pay down debt; and
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placing us at a competitive disadvantage to our competitors that
have less debt.
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If we do not have sufficient cash flow to service our
indebtedness, we may need to refinance all or part of our
existing indebtedness, borrow more money or sell securities,
some or all of which may not be available to us at acceptable
terms or at all. In addition, we may need to incur additional
indebtedness in the future in the ordinary course of business.
Although the terms of our Senior Credit Agreement allow us to
incur additional debt, this is subject to certain limitations
which may preclude us from incurring the amount of indebtedness
we otherwise desire. In addition, if we incur additional debt,
the risks described above could intensify. Furthermore, the
global credit markets are currently experiencing an
unprecedented contraction. If current pressures on credit
continue or worsen, future debt financing may not be available
to us when required or may not be available on acceptable terms,
and as a result we may be unable to grow our business, take
advantage of business opportunities, respond to
29
competitive pressures or satisfy our obligations under our
indebtedness. Any of the foregoing could have a material adverse
effect on our business, financial position and results of
operations and could cause the market value of our common stock
to decline.
WE MAY DECIDE TO SELL ASSETS WHICH COULD ADVERSELY AFFECT OUR
PROSPECTS AND OPPORTUNITIES FOR GROWTH, OUR BUSINESS, FINANCIAL
POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET
VALUE OF OUR COMMON STOCK TO DECLINE.
We may from time to time consider selling certain assets if
(a) we determine that such assets are not critical to our
strategy or (b) we believe the opportunity to monetize the
asset is attractive or for various reasons including we want to
reduce indebtedness. We have explored and will continue to
explore the sale of certain non-core assets. Although our
intention is to engage in asset sales only if they advance our
overall strategy, any such sale could reduce the size or scope
of our business, our market share in particular markets or our
opportunities with respect to certain markets, products or
therapeutic categories. We also continue to review the carrying
value of manufacturing and intangible assets for indications of
impairment as circumstances require. Future events and decisions
may lead to asset impairments
and/or
related costs. As a result, any such sale or impairment could
have an adverse effect on our business, prospects and
opportunities for growth, financial position and results of
operations and could cause the market value of our common stock
to decline.
OUR CREDIT FACILITIES AND ANY ADDITIONAL INDEBTEDNESS WE
INCUR IN THE FUTURE IMPOSE, OR MAY IMPOSE, SIGNIFICANT OPERATING
AND FINANCIAL RESTRICTIONS, WHICH MAY PREVENT US FROM
CAPITALIZING ON BUSINESS OPPORTUNITIES. THESE FACTORS COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION
AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF
OUR COMMON STOCK TO DECLINE.
Our credit facilities and any additional indebtedness we incur
in the future impose, or may impose, significant operating and
financial restrictions on us. These restrictions limit our
ability to, among other things, incur additional indebtedness,
make investments, pay certain dividends, prepay other
indebtedness, sell assets, incur certain liens, enter into
agreements with our affiliates or restricting our
subsidiaries ability to pay dividends, merge or
consolidate. In addition, our Senior Credit Agreement requires
us to maintain specified financial ratios. We cannot assure you
that these covenants will not adversely affect our ability to
finance our future operations or capital needs or to pursue
available business opportunities. A breach of any of these
covenants or our inability to maintain the required financial
ratios could result in a default under the related indebtedness.
If a default occurs, the relevant lenders could elect to declare
our indebtedness, together with accrued interest and other fees,
to be immediately due and payable. These factors could have a
material adverse effect on our business, financial position and
results of operations and could cause the market value of our
common stock to decline.
WE DEPEND ON THIRD-PARTY SUPPLIERS AND DISTRIBUTORS FOR THE
RAW MATERIALS, PARTICULARLY THE CHEMICAL COMPOUND(S) COMPRISING
THE ACTIVE PHARMACEUTICAL INGREDIENT, THAT WE USE TO MANUFACTURE
OUR PRODUCTS AS WELL AS CERTAIN FINISHED GOODS. A PROLONGED
INTERRUPTION IN THE SUPPLY OF SUCH PRODUCTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND
RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK
COULD DECLINE.
We typically purchase the active pharmaceutical ingredient
(i.e., the chemical compounds that produce the desired
therapeutic effect in our products) and other materials and
supplies that we use in our manufacturing operations, as well as
certain finished products, from many different domestic and
international suppliers.
Additionally, we maintain safety stocks in our raw materials
inventory and, in certain cases where we have listed only one
supplier in our applications with regulatory agencies, have
received regulatory agency approval to use alternative suppliers
should the need arise. However, there is no guarantee that we
will always have timely and sufficient access to a critical raw
material or finished product. A prolonged interruption in the
supply of a single-sourced raw material, including the active
ingredient, or finished product could cause our business,
financial
30
position and results of operations to be materially adversely
affected, and the market value of our common stock could
decline. In addition, our manufacturing capabilities could be
impacted by quality deficiencies in the products which our
suppliers provide, which could have a material adverse effect on
our business, financial position and results of operations, and
the market value of our common stock could decline.
We utilize controlled substances in certain of our current
products and products in development and therefore must meet the
requirements of the Controlled Substances Act of 1970 and the
related regulations administered by the DEA in the United States
as well as similar laws in other countries where we operate.
These laws relate to the manufacture, shipment, storage, sale
and use of controlled substances. The DEA and other regulatory
agencies limit the availability of the active ingredients used
in certain of our current products and products in development
and, as a result, our procurement quota of these active
ingredients may not be sufficient to meet commercial demand or
complete clinical trials. We must annually apply to the DEA and
other regulatory agencies for procurement quota in order to
obtain these substances. Any delay or refusal by the DEA or such
regulatory agencies in establishing our procurement quota for
controlled substances could delay or stop our clinical trials or
product launches, or could cause trade inventory disruptions for
those products that have already been launched, which could have
a material adverse effect on our business, financial position
and results of operations and could cause the market value of
our common stock to decline.
OUR EFFORTS TO TRANSITION THE FORMER MERCK GENERICS BUSINESS
SUBSIDIARIES AWAY FROM THE MERCK NAME INVOLVE INHERENT RISKS AND
MAY RESULT IN GREATER THAN EXPECTED COSTS OR IMPEDIMENTS, WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET
VALUE OF OUR COMMON STOCK TO DECLINE.
We have a license from Merck KGaA to continue using the
Merck name, including in product names, in respect
of the former Merck Generics businesses for a transitional
period of two years after the closing of the acquisition. We are
engaged in efforts to transition in an orderly manner away from
the Merck name and to achieve global brand alignment.
Re-branding may prove to be costly, especially in markets where
the former Merck Generics business name has strong dominance or
significant equity locally. In addition, brand migration poses
risks of both business disruption and customer confusion. Our
customer outreach and similar efforts may not mitigate fully the
risks of the name changes, which may lead to reductions in
revenues in some markets. These losses may have a material
adverse effect on our business, financial position and results
of operations and could cause the market value of our common
stock to decline.
OUR BUSINESS IS HIGHLY DEPENDENT UPON MARKET PERCEPTIONS OF
US, OUR BRANDS AND THE SAFETY AND QUALITY OF OUR PRODUCTS. OUR
BUSINESS OR BRANDS COULD BE SUBJECT TO NEGATIVE PUBLICITY, WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET
VALUE OF OUR COMMON STOCK TO DECLINE.
Market perceptions of our business are very important to us,
especially market perceptions of our brands and the safety and
quality of our products. If we, or our brands, suffer from
negative publicity, or if any of our products or similar
products which other companies distribute are proven to be, or
are claimed to be, harmful to consumers then this could have a
material adverse effect on our business, financial position and
results of operations and could cause the market value of our
common stock to decline. Also, because we are dependant on
market perceptions, negative publicity associated with illness
or other adverse effects resulting from our products could have
a material adverse impact on our business, financial position
and results of operations and could cause the market value of
our common stock to decline.
WE HAVE A LIMITED NUMBER OF MANUFACTURING FACILITIES
PRODUCING A SUBSTANTIAL PORTION OF OUR PRODUCTS. PRODUCTION AT
ANY ONE OF THESE FACILITIES COULD BE INTERRUPTED, WHICH COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET
VALUE OF OUR COMMON STOCK TO DECLINE.
31
A substantial portion of our capacity as well as our current
production is attributable to a limited number of manufacturing
facilities. A significant disruption at any one of those
facilities, even on a short-term basis, could impair our ability
to produce and ship products to the market on a timely basis,
which could have a material adverse effect on our business,
financial position and results of operations and could cause the
market value of our common stock to decline.
WE MAY EXPERIENCE DECLINES IN THE SALES VOLUME AND PRICES OF
OUR PRODUCTS AS THE RESULT OF THE CONTINUING TREND TOWARD
CONSOLIDATION OF CERTAIN CUSTOMER GROUPS, SUCH AS THE WHOLESALE
DRUG DISTRIBUTION AND RETAIL PHARMACY INDUSTRIES, AS WELL AS THE
EMERGENCE OF LARGE BUYING GROUPS. THE RESULT OF SUCH
DEVELOPMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD
CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.
A significant amount of our sales are to a relatively small
number of drug wholesalers and retail drug chains. These
customers represent an essential part of the distribution chain
of generic pharmaceutical products. Drug wholesalers and retail
drug chains have undergone, and are continuing to undergo,
significant consolidation. This consolidation may result in
these groups gaining additional purchasing leverage and
consequently increasing the product pricing pressures facing our
business. Additionally, the emergence of large buying groups
representing independent retail pharmacies and the prevalence
and influence of managed care organizations and similar
institutions potentially enable those groups to attempt to
extract price discounts on our products. The result of these
developments may have a material adverse effect on our business,
financial position and results of operations and could cause the
market value of our common stock to decline.
OUR COMPETITORS, INCLUDING BRANDED PHARMACEUTICAL COMPANIES,
OR OTHER THIRD-PARTIES MAY ALLEGE THAT WE ARE INFRINGING THEIR
INTELLECTUAL PROPERTY, FORCING US TO EXPEND SUBSTANTIAL
RESOURCES IN RESULTING LITIGATION, THE OUTCOME OF WHICH IS
UNCERTAIN. ANY UNFAVORABLE OUTCOME OF SUCH LITIGATION COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION
AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF
OUR COMMON STOCK TO DECLINE.
Companies that produce brand pharmaceutical products routinely
bring litigation against ANDA or similar applicants that seek
regulatory approval to manufacture and market generic forms of
their branded products. These companies allege patent
infringement or other violations of intellectual property rights
as the basis for filing suit against an ANDA or similar
applicant. Likewise, patent holders may bring patent
infringement suits against companies that are currently
marketing and selling their approved generic products.
Litigation often involves significant expense and can delay or
prevent introduction or sale of our generic products. If patents
are held valid and infringed by our products in a particular
jurisdiction, we would, unless we could obtain a license from
the patent holder, need to cease selling in that jurisdiction
and may need to deliver up or destroy existing stock in that
jurisdiction.
There may also be situations where the Company uses its business
judgment and decides to market and sell products,
notwithstanding the fact that allegations of patent
infringement(s) have not been finally resolved by the courts.
The risk involved in doing so can be substantial because the
remedies available to the owner of a patent for infringement may
include, among other things, damages measured by the profits
lost by the patent owner and not necessarily by the profits
earned by the infringer. In the case of a willful infringement,
the definition of which is subjective, such damages may be
trebled. Moreover, because of the discount pricing typically
involved with bioequivalent products, patented branded products
generally realize a substantially higher profit margin than
bioequivalent products. An adverse decision in a case such as
this or in other similar litigation could have a material
adverse effect on our business, financial position and results
of operations and could cause the market value of our common
stock to decline.
WE MAY EXPERIENCE REDUCTIONS IN THE LEVELS OF
REIMBURSEMENT FOR PHARMACEUTICAL PRODUCTS BY GOVERNMENTAL
AUTHORITIES, HMOS OR OTHER THIRD-PARTY PAYERS. IN ADDITION, THE
USE OF TENDER SYSTEMS COULD REDUCE PRICES FOR OUR
32
PRODUCTS OR REDUCE OUR MARKET OPPORTUNITIES. ANY SUCH
REDUCTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE
MARKET VALUE OF OUR COMMON STOCK TO DECLINE.
Various governmental authorities (including the U.K. National
Health Service and the German statutory health insurance scheme)
and private health insurers and other organizations, such as
health maintenance organizations (HMOs) in the
United States, provide reimbursement to consumers for the cost
of certain pharmaceutical products. Demand for our products
depends in part on the extent to which such reimbursement is
available. In the United States, third-party payers increasingly
challenge the pricing of pharmaceutical products. This trend and
other trends toward the growth of HMOs, managed health care and
legislative health care reform create significant uncertainties
regarding the future levels of reimbursement for pharmaceutical
products. Further, any reimbursement may be reduced in the
future, perhaps to the point that market demand for our products
declines. Such a decline could have a material adverse effect on
our business, financial position and results of operations and
could cause the market value of our common stock to decline.
In Germany, recent legislative changes have been introduced
which are aimed at reducing costs for the German statutory
health insurance, or SHI, scheme. The measure is likely to have
an impact upon marketing practice and reimbursement of drugs and
may increase pressure on competition and reimbursement margins.
These changes could have a material adverse effect on our
business, financial position and results of operations and could
cause the market value of our common stock to decline.
In the U.K., the Office of Fair Trading (OFT)
produced recommendations in February 2007 that suggested that
the U.K. should include off patent brands in its value based
pricing structure in addition to generics, for the reimbursement
of pharmaceutical products. The desired effect is to reduce the
difference between the reimbursement levels of off patent brands
and generics. This will increase the generics industrys
ability to compete with off patent brands on a level playing
field. Generics [U.K.] Ltd. and the BGMA (British Generics
Manufacturers Association) support the OFT in this
recommendation.
In addition, a number of markets in which we operate (including,
most recently, the Netherlands) have implemented or may
implement tender systems for generic pharmaceuticals
in an effort to lower prices. Under such tender systems,
manufacturers submit bids which establish prices for generic
pharmaceutical products. Upon winning the tender, the winning
company will receive a preferential reimbursement for a period
of time. The tender system often results in companies
underbidding one another by proposing low pricing in order to
win the tender.
Certain other countries may consider the implementation of a
tender system. Even if a tender system is ultimately not
implemented, the anticipation of such could result in price
reductions. Failing to win tenders, or the implementation of
similar systems in other markets leading to further price
declines, could have a material adverse effect on our business,
financial position and results of operations and could cause the
market value of our common stock to decline.
LEGISLATIVE OR REGULATORY PROGRAMS THAT MAY INFLUENCE PRICES
OF PHARMACEUTICAL PRODUCTS COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS
AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO
DECLINE.
Current or future federal, state or foreign laws and regulations
may influence the prices of drugs and, therefore, could
adversely affect the prices that we receive for our products.
For example, programs in existence in certain states in the
United States seek to set prices of all drugs sold within those
states through the regulation and administration of the sale of
prescription drugs. Expansion of these programs, in particular
state Medicare
and/or
Medicaid programs, or changes required in the way in which
Medicare
and/or
Medicaid rebates are calculated under such programs, could
adversely affect the prices we receive for our products and
could have a material adverse effect on our business, financial
position and results of operations and could cause the market
value of our common stock to decline.
33
In order to control expenditure on pharmaceuticals, most member
states in the EU regulate the pricing of products and, in some
cases, limit the range of different forms of pharmaceuticals
available for prescription by national health services. These
controls can result in considerable price differences between
member states.
In July 2008, the Australian government mandated a 25% price
reduction on pharmaceutical products sold in Australia. Such a
widespread price reduction of this magnitude is unprecedented in
Australia. As a result, pharmaceutical companies have generally
experienced significant declines in revenues and profitability
and uncertainties continue to exist within the market. This
price reduction has had an adverse effect on our business in
Australia, and as uncertainties are resolved or if other
countries in which we operate enact similar measures, they could
have a material adverse effect on our business, financial
position and results of operations and could cause the market
value of our common stock to decline.
WE ARE INVOLVED IN VARIOUS LEGAL PROCEEDINGS AND CERTAIN
GOVERNMENT INQUIRIES AND MAY EXPERIENCE UNFAVORABLE OUTCOMES OF
SUCH PROCEEDINGS OR INQUIRIES, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
We are involved in various legal proceedings and certain
government inquiries, including, but not limited to, patent
infringement, product liability, breach of contract and claims
involving Medicaid reimbursements, some of which are described
in our periodic reports, that involve claims for, or the
possibility of fines and penalties involving substantial amounts
of money or other relief. If any of these legal proceedings or
inquiries were to result in an adverse outcome, the impact could
have a material adverse effect on our business, financial
position and results of operations and could cause the market
value of our common stock to decline.
With respect to product liability, we maintain commercial
insurance to protect against and manage a portion of the risks
involved in conducting our business. Although we carry
insurance, we believe that no reasonable amount of insurance can
fully protect against all such risks because of the potential
liability inherent in the business of producing pharmaceuticals
for human consumption. To the extent that a loss occurs,
depending on the nature of the loss and the level of insurance
coverage maintained, it could have a material adverse effect on
our business, financial position and results of operations and
could cause the market value of our common stock to decline.
The EU is conducting a pharmaceutical sector inquiry involving
approximately 100 companies concerning the introduction of
innovative and generic medicines. Mylans subsidiary, Mylan
S.A.S, acting on behalf of Mylan EU affiliates, has responded to
questionnaires and has produced documents and other information
in connection with the inquiry. The Commission has not alleged
that the Company or any of its EU subsidiaries have engaged in
any unlawful practices. Matrix has likewise received a request
for information from the EU Commission. If this inquiry was to
result in an adverse outcome, the impact could have a material
adverse effect on our business, financial position and results
of operations and could cause the market value of our common
stock to decline.
In addition, in limited circumstances, entities we acquired in
the acquisition of the former Merck Generics business are party
to litigation
and/or
subject to investigation in matters under which we are entitled
to indemnification by Merck KGaA. However, there are risks
inherent in such indemnities and, accordingly, there can be no
assurance that we will receive the full benefits of such
indemnification. This impact could have a material adverse
effect on our business, financial position and results of
operations and could cause the market value of our common stock
to decline.
WE ENTER INTO VARIOUS AGREEMENTS IN THE NORMAL COURSE OF
BUSINESS WHICH PERIODICALLY INCORPORATE PROVISIONS WHEREBY WE
INDEMNIFY THE OTHER PARTY TO THE AGREEMENT. IN THE EVENT THAT WE
WOULD HAVE TO PERFORM UNDER THESE INDEMNIFICATION PROVISIONS, IT
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET
VALUE OF OUR COMMON STOCK TO DECLINE.
In the normal course of business, we periodically enter into
employment, legal settlement, and other agreements which
incorporate indemnification provisions. We maintain insurance
coverage which we believe will effectively mitigate our
obligations under certain of these indemnification provisions.
However, should our
34
obligation under an indemnification provision exceed our
coverage or should coverage be denied, our business, financial
position and results of operations could be materially adversely
affected and the market value of our common stock could decline.
OUR FUTURE SUCCESS IS HIGHLY DEPENDENT ON OUR CONTINUED
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL. ANY FAILURE TO
ATTRACT AND RETAIN KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF
OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK
TO DECLINE.
It is important that we attract and retain qualified personnel
in order to develop new products and compete effectively. If we
fail to attract and retain key scientific, technical or
management personnel, our business could be affected adversely.
Additionally, while we have employment agreements with certain
key employees in place, their employment for the duration of the
agreement is not guaranteed. If we are unsuccessful in retaining
our key employees, it could have a material adverse effect on
our business, financial position and results of operations and
could cause the market value of our common stock to decline.
WE ARE IN THE PROCESS OF ENHANCING AND FURTHER DEVELOPING OUR
GLOBAL ENTERPRISE RESOURCE PLANNING SYSTEMS AND ASSOCIATED
BUSINESS APPLICATIONS. AS WITH ANY ENHANCEMENTS OF SIGNIFICANT
SYSTEMS, DIFFICULTIES ENCOUNTERED COULD RESULT IN BUSINESS
INTERRUPTIONS, AND COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD
CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.
We are enhancing and further developing our global enterprise
resource planning (ERP) systems and associated
applications to provide more operating efficiencies and
effective management of our business operations. Such changes to
ERP systems and related software carry risks such as cost
overruns, project delays and business interruptions and delays.
If we experience a material business interruption as a result of
our ERP enhancements, it could have a material adverse effect on
our business, financial position and results of operations and
could cause the market value of our common stock to decline.
ANY FUTURE ACQUISITIONS OR DIVESTITURES WOULD INVOLVE A
NUMBER OF INHERENT RISKS. THESE RISKS COULD CAUSE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
We may continue to seek to expand our product line through
complementary or strategic acquisitions of other companies,
products or assets, or through joint ventures, licensing
agreements or other arrangements or may determine to divest
certain products or assets. Any such acquisitions, joint
ventures or other business combinations may involve significant
challenges in integrating the new companys operations, and
divestitures could be equally challenging. Either process may
prove to be complex and time consuming and require substantial
resources and effort. It may also disrupt our ongoing
businesses, which may adversely affect our relationships with
customers, employees, regulators and others with whom we have
business or other dealings.
We may be unable to realize synergies or other benefits expected
to result from any acquisitions, joint ventures or other
transactions or investments we may undertake, or be unable to
generate additional revenue to offset any unanticipated
inability to realize these expected synergies or benefits.
Realization of the anticipated benefits of acquisitions or other
transactions could take longer than expected, and implementation
difficulties, unforeseen expenses, complications and delays,
market factors or a deterioration in domestic and global
economic conditions could alter the anticipated benefits of any
such transactions. We may also compete for certain acquisition
targets with companies having greater financial resources than
us or other advantages over us that may prevent us from
acquiring a target. These factors could impair our growth and
ability to compete, require us to focus additional resources on
integration of operations rather than other profitable areas,
otherwise cause a material adverse effect on our business,
financial position and results of operations and could cause the
market value of our common stock to decline.
35
MATRIX, AN IMPORTANT PART OF OUR BUSINESS, IS LOCATED IN
INDIA AND IT IS SUBJECT TO REGULATORY, ECONOMIC, SOCIAL AND
POLITICAL UNCERTAINTIES IN INDIA. THESE RISKS COULD CAUSE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND
RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR
COMMON STOCK TO DECLINE.
In recent years, Matrix has benefited from many policies of the
Government of India and the Indian state governments in the
states in which it operates, which are designed to promote
foreign investment generally, including significant tax
incentives, liberalized import and export duties and
preferential rules on foreign investment and repatriation. There
is no assurance that such policies will continue. Various
factors, such as changes in the current federal government,
could trigger significant changes in Indias economic
liberalization and deregulation policies and disrupt business
and economic conditions in India generally and our business in
particular.
In addition, our financial performance and the market price of
our securities may be adversely affected by general economic
conditions and economic and fiscal policy in India, including
changes in exchange rates and controls, interest rates and
taxation policies, as well as social stability and political,
economic or diplomatic developments affecting India in the
future. In particular, India has experienced significant
economic growth over the last several years, but faces major
challenges in sustaining that growth in the years ahead. These
challenges include the need for substantial infrastructure
development and improving access to healthcare and education.
Matrixs ability to recruit, train and retain qualified
employees and develop and operate its manufacturing facilities
could be adversely affected if India does not successfully meet
these challenges.
Southern Asia has, from time to time, experienced instances of
civil unrest and hostilities among neighboring countries,
including India and Pakistan. Such military activity or
terrorist attacks in the future could influence the Indian
economy by disrupting communications and making travel more
difficult. Resulting political tensions could create a greater
perception that investments in companies with Indian operations
involve a high degree of risk, and that there is a risk of
disruption of services provided by companies with Indian
operations, which could have a material adverse effect on our
share price
and/or the
market for Matrixs products. Furthermore, if India were to
become engaged in armed hostilities, particularly hostilities
that were protracted or involved the threat or use of nuclear
weapons, Matrix might not be able to continue its operations. We
generally do not have insurance for losses and interruptions
caused by terrorist attacks, military conflicts and wars. These
risks could cause a material adverse effect on our business,
financial position and results of operations and could cause the
market value of our common stock to decline.
MOVEMENTS IN FOREIGN CURRENCY EXCHANGE RATES COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND
RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR
COMMON STOCK TO DECLINE.
A significant portion of our revenues, our costs and our
indebtedness are denominated in foreign currencies including the
Euro, the Australian dollar, the British pound, the Canadian
dollar, the Indian Rupee and the Japanese Yen. We report our
financial results in U.S. dollars. Our results of
operations and, in some cases, cash flows, could be adversely
affected by certain movements in exchange rates. From time to
time, we may implement currency hedges intended to reduce our
exposure to changes in foreign currency exchange rates. However,
our hedging strategies may not be successful, and any of our
unhedged foreign exchange payments will continue to be subject
to market fluctuations. These risks could cause a material
adverse effect on our business, financial position and results
of operations and could cause the market value of our common
stock to decline.
IF WE OR ANY PARTNER FAIL TO ADEQUATELY PROTECT OR ENFORCE
OUR INTELLECTUAL PROPERTY RIGHTS, THEN WE COULD LOSE REVENUE
UNDER OUR LICENSING AGREEMENTS OR LOSE SALES TO GENERIC COPIES
OF OUR BRANDED PRODUCTS. THESE RISKS COULD CAUSE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
Our success, particularly in our specialty business, depends in
part on our or any partners ability to obtain, maintain
and enforce patents, and protect trade secrets, know-how and
other proprietary information. Our ability to
36
commercialize any branded product successfully will largely
depend upon our or any partners ability to obtain and
maintain patents of sufficient scope to prevent third-parties
from developing substantially equivalent products. In the
absence of patent and trade secret protection, competitors may
adversely affect our branded products business by independently
developing and marketing substantially equivalent products. It
is also possible that we could incur substantial costs if we are
required to initiate litigation against others to protect or
enforce our intellectual property rights.
We have filed patent applications covering composition of,
methods of making,
and/or
methods of using, our branded products and branded product
candidates. We may not be issued patents based on patent
applications already filed or that we file in the future and if
patents are issued, they may be insufficient in scope to cover
our branded products. The issuance of a patent in one country
does not ensure the issuance of a patent in any other country.
Furthermore, the patent position of companies in the
pharmaceutical industry generally involves complex legal and
factual questions and has been and remains the subject of much
litigation. Legal standards relating to scope and validity of
patent claims are evolving. Any patents we have obtained, or
obtain in the future, may be challenged, invalidated or
circumvented. Moreover, the United States Patent and Trademark
Office or any other governmental agency may commence
interference proceedings involving our patents or patent
applications. Any challenge to, or invalidation or circumvention
of, our patents or patent applications would be costly, would
require significant time and attention of our management, could
cause a material adverse effect on our business, financial
position and results of operations and could cause the market
value of our common stock to decline.
OUR SPECIALTY BUSINESS DEVELOPS, FORMULATES, MANUFACTURES AND
MARKETS BRANDED PRODUCTS THAT ARE SUBJECT TO RISKS. THESE RISKS
COULD CAUSE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET
VALUE OF OUR COMMON STOCK TO DECLINE.
Our branded products, developed, formulated, manufactured and
marketed by our specialty business may be subject to the
following risks, among others:
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limited patent life, or the loss of patent protection;
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competition from generic products;
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reductions in reimbursement rates by third-party payors;
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importation by consumers;
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product liability;
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drug development risks arising from typically greater research
and development investments than generics; and
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unpredictability with regard to establishing a market.
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These risks could cause a material adverse effect on our
business, financial position and results of operations and could
cause the market value of our common stock to decline.
WE MUST MAINTAIN ADEQUATE INTERNAL CONTROLS AND BE ABLE, ON
AN ANNUAL BASIS, TO PROVIDE AN ASSERTION AS TO THE EFFECTIVENESS
OF SUCH CONTROLS. FAILURE TO MAINTAIN ADEQUATE INTERNAL CONTROLS
OR TO IMPLEMENT NEW OR IMPROVED CONTROLS COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
Effective internal controls are necessary for the Company to
provide reasonable assurance with respect to its financial
reports. We are spending a substantial amount of management time
and resources to comply with changing laws, regulations and
standards relating to corporate governance and public
disclosure. In the United States such changes include the
Sarbanes-Oxley Act of 2002, SEC regulations and the NASDAQ
listing standards. In particular, Section 404 of the
Sarbanes-Oxley Act of 2002 requires managements annual
review and evaluation of our internal control over financial
reporting and attestations as to the effectiveness of these
controls by our independent
37
registered public accounting firm. If we fail to maintain the
adequacy of our internal controls, we may not be able to ensure
that we can conclude on an ongoing basis that we have effective
internal control over financial reporting. Additionally,
internal control over financial reporting may not prevent or
detect misstatements because of its inherent limitations,
including the possibility of human error, the circumvention or
overriding of controls, or fraud. Therefore, even effective
internal controls can provide only reasonable assurance with
respect to the preparation and fair presentation of financial
statements. In addition, projections of any evaluation of
effectiveness of internal control over financial reporting to
future periods are subject to the risk that the control may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate. If the Company fails to maintain the adequacy of
its internal controls, including any failure to implement
required new or improved controls, this could have a material
adverse effect on our business, financial position and results
of operations, and the market value of our common stock could
decline.
THE TOTAL AMOUNT OF INDEBTEDNESS RELATED TO OUR OUTSTANDING
CASH CONVERTIBLE NOTES WILL INCREASE IF OUR STOCK PRICE
INCREASES. IN ADDITION, OUR OUTSTANDING SENIOR
NOTES SETTLEMENT VALUE INCREASES AS OUR STOCK PRICE
INCREASES, ALTHOUGH WE DO NOT ACCOUNT FOR THIS AS AN INCREASE IN
INDEBTEDNESS. ALSO, WE HAVE ENTERED INTO NOTE HEDGES AND
WARRANT TRANSACTIONS IN CONNECTION WITH THE SENIOR CONVERTIBLE
NOTES AND CASH CONVERTIBLE NOTES IN ORDER TO HEDGE
SOME OF THE RISK ASSOCIATED WITH THE POTENTIAL INCREASE OF
INDEBTEDNESS AND SETTLEMENT VALUE. SUCH TRANSACTIONS HAVE BEEN
CONSUMMATED WITH CERTAIN COUNTERPARTIES, MAINLY HIGHLY RATED
FINANCIAL INSTITUTIONS. ANY INCREASE IN INDEBTEDNESS, NET
EXPOSURE RELATED TO THE RISK OR FAILURE OF ANY COUNTERPARTIES TO
PERFORM THEIR OBLIGATIONS, COULD HAVE ADVERSE EFFECTS ON US,
INCLUDING UNDER OUR DEBT AGREEMENTS, AND COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
Under applicable accounting rules, the cash conversion feature
that is a term of the Cash Convertible Notes must be recorded as
a liability on our balance sheet and periodically marked to fair
value. If our stock price increases, the liability associated
with the cash conversion feature would increase and, because
this liability must be periodically marked to fair value on our
balance sheet, the total amount of indebtedness related to the
notes that is shown on our balance sheet would also increase.
This could have adverse effects on us, including under our
existing and any future debt agreements. For example, our senior
credit facilities contain covenants that restrict our ability to
incur debt, make capital expenditures, pay dividends and make
investments if, among other things, our leverage ratio, exceeds
certain levels. In addition, the interest rate we pay under our
senior credit facilities increases if our leverage ratio
increases. Because the leverage ratio under our senior credit
facilities is calculated based on a definition of total
indebtedness as defined under GAAP, if the amount of our total
indebtedness were to increase, our leverage ratio would also
increase. As a result, we may not be able to comply with such
covenants in the future, which could, among other things,
restrict our ability to grow our business, take advantage of
business opportunities or respond to competitive pressures. Any
of the foregoing could have a material adverse effect on our
business, financial position and results of operations and could
cause the market value of the notes and our common stock to
decline.
Although the conversion feature under our Senior Convertible
Notes is not marked to market, as the price of our common stock
increases, the settlement value of the conversion feature
increases.
In connection with the issuance of the Cash Convertible Notes
and Senior Convertible Notes, we entered into note hedge and
warrant transactions with certain financial institutions, each
of which we refer to as a counterparty. The Cash Convertible
Notes hedge is comprised of purchased cash-settled call options
that are expected to reduce our exposure to potential cash
payments required to be made by us upon the cash conversion of
the notes. The Senior Convertible Notes hedge is comprised of
call options that are expected to reduce our exposure to the
settlement value (issuance of common stock) upon the conversion
of the notes. We have also entered into respective warrant
transactions with the counterparties pursuant to which we will
have sold to each counterparty warrants for the purchase of
shares of our common stock. Together, each of the note hedges
and warrant transactions are expected to provide us with some
protection against increases in our stock price over the
conversion price per share. However,
38
there is no assurance that these transactions will remain in
effect at all times. Also, although we believe the
counterparties are highly rated financial institutions, there
are no assurances that the counterparties will be able to
perform their respective obligations under the agreement we have
with each of them. Any net exposure related to conversion of the
notes or any failure of the counterparties to perform their
obligations under the agreements we have with them could have a
material adverse effect on our business, financial position and
results of operations and could cause the market value of our
common stock to decline.
THERE ARE INHERENT UNCERTAINTIES INVOLVED IN ESTIMATES,
JUDGMENTS AND ASSUMPTIONS USED IN THE PREPARATION OF FINANCIAL
STATEMENTS IN ACCORDANCE WITH GAAP. ANY FUTURE CHANGES IN
ESTIMATES, JUDGMENTS AND ASSUMPTIONS USED OR NECESSARY REVISIONS
TO PRIOR ESTIMATES, JUDGMENTS OR ASSUMPTIONS OR CHANGES IN
ACCOUNTING STANDARDS COULD LEAD TO A RESTATEMENT OR REVISION TO
PREVIOUSLY CONSOLIDATED FINANCIAL STATEMENTS WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND
RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR
COMMON STOCK TO DECLINE.
The Consolidated and Condensed Consolidated Financial Statements
included in the periodic reports we file with the SEC are
prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP). The
preparation of financial statements in accordance with GAAP
involves making estimates, judgments and assumptions that affect
reported amounts of assets (including intangible assets),
liabilities, revenues, expenses (including acquired in-process
research and development) and income. Estimates, judgments and
assumptions are inherently subject to change in the future and
any necessary revisions to prior estimates, judgments or
assumptions could lead to a restatement. Also, any new or
revised accounting standards may require adjustments to
previously issued financial statements. Any such changes could
result in corresponding changes to the amounts of assets
(including goodwill and other intangible assets), liabilities,
revenues, expenses (including acquired in-process research and
development) and income. Any such changes could have a material
adverse effect on our business, financial position and results
of operations and could cause the market value of our common
stock to decline.
WE ARE SUBJECT TO THE U.S. FOREIGN CORRUPT PRACTICES ACT AND
SIMILAR WORLDWIDE ANTI-BRIBERY LAWS, WHICH IMPOSE RESTRICTIONS
AND MAY CARRY SUBSTANTIAL PENALTIES. ANY VIOLATIONS OF THESE
LAWS, OR ALLEGATIONS OF SUCH VIOLATIONS, COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS
OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON
STOCK TO DECLINE.
The U.S. Foreign Corrupt Practices Act and similar
anti-bribery laws in other jurisdictions generally prohibit
companies and their intermediaries from making improper payments
to officials for the purpose of obtaining or retaining business.
Our policies mandate compliance with these anti-bribery laws,
which often carry substantial penalties. We operate in
jurisdictions that have experienced governmental corruption to
some degree, and, in certain circumstances, strict compliance
with anti-bribery laws may conflict with certain local customs
and practices. We cannot assure you that our internal control
policies and procedures always will protect us from reckless or
other inappropriate acts committed by our affiliates, employees
or agents. Violations of these laws, or allegations of such
violations, could have a material adverse effect on our
business, financial position and results of operations and could
cause the market value of our common stock to decline.
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
None.
We maintain various facilities that are used for research and
development, manufacturing, warehousing, distribution and
administrative functions. These facilities consist of both owned
and leased properties.
39
The following summarizes the significant properties used to
conduct our operations:
|
|
|
|
|
|
|
Primary Segment
|
|
Location
|
|
Status
|
|
Primary Use
|
|
Generics Segment
|
|
North Carolina
|
|
Owned
|
|
Distribution, Warehousing
|
|
|
West Virginia
|
|
Owned
|
|
Manufacturing, R&D, Warehousing, Administrative
|
|
|
Illinois
|
|
Owned
|
|
Manufacturing, Warehousing, Administrative
|
|
|
Texas
|
|
Owned
|
|
Manufacturing, Warehousing
|
|
|
Vermont
|
|
Owned
|
|
Manufacturing, R&D, Warehousing, Administrative
|
|
|
Puerto Rico
|
|
Owned
|
|
Manufacturing, Warehousing, Administrative
|
|
|
Germany
|
|
Leased
|
|
Administrative, Warehousing
|
|
|
France
|
|
Owned
|
|
Manufacturing
|
|
|
|
|
Leased
|
|
Administrative
|
|
|
United Kingdom
|
|
Leased
|
|
Manufacturing, R&D, Warehousing, Administrative
|
|
|
Ireland
|
|
Owned
|
|
Manufacturing, Distribution, Warehousing, Administrative
|
|
|
|
|
Leased
|
|
Warehousing
|
|
|
Australia
|
|
Owned
|
|
Manufacturing, R&D, Distribution, Warehousing,
Administrative
|
|
|
|
|
Leased
|
|
R&D, Manufacturing, Warehousing, Administrative
|
|
|
Netherlands
|
|
Leased
|
|
Distribution, R&D, Warehousing, Administrative
|
|
|
Canada
|
|
Owned
|
|
Manufacturing, R&D, Distribution, Warehousing,
Administrative
|
|
|
|
|
Leased
|
|
Distribution, Warehousing
|
|
|
New Zealand
|
|
Leased
|
|
Distribution, Warehousing, Administration
|
|
|
India
|
|
Owned
|
|
Manufacturing, R&D, Distribution, Warehousing,
Administrative
|
|
|
Japan
|
|
Owned
|
|
Manufacturing, R&D, Administrative, Warehousing
|
|
|
|
|
Leased
|
|
Warehousing, Administrative
|
Specialty Segment
|
|
California
|
|
Owned
|
|
Manufacturing, R&D, Warehousing, Administrative,
Distribution
|
|
|
Texas
|
|
Leased
|
|
Distribution, Warehousing
|
Matrix Segment
|
|
China
|
|
Owned
|
|
Manufacturing, Warehousing, Administrative
|
|
|
|
|
Leased
|
|
Manufacturing
|
|
|
India
|
|
Owned
|
|
Manufacturing, R&D, Warehousing, Administrative
|
|
|
|
|
Leased
|
|
R&D, Administrative
|
|
|
Belgium
|
|
Leased
|
|
Warehousing, Administrative
|
|
|
Netherlands
|
|
Leased
|
|
Warehousing, Administrative
|
|
|
Luxembourg
|
|
Leased
|
|
Warehousing, Administrative
|
Corporate/Other
|
|
Pennsylvania
|
|
Owned
|
|
Administrative
|
|
|
New Jersey
|
|
Leased
|
|
Administrative
|
|
|
New York
|
|
Leased
|
|
Administrative
|
40
We believe that all facilities are in good operating condition,
the machinery and equipment are well-maintained, the facilities
are suitable for their intended purposes and they have
capacities adequate for current operations.
|
|
ITEM 3.
|
Legal
Proceedings
|
While it is not possible to determine with any degree of
certainty the ultimate outcome of the following legal
proceedings, the Company believes that it has meritorious
defenses with respect to the claims asserted against it and
intends to vigorously defend its position. The Company is also
party to certain litigation matters, some of which are described
below, for which Merck KGaA has agreed to indemnify the Company,
under the terms of the Share Purchase Agreement by which Mylan
acquired the former Merck Generics business. An adverse outcome
in any of these proceedings, or the inability or denial of Merck
KGaA to pay an indemnified claim, could have a material adverse
effect on the Companys financial position and results of
operations.
Omeprazole
On May 17, 2000, MPI filed an ANDA seeking approval from
the FDA to manufacture, market and sell omeprazole
delayed-release capsules and on August 8, 2000 made
Paragraph IV certifications to several patents owned by
AstraZeneca PLC (AstraZeneca) that were listed in
the FDAs Orange Book. On September 8,
2000, AstraZeneca filed suit against MPI and Mylan in the
U.S. District Court for the Southern District of New York
alleging infringement of several of AstraZenecas patents.
On May 29, 2003, the FDA approved MPIs ANDA for the
10 mg and 20 mg strengths of omeprazole
delayed-release capsules, and, on August 4, 2003, Mylan
announced that MPI had commenced the sale of omeprazole
10 mg and 20 mg delayed-release capsules. AstraZeneca
then amended the pending lawsuit to assert claims against Mylan
and MPI and filed a separate lawsuit against MPIs
supplier, Esteve Quimica S.A. (Esteve), for
unspecified money damages and a finding of willful infringement.
MPI has certain indemnity obligations to Esteve in connection
with this litigation. On May 31, 2007, the district court
ruled in Mylans and Esteves favor by finding that
the asserted patents were not infringed by
Mylans/Esteves products. On July 18, 2007,
AstraZeneca appealed the decision to the United States Court of
Appeals for the Federal Circuit. On June 10, 2008, the
appellate court issued a judgment and decision affirming the
district courts finding of noninfringement and the mandate
was issued on July 1, 2008.
Lorazepam
and Clorazepate
On June 1, 2005, a jury verdict was rendered against Mylan,
MPI, and co-defendants Cambrex Corporation and Gyma Laboratories
in the U.S. District Court for the District of Columbia in
the amount of approximately $12.0 million, which has been
accrued for by the Company. The jury found that Mylan and its
co-defendants willfully violated Massachusetts, Minnesota and
Illinois state antitrust laws in connection with API supply
agreements entered into between the Company and its API supplier
(Cambrex) and broker (Gyma) for two drugs, lorazepam and
clorazepate, in 1997, and subsequent price increases on these
drugs in 1998. The case was brought by four health insurers who
opted out of earlier class action settlements agreed to by the
Company in 2001 and represents the last remaining antitrust
claims relating to Mylans 1998 price increases for
lorazepam and clorazepate. Following the verdict, the Company
filed a motion for judgment as a matter of law, a motion for a
new trial, a motion to dismiss two of the insurers and a motion
to reduce the verdict. On December 20, 2006, the
Companys motion for judgment as a matter of law and motion
for a new trial were denied and the remaining motions were
denied on January 24, 2008. In post-trial filings, the
plaintiffs requested that the verdict be trebled and that
request was granted on January 24, 2008. On
February 6, 2008, a judgment was issued against Mylan and
its co-defendants in the total amount of approximately
$69.0 million, some or all of which may be subject to
indemnification obligations by Mylan. Plaintiffs are also
seeking an award of attorneys fees and litigation costs in
unspecified amounts and prejudgment interest of approximately
$9.0 million. The Company and its co-defendants have
appealed to the U.S. Court of Appeals for the D.C. Circuit.
The appeals have been held in abeyance pending a ruling on the
motion for prejudgment interest. In connection with the
Companys appeal of the lorazepam Judgment, the Company
submitted a surety bond underwritten by a third-party insurance
company in the amount of $74.5 million. This surety bond is
secured by a pledge of a $40.0 million cash deposit (which
is included as restricted cash on the Companys
Consolidated Balance Sheet as of December 31,
2008) and an irrevocable letter of
41
credit for $34.5 million issued under the Senior Credit
Agreement. On October 27, 2008, a U.S. magistrate
judge issued a report recommending the granting of
plaintiffs motion for prejudgment interest. The report
also recommends requiring the surety bond amount to be increased
to include prejudgment interest. Mylan has submitted objections
to the magistrate judges recommendations and now pending
is the district courts determination of whether to accept
or reject those recommendations. If the magistrates
recommendations on prejudgment interest are accepted, Mylan
intends to contest these rulings as part of its pending appeal.
Pricing
and Medicaid Litigation
On June 26, 2003, MPI and UDL received requests from the
U.S. House of Representatives Energy and Commerce Committee
(the Committee) seeking information about certain
products sold by MPI and UDL in connection with the
Committees investigation into pharmaceutical reimbursement
and rebates under Medicaid. MPI and UDL cooperated with this
inquiry and provided information in response to the
Committees requests in 2003. Several states
attorneys general (AG) have also sent letters to
MPI, UDL and Mylan Bertek Pharmaceuticals Inc., demanding that
those companies retain documents relating to Medicaid
reimbursement and rebate calculations pending the outcome of
unspecified investigations by those AGs into such matters. In
addition, in July 2004, Mylan received subpoenas from the AGs of
California and Florida in connection with civil investigations
purportedly related to price reporting and marketing practices
regarding various drugs. As noted below, both California and
Florida subsequently filed suits against Mylan, and the Company
believes any further requests for information and disclosures
will be made as part of that litigation.
Beginning in September 2003, Mylan, MPI
and/or UDL,
together with many other pharmaceutical companies, have been
named in civil lawsuits filed by state AGs and municipal bodies
within the state of New York alleging generally that the
defendants defrauded the state Medicaid systems by allegedly
reporting Average Wholesale Prices
and/or
Wholesale Acquisition Costs that exceeded the actual
selling price of the defendants prescription drugs. To
date, Mylan, MPI
and/or UDL
have been named as defendants in substantially similar civil
lawsuits filed by the AGs of Alabama, Alaska, California,
Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky,
Massachusetts, Mississippi, Missouri, South Carolina, Texas,
Utah and Wisconsin and also by the city of New York and
approximately 40 counties across New York State. Several of
these cases have been transferred to the AWP multi-district
litigation proceedings pending in the U.S. District Court
for the District of Massachusetts for pretrial proceedings.
Others of these cases will likely be litigated in the state
courts in which they were filed. Each of the cases seeks an
unspecified amount in money damages, civil penalties
and/or
treble damages, counsel fees and costs, and injunctive relief.
In each of these matters Mylan, MPI
and/or UDL
either have either moved to dismiss the complaints or have
answered the complaints denying liability. Mylan and its
subsidiaries intend to defend each of these actions vigorously.
In May 2008, an amended complaint was filed in the
U.S. District Court for the District of Massachusetts by a
plaintiff on behalf of the United States of America, against
Mylan, MPI, UDL and several other generic manufacturers. The
original complaint was filed under seal in April 2000, and
Mylan, MPI and UDL were added as parties in February 2001. The
claims against Mylan, MPI, UDL and the other generic
manufacturers were severed from the April 2000 complaint (which
remains under seal) as a result of the federal governments
decision not to intervene in the action as to those defendants.
The complaint alleges violations of the False Claims Act and
sets forth allegations substantially similar to those alleged in
the state AG cases mentioned in the preceding paragraph and
purports to seek recovery of any and all alleged overpayment of
the federal share under the Medicaid program. Mylan
has moved to dismiss the complaint and intends to defend the
action vigorously.
In addition, by letter dated January 12, 2005, MPI was
notified by the U.S. Department of Justice of an
investigation concerning calculations of Medicaid drug rebates.
The investigation involves whether MPI and UDL may have violated
the False Claims Act or other laws by classifying certain
authorized generics launched in the 1990s and early
2000s as non-innovator rather than innovator drugs for
purposes of Medicaid and other federal healthcare programs until
2005. MPI and UDL deny the governments allegations and
deny that they engaged in any wrongful conduct. Based on our
understanding of the governments allegations, the alleged
difference in rebates for the MPI and UDL products currently at
issue may be up to approximately $100.0 million, which
includes interest. Remedies under the False Claims Act could
include treble damages and penalties. MPI and UDL have been
cooperating fully with the governments investigation and
are currently in discussions with the government about a
42
possible resolution of the matter. Additionally, the Company
believes that it has contractual and other rights to recover
from the innovator a substantial portion of any payments that
MPI and UDL may remit to the government. The Company has not
recorded any amounts in the consolidated financial statements
related to this matter.
Dey is a defendant currently in lawsuits brought by the state
AGs of Arizona, California, Florida, Illinois, Iowa,
Kansas, Kentucky, Pennsylvania, South Carolina (on behalf of the
state and the state health plan), Utah and Wisconsin and the
city of New York and approximately 40 New York counties. Dey is
also named as a defendant in several class actions brought by
consumers and third-party payors. Dey has reached a settlement
of most of these class actions, which has been preliminarily
approved by the court. Additionally, the U.S. federal
government filed a claim against Dey in August 2006. These cases
all generally allege that Dey falsely reported certain price
information concerning certain drugs marketed by Dey. Dey
intends to defend each of these actions vigorously. In
conjunction with the former Merck Generics business acquisition
by Mylan, Mylan is entitled to indemnification by Merck KGaA for
these Dey pricing related suits.
The Company has approximately $118.6 million recorded in
other liabilities related to the pricing-related litigation
involving Dey. As stated above, in conjunction with the former
Merck Generics business acquisition, Mylan is entitled to
indemnification from Merck KGaA under the Share Purchase
Agreement. As a result, the Company has recorded approximately
$119.7 million in other assets.
Modafinil
Antitrust Litigation and FTC Inquiry
Beginning in April 2006, Mylan, along with four other drug
manufacturers, has been named as a defendant in civil lawsuits
filed in the Eastern District of Pennsylvania by a variety of
plaintiffs purportedly representing direct and indirect
purchasers of the drug modafinil and a third-party payor and one
action brought by Apotex, Inc., a manufacturer of generic drugs,
seeking approval to market a generic modafinil product. These
actions allege violations of federal and state laws in
connection with the defendants settlement of patent
litigation relating to modafinil. These actions are in their
preliminary stages, and motions to dismiss each action are
pending, with the exception of the third-party payor action, in
which Mylans response to the complaint is not due until
the motions filed in the other cases have been decided. Mylan
intends to defend each of these actions vigorously. In addition,
by letter dated July 11, 2006, Mylan was notified by the
U.S. Federal Trade Commission (FTC) of an
investigation relating to the settlement of the modafinil patent
litigation. In its letter, the FTC requested certain information
from Mylan, MPI and MTI pertaining to the patent litigation and
the settlement thereof. On March 29, 2007, the FTC issued a
subpoena, and on April 26, 2007, the FTC issued a civil
investigative demand to Mylan requesting additional information
from the Company relating to the investigation. Mylan is
cooperating fully with the governments investigation and
completed all requests for information. On February 13,
2008, the FTC filed a lawsuit against Cephalon in the
U.S. District Court for the District of Columbia and the
case has subsequently been transferred to the U.S. District
Court for the Eastern District of Pennsylvania. Mylan is not
named as a defendant in the FTCs lawsuit, although the
complaint includes certain allegations pertaining to the
Mylan/Cephalon settlement.
Levetiracetam
In March 2004, Mylan Inc. and MPI, along with
Dr. Reddys Laboratories, Inc., were named in a civil
lawsuit filed in the Northern District of Georgia by UCB Society
Anonyme and UCB Pharma, Inc. (UCB) alleging
infringement of U.S. Patent No. 4,943,639 relating to
levetiracetam tablets. This litigation was settled in October
2007. Under the terms of the settlement, Mylan was granted the
right to market 250 mg, 500 mg, and 750 mg
levetiracetam tablets in the United States beginning on
November 1, 2008, provided that UCB obtained pediatric
exclusivity for its product and Mylan obtained final approval
for its ANDA from the FDA. Pediatric exclusivity has been
granted. In addition, by letter dated November 19, 2007,
Mylan was notified by the FTC of an investigation relating to
the settlement of the levetiracetam patent litigation. In its
letter, the FTC requested certain information from Mylan
pertaining to the patent litigation and the settlement thereof.
On April 9, 2008, the FTC issued a civil investigative
demand requesting additional information from Mylan relating to
the investigation. Mylan is cooperating fully with the
governments investigation and has complied with all
requests for information. Mylan launched its 250 mg,
500 mg, and 750 mg levetiracetam tablet products in
November 2008.
43
Digitek®
Recall
On April 25, 2008, Actavis Totowa LLC, a division of
Actavis Group, announced a voluntary, nationwide recall of all
lots and all strengths of
Digitek®
(digoxin tablets USP). Digitek is manufactured by Actavis and
distributed in the United States by MPI and UDL. The Company has
tendered its defense and indemnity in all lawsuits and claims
arising from this event to Actavis, and Actavis has accepted
that tender, subject to a reservation of rights. While the
Company is unable to estimate total potential costs with any
degree of certainty, such costs could be significant. To date,
approximately 198 lawsuits have been filed against Mylan, UDL
and Actavis pertaining to the recall. An adverse outcome in
these lawsuits or the inability or denial of Actavis to pay on
an indemnified claim could have a materially adverse effect on
our financial position and results of operations.
Pioglitazone
On February 21, 2006, a district court in the United States
District Court for the Southern District of New York held that
Mylan, MPI and UDLs pioglitazone ANDA product infringed a
patent asserted against them by Takeda Pharmaceuticals North
America, Inc. and Takeda Chemical Industries, Ltd (hereinafter,
Takeda) and that the patent was enforceable. That
same court also held that Alphapharm Pty, Ltd and Genpharm,
Inc.s pioglitazone ANDA product infringed the Takeda
patent and that the patent was valid. Subsequently, the district
court granted Takedas motion to find the cases to be
exceptional and to award attorneys fees and costs in the amounts
of $11.4 million from Mylan and $5.4 million from
Alphapharm/Genpharm, with interest. Mylan and
Alphapharm/Genpharm both separately appealed the underlying
patent validity and enforceability determinations and the
exceptional case findings to the Court of Appeals for the
Federal Circuit, but the findings were affirmed. Although the
required amounts have been paid, Mylan and Alphapharm/Genpharm
intend to continue to challenge the exceptional case findings by
filing petitions for writ of certiorari with the United States
Supreme Court.
Litigation
related to the former Merck Generics Business
Generics UK Ltd. was accused of having been involved in
pricing agreements pertaining to certain drugs during the years
1996 to 2000. Generics UK Ltd. was able to settle civil claims
for damages brought by the National Health Service in England,
and Wales, and health authorities in Scotland and Northern
Ireland out of court, without any admission of liability. In
addition to these civil claims, in 2006 criminal proceedings
were filed in Southwark Crown Court against Generics UK Ltd. and
other companies, as well as against a number of individuals who
were alleged to be responsible for decision making in the
companies. In early 2008, the House of Lords ruled that a price
fixing cartel was not at the relevant times a criminal offense.
The case was remanded back to the Crown Court for the
prosecution to make an application to amend the indictment. On
July 11, 2008, the Crown Court refused to allow the
prosecutions application, quashed the indictment and
denied the prosecutions application for permission to
appeal. On July 17, 2008, the prosecution applied to the
Court of Appeal (Criminal Division) for permission to appeal. On
December 3, 2008, the Court of Appeal denied the
prosecutions application for permission to appeal.
Accordingly, all civil and criminal proceedings relating to the
above described pricing agreements have now been either
terminated or resolved.
Other
Litigation
The Company is involved in various other legal proceedings that
are considered normal to its business, including certain
proceedings assumed as a result of the former Merck Generics
business acquisition. While it is not possible to predict the
ultimate outcome of such other proceedings, the Company believes
that the ultimate outcome of such other proceedings will not
have a material adverse effect on its financial position or
results of operations.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
44
PART II
|
|
ITEM 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Prior to December 29, 2008, our common stock was traded on
the New York Stock Exchange under the symbol MYL. As
of December 29, 2008, our common stock is traded on the
NASDAQ Stock Market under the symbol MYL. The
following table sets forth the quarterly high and low sales
prices for our common stock for the periods indicated:
|
|
|
|
|
|
|
|
|
Calendar Year Ended
December 31, 2008
|
|
High
|
|
|
Low
|
|
|
Three months ended March 31, 2008
|
|
$
|
15.49
|
|
|
$
|
10.04
|
|
Three months ended June 30, 2008
|
|
|
13.54
|
|
|
|
10.90
|
|
Three months ended September 30, 2008
|
|
|
14.45
|
|
|
|
10.67
|
|
Three months ended December 31, 2008
|
|
|
11.55
|
|
|
|
5.75
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
December 31, 2007
|
|
High
|
|
|
Low
|
|
|
Three months ended March 31, 2007
|
|
$
|
22.75
|
|
|
$
|
19.18
|
|
Three months ended June 30, 2007
|
|
|
22.90
|
|
|
|
17.95
|
|
Three months ended September 30, 2007
|
|
|
18.34
|
|
|
|
13.88
|
|
Three months ended December 31, 2007
|
|
|
17.30
|
|
|
|
12.93
|
|
As of February 16, 2009, there were approximately 170,008
holders of record of our common stock, including those held in
street or nominee name.
On May 12, 2007, in conjunction with the acquisition of the
former Merck Generics business, the Company suspended the
dividend on its common stock effective upon the completion of
the acquisition on October 2, 2007.
The following table shows information about the securities
authorized for issuance under Mylans equity compensation
plans as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities to be
|
|
|
Weighted-Average Exercise
|
|
|
Future Issuance Under
|
|
|
|
Issued upon Exercise of
|
|
|
Price of Outstanding
|
|
|
Equity Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants and
|
|
|
(excluding securities reflected
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Rights
|
|
|
in column (a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
25,760,799
|
|
|
$
|
13.93
|
|
|
|
20,715,362
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,760,799
|
|
|
$
|
13.93
|
|
|
|
20,715,362
|
|
In the past three years, we have issued unregistered securities
in connection with the following transactions:
On September 15, 2008, Mylan completed the sale of
$575.0 million of 3.75% Cash Convertible Notes due 2015
(Cash Convertible Notes). The Cash Convertible Notes
were sold in a private placement to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act).
In conjunction with Mylans acquisition of a controlling
interest in Matrix, certain selling shareholders agreed to
purchase approximately 8.1 million unregistered shares of
Mylan Inc. common stock for approximately $168.0 million.
The exemption from registration was pursuant to Section (4)(2)
of the Securities Act. Each of these selling shareholders
represented to Mylan that it was an accredited investor. The
stock was subsequently registered.
45
STOCK
PERFORMANCE GRAPH
Set forth below is a performance graph comparing the cumulative
total returns (assuming reinvestment of dividends) for the four
fiscal years ended March 31, 2007, the nine-month period
ended December 31, 2007 and the calendar year ended
December 31, 2008 of $100 invested on March 31, 2003
in Mylans Common Stock, the Standard &
Poors 500 Composite Index and the Dow Jones
U.S. Pharmaceuticals Index.
|
|
|
* |
|
$100 invested on 3/31/03 in stock or index-including
reinvestment of dividends. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/03
|
|
|
|
3/04
|
|
|
|
3/05
|
|
|
|
3/06
|
|
|
|
3/07
|
|
|
|
12/07
|
|
|
|
12/08
|
|
Mylan Inc.
|
|
|
|
100.00
|
|
|
|
|
119.11
|
|
|
|
|
93.46
|
|
|
|
|
124.88
|
|
|
|
|
114.15
|
|
|
|
|
76.17
|
|
|
|
|
53.58
|
|
S&P 500
|
|
|
|
100.00
|
|
|
|
|
135.12
|
|
|
|
|
144.16
|
|
|
|
|
161.07
|
|
|
|
|
180.13
|
|
|
|
|
188.81
|
|
|
|
|
118.96
|
|
Dow Jones US Pharmaceuticals
|
|
|
|
100.00
|
|
|
|
|
106.38
|
|
|
|
|
99.28
|
|
|
|
|
101.24
|
|
|
|
|
112.57
|
|
|
|
|
117.27
|
|
|
|
|
95.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
ITEM 6.
|
Selected
Financial Data
|
The selected consolidated financial data set forth below should
be read in conjunction with Managements Discussion
and Analysis of Results of Operations and Financial
Condition and the Consolidated Financial Statements and
related Notes to Consolidated Financial Statements included
elsewhere in this
Form 10-K.
The functional currency of the primary economic environment in
which the operations of Mylan and its subsidiaries in the
U.S. are conducted is the U.S. Dollar
(USD). The functional currency of non-U.S.
subsidiaries is generally the local currency in the country in
which each subsidiary operates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year
Ended(1)
|
|
|
Nine Months
Ended(2)
|
|
|
Fiscal Year Ended March 31,
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
2007(3)
|
|
|
2006(4)
|
|
|
2005(4)
|
|
(In thousands, except per share
amounts)
|
|
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,137,585
|
|
|
$
|
2,178,761
|
|
|
$
|
1,611,819
|
|
|
$
|
1,257,164
|
|
|
$
|
1,253,374
|
|
Cost of sales
|
|
|
3,067,364
|
|
|
|
1,304,313
|
|
|
|
768,151
|
|
|
|
629,548
|
|
|
|
629,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,070,221
|
|
|
|
874,448
|
|
|
|
843,668
|
|
|
|
627,616
|
|
|
|
623,540
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
317,217
|
|
|
|
146,063
|
|
|
|
103,692
|
|
|
|
102,431
|
|
|
|
88,254
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
1,269,036
|
|
|
|
147,000
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
385,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
1,053,485
|
|
|
|
449,598
|
|
|
|
215,538
|
|
|
|
225,380
|
|
|
|
259,105
|
|
Litigation settlements, net
|
|
|
16,634
|
|
|
|
(1,984
|
)
|
|
|
(50,116
|
)
|
|
|
12,417
|
|
|
|
(25,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations
|
|
|
297,885
|
|
|
|
(988,265
|
)
|
|
|
427,554
|
|
|
|
287,388
|
|
|
|
302,171
|
|
Interest expense
|
|
|
357,045
|
|
|
|
179,410
|
|
|
|
52,276
|
|
|
|
31,285
|
|
|
|
|
|
Other income, net
|
|
|
11,337
|
|
|
|
86,611
|
|
|
|
50,234
|
|
|
|
18,502
|
|
|
|
10,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes and minority interest
|
|
|
(47,823
|
)
|
|
|
(1,081,064
|
)
|
|
|
425,512
|
|
|
|
274,605
|
|
|
|
312,247
|
|
Income tax provision
|
|
|
137,423
|
|
|
|
60,073
|
|
|
|
208,017
|
|
|
|
90,063
|
|
|
|
108,655
|
|
Minority interest (income) expense
|
|
|
(4,031
|
)
|
|
|
(3,112
|
)
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings before preferred dividends
|
|
|
(181,215
|
)
|
|
|
(1,138,025
|
)
|
|
|
217,284
|
|
|
|
184,542
|
|
|
|
203,592
|
|
Preferred dividends
|
|
|
139,035
|
|
|
|
15,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings available to common shareholders
|
|
$
|
(320,250
|
)
|
|
$
|
(1,154,024
|
)
|
|
$
|
217,284
|
|
|
$
|
184,542
|
|
|
$
|
203,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,409,859
|
|
|
$
|
11,353,176
|
|
|
$
|
4,253,867
|
|
|
$
|
1,870,526
|
|
|
$
|
2,135,673
|
|
Working capital
|
|
|
1,630,023
|
|
|
|
1,056,950
|
|
|
|
1,711,509
|
|
|
|
926,650
|
|
|
|
1,282,945
|
|
Short-term borrowings
|
|
|
151,109
|
|
|
|
144,355
|
|
|
|
108,259
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion of long-term debt
|
|
|
5,168,800
|
|
|
|
5,112,094
|
|
|
|
1,776,362
|
|
|
|
687,938
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,703,509
|
|
|
|
3,403,426
|
|
|
|
1,648,860
|
|
|
|
787,651
|
|
|
|
1,845,936
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings available to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.05
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
1.01
|
|
|
$
|
0.80
|
|
|
$
|
0.76
|
|
Diluted
|
|
$
|
(1.05
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
0.99
|
|
|
$
|
0.79
|
|
|
$
|
0.74
|
|
Cash dividends declared and paid
|
|
$
|
|
|
|
$
|
0.06
|
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.12
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
304,360
|
|
|
|
257,150
|
|
|
|
215,096
|
|
|
|
229,389
|
|
|
|
268,985
|
|
Diluted
|
|
|
304,360
|
|
|
|
257,150
|
|
|
|
219,120
|
|
|
|
234,209
|
|
|
|
273,621
|
|
|
|
|
(1) |
|
Calendar year 2008 cost of sales includes approximately
$415.6 million (pre-tax) related to the amortization of
purchased intangibles and the amortization of the inventory
step-up
primarily associated with the former Merck Generics business and
Matrix acquisitions. Calendar year 2008 also includes a non-cash
goodwill impairment loss of $385.0 million (pre-tax and
after tax) and non-cash impairment charges on certain other
assets of $72.5 million (pre-tax). |
47
|
|
|
(2) |
|
The nine months ended December 31, 2007 includes the
results of the former Merck Generics business acquisition from
October 2, 2007. In addition to the write-off of acquired
in-process research and development of $1.27 billion
(pre-tax and after tax), cost of sales includes approximately
$148.9 million (pre-tax) related to the amortization of
purchased intangibles and the amortization of the inventory
step-up
primarily associated with the former Merck Generics business and
Matrix acquisitions. |
|
(3) |
|
Fiscal year 2007 includes the results of the Matrix acquisition
from January 8, 2007. In addition to the write-off of
acquired in-process research and development of
$147.0 million (pre-tax and after tax), cost of sales
includes approximately $17.6 million (pre-tax) related to
the amortization of intangibles and the inventory
step-up
primarily associated with the acquisition. |
|
(4) |
|
Fiscal year 2006 and fiscal year 2005 do not include stock-based
compensation expense as required by SFAS No. 123
(revised 2004), as the adoption of this standard did not occur
until April 1, 2006 and the Company elected the prospective
method. |
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis addresses material changes
in the results of operations and financial condition of Mylan
Inc. and subsidiaries (the Company,
Mylan or we) for the periods presented.
This discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements, and the Companys other
SEC filings and public disclosures.
This
Form 10-K
may contain forward-looking statements. These
statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may include, without limitation,
statements about the Companys market opportunities,
strategies, competition and expected activities and
expenditures, and at times may be identified by the use of words
such as may, could, should,
would, project, believe,
anticipate, expect, plan,
estimate, forecast,
potential, intend, continue
and variations of these words or comparable words.
Forward-looking statements inherently involve risks and
uncertainties. Accordingly, actual results may differ materially
from those expressed or implied by these forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, the risks described
above under Risk Factors in Part II,
Item 1A. The Company undertakes no obligation to update any
forward-looking statements for revisions or changes after the
date of this
Form 10-K.
Executive
Overview
We are a leading global pharmaceutical company and have
developed, manufactured, marketed, licensed and distributed high
quality generic, branded and branded generic pharmaceutical
products for more than 45 years. As a result of our
acquisition of the former Merck Generics business in October
2007 and the acquisition of a controlling interest in Matrix in
January 2007, we are a leader in branded specialty
pharmaceuticals and the third largest active pharmaceutical
ingredient (API) manufacturer with respect to the
number of drug master files (DMFs) filed with
regulatory agencies. We hold a leading generics sales position
in four of the worlds largest pharmaceutical markets,
those being the United States (U.S.), the United
Kingdom (U.K.), France and Japan, and we also hold
leading sales positions in several other key generics markets,
including Australia, Belgium, Italy, Portugal and Spain.
Mylan has three reportable segments: the Generics
Segment, the Specialty Segment, and the
Matrix Segment, as determined in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and
Related Information. Certain general and administrative
expenses, as well as litigation settlements, revenue related to
the sale of Bystolic rights, amortization of intangible assets
and certain purchase accounting items (such as the write-off of
in-process research and development and the amortization of the
inventory step-up), non-cash impairment charges, and other
expenses not directly attributable to the segments are reported
in Corporate/Other.
The measure of profitability used by the Company with respect to
segments is gross profit less direct research and development
expenses (R&D) and direct selling, general and
administrative expenses (SG&A).
48
Change in
Fiscal Year
Effective October 2, 2007, we changed our fiscal year end
from March 31st to December 31st. We have defined
various periods that are covered in the discussion below as
follows:
|
|
|
|
|
calendar year 2008 January 1, 2008
through December 31, 2008;
|
|
|
|
calendar year 2007 or comparable twelve-month
period January 1, 2007 through
December 31, 2007;
|
|
|
|
transition period April 1, 2007
through December 31, 2007;
|
|
|
|
comparable nine-month period
April 1, 2006 through December 31, 2006; and
|
|
|
|
fiscal 2007 April 1, 2006 through
March 31, 2007.
|
The above periods include Matrix from January 8, 2007 and
the former Merck Generics business from October 2, 2007. As
a result of the change in year end, the Company believes that a
comparison between calendar year 2008 and calendar year 2007 and
a comparison between the transition period and the comparable
nine-month period enhances a readers understanding of the
Companys results of operations and, as such, these are the
comparisons which are presented below in the section titled
Results of Operations. The financial and operational
trends highlighted in the comparisons presented below are
consistent with those that would result from a comparison of
calendar year 2008 to the transition period and from a
comparison of the transition period to fiscal 2007, respectively.
An overview of fiscal 2007 is also provided below in order to
highlight certain trends and the effects on that year of the
Matrix transaction which are not in the comparable nine-month
period.
Bystolic®
In January 2006, the Company announced an agreement with Forest
Laboratories Holdings, Ltd. (Forest), a wholly-owned
subsidiary of Forest Laboratories, Inc., for the
commercialization, development and distribution of Bystolic in
the United States and Canada (the 2006 Agreement).
Under the terms of that agreement, Mylan received a
$75.0 million up-front payment and $25.0 million upon
approval of the product. Such amounts were being deferred until
the commercial launch of the product and were to be amortized
over the remaining term of the license agreement. Mylan also had
the potential to earn future milestones and royalties on
Bystolic sales and an option to co-promote the product, while
Forest assumed all future development and selling and marketing
expenses.
In February 2008, Mylan executed an agreement with Forest
whereby Mylan sold to Forest its rights to Bystolic (the
Amended Agreement). Under the terms of the Amended
Agreement, Mylan received a one-time cash payment of
$370.0 million, which was deferred along with the
$100.0 million received under the 2006 Agreement, and
retained its contractual royalties for three years, through
2010. Mylans obligations under the 2006 Agreement to
supply Bystolic to Forest were unchanged by the Amended
Agreement. Mylan believed that these supply obligations
represented significant continuing involvement as Mylan remained
contractually obligated to manufacture the product for Forest
while the product was being commercialized. As a result of this
continuing involvement, Mylan had been amortizing the
$470.0 million of deferred revenue ratably through 2020
pending the transfer of manufacturing responsibility that was
anticipated to occur in the second half of 2008.
In September 2008, Mylan completed the transfer of all
manufacturing responsibilities for the product to Forest, and
Mylans supply obligations have therefore been eliminated.
The Company believes that it no longer has significant
continuing involvement and that the earnings process has been
completed. As such, the deferred revenue of $468.1 million
was recognized and included in other revenues in the
Companys Consolidated Statements of Operations during
calendar year 2008.
Future royalties are considered to be contingent consideration
and are recognized in other revenue as earned upon sales of the
product by Forest. Such royalties are recorded at the net
royalty rates specified in the Amended Agreement.
49
Issuance
of Cash Convertible Notes
On September 15, 2008, Mylan completed the sale of
$575.0 million of 3.75% Cash Convertible Notes due 2015
(Cash Convertible Notes). The Cash Convertible Notes
were sold in a private placement to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of
1933, as amended (the Securities Act).
The Cash Convertible Notes, which are unsecured, pay interest
semi-annually at a rate of 3.75% per annum and mature on
September 15, 2015. The Cash Convertible Notes are
convertible under certain circumstances into cash at an initial
conversion reference rate of 75.0751 shares of Mylans
common stock per $1,000 principal amount of notes (which is
equal to an initial conversion reference price of approximately
$13.32 per share). The Cash Convertible Notes are not
convertible into shares of Mylan common stock or any other
securities.
Goodwill
Impairment
On February 27, 2008, the Company announced that it was
reviewing strategic alternatives for its specialty business,
Dey, including the potential sale of the business. This decision
was based upon several factors, including a strategic review of
the business, the expected performance of the
Perforomist®
product, where anticipated growth was determined to be slower
than expected and the timeframe to reach peak sales was
determined to be longer than was originally anticipated.
As a result of our ongoing review of strategic alternatives, we
determined that it was more likely than not that the business
would be sold or otherwise disposed of significantly before the
end of its previously estimated useful life. Accordingly, a
recoverability test of Deys long-lived assets was
performed during the three months ended March 31, 2008 in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(SFAS No. 144). We included both cash
flow projections and estimated proceeds from the eventual
disposition of the long-lived assets. The estimated undiscounted
future cash flows exceeded the book values of the long-lived
assets and, as a result, no impairment charge was recorded.
Upon the closing of the former Merck Generics business
acquisition, Dey was defined as the Specialty Segment under the
provisions of SFAS No. 131. Dey is also considered a
reporting unit under the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142). Upon closing of the
transaction, the Company allocated $711.2 million of
goodwill to Dey.
The Company tests goodwill for possible impairment on an annual
basis and at any other time events occur or circumstances
indicate that the carrying amount of goodwill may be impaired.
As we had determined that it was more likely than not that the
business would be sold or otherwise disposed of significantly
before the end of its previously estimated useful life, the
Company was required, during the three months ended
March 31, 2008, to assess whether any portion of its
recorded goodwill balance was impaired.
The first step of the SFAS No. 142 impairment analysis
consisted of a comparison of the fair value of the reporting
unit with its carrying amount, including the goodwill. We
performed extensive valuation analyses, utilizing both income
and market-based approaches, in our goodwill assessment process.
The following describes the valuation methodologies used to
derive the estimated fair value of the reporting unit.
Income Approach: To determine fair value, we
discounted the expected future cash flows of the reporting unit.
We used a discount rate, which reflected the overall level of
inherent risk and the rate of return an outside investor would
have expected to earn. To estimate cash flows beyond the final
year of our model, we used a terminal value approach. Under this
approach, we used estimated operating income before interest,
taxes, depreciation and amortization in the final year of our
model, adjusted to estimate a normalized cash flow, applied a
perpetuity growth assumption, and discounted by a perpetuity
discount factor to determine the terminal value. We incorporated
the present value of the resulting terminal value into our
estimate of fair value.
Market-Based Approach: To corroborate the
results of the income approach described above, we estimated the
fair value of our reporting unit using several market-based
approaches, including the guideline company method which focused
on comparing our risk profile and growth prospects to a select
group of publicly traded companies with reasonably similar
guidelines.
50
Based on the SFAS No. 142 step one
analysis that was performed for Dey, the Company determined that
the carrying amount of the net assets of the reporting unit was
in excess of its estimated fair value. As such, the Company was
required to perform the step two analysis for Dey,
in order to determine the amount of any goodwill impairment. The
step two analysis consisted of comparing the implied
fair value of the goodwill with the carrying amount of the
goodwill, with an impairment charge resulting from any excess of
the carrying value of the goodwill over the implied fair value
of the goodwill based on a hypothetical allocation of the
estimated fair value to the net assets. Based on the second step
analysis, the Company concluded that $385.0 million of the
goodwill recorded at Dey was impaired. As a result, the Company
recorded a non-cash goodwill impairment charge of
$385.0 million during the three months ended March 31,
2008, which represented our best estimate as of March 31,
2008. The allocation discussed above was performed only for
purposes of assessing goodwill for impairment; accordingly, we
have not adjusted the net book value of the assets and
liabilities on the Companys Consolidated Balance Sheet,
other than goodwill, as a result of this process.
The determination of the fair value of the reporting unit
required the Company to make significant estimates and
assumptions that affect the reporting units expected
future cash flows. These estimates and assumptions primarily
include, but are not limited to, the discount rate, terminal
growth rates, operating income before depreciation and
amortization, and capital expenditures forecasts. Due to the
inherent uncertainty involved in making these estimates, actual
results could differ from those estimates. In addition, changes
in underlying assumptions would have a significant impact on
either the fair value of the reporting unit or the goodwill
impairment charge.
The hypothetical allocation of the fair value of the reporting
unit to individual assets and liabilities within the reporting
unit also requires the Company to make significant estimates and
assumptions. The hypothetical allocation requires several
analyses to determine the estimate of the fair value of assets
and liabilities of the reporting unit.
In September 2008, following the completion of the comprehensive
review of strategic alternatives for Dey, the Company announced
its decision to retain the Dey business. This decision included
a plan to realign the business, including positioning the
Company to divest Deys current facilities over the next
two years. As a result, the Company expects to incur severance
and other exit costs. In addition, the comprehensive review
resulted in a non-cash impairment of certain non-core,
insignificant, third-party products.
Levetiracetam
Launch
On November 4, 2008, the Company announced that its
wholly-owned subsidiary, Mylan Pharmaceuticals Inc.
(MPI), received final approval from the
U.S. Food and Drug Administration (FDA) for its
Abbreviated New Drug Application (ANDA) for
levetiracetam tablets, 250 mg, 500 mg and 750 mg.
Levetiracetam tablets are the generic version of UCB
Pharmas
Keppra®.
Levetiracetam tablets had U.S. sales of approximately
$1.0 billion for the 12 months ended
September 30, 2008 for these three strengths, according to
IMS. Pursuant to an agreement with UCB Societe Anonyme and UCB
Pharma Inc. to settle pending litigation relating to
levetiracetam tablets, Mylan began shipment of its product
immediately upon approval. Additional generic competition
entered the market in mid-January 2009.
Other
Product Opportunities
On December 2, 2008, the Company announced that Mylan and
MPI have entered into a settlement agreement with Novartis
Pharmaceuticals Corp., Novartis Corp. and Novartis International
AG related to letrozole tablets, the generic version of
Novartis
Femara®.
Under the agreement, Mylan is provided a patent license that
will enable the Company to market letrozole tablets,
2.5 mg, prior to the expiration of U.S. Patent
No. 4,978,672. Additional terms related to the settlement
remain confidential, and the agreement is subject to review by
the U.S. Department of Justice and the Federal Trade
Commission. Letrozole tablets, which are used in the treatment
of breast cancer, had U.S. sales of approximately
$470.0 million for the 12 months ended
September 30, 2008, according to IMS. Mylan was the first
generic drug company to file a substantially complete ANDA
containing a Paragraph IV certification for the product.
51
Financial
Summary
Mylans financial results for calendar year 2008 included
total revenues of $5.14 billion. For the comparable
twelve-month period, total revenues were $2.67 billion.
This represents an increase of $2.47 billion in total
revenues. Consolidated gross profit for the current year was
$2.07 billion compared to $1.11 billion in the
comparable twelve-month period, an increase of
$960.9 million. In the current year, operating income of
$297.9 million was realized compared to an operating loss
of $996.1 million in the comparable twelve-month period.
The net loss available to common shareholders for the current
year was $320.3 million compared to $1.23 billion in
the comparable twelve-month period. This translates into a loss
per diluted share of $1.05 for calendar year 2008, compared to
$4.91 in the comparable twelve-month period. Comparability of
results between these two periods is affected by the following
items:
Calendar
Year 2008:
|
|
|
|
|
The recognition of $468.1 million (pre-tax) of deferred
revenue related to Mylans sale of the product rights of
Bystolic;
|
|
|
|
$415.6 million (pre-tax), which consisted primarily of
incremental amortization related to purchased intangible assets
and the amortization of the inventory
step-up
associated with the acquisition of the former Merck Generics
business;
|
|
|
|
Non-cash impairment loss on the goodwill of the Specialty
Segment of $385.0 million (pre-tax and after-tax);
|
|
|
|
Non-cash impairment charges of $72.5 million (pre-tax) on
certain other assets;
|
|
|
|
A $139.0 million (pre-tax and after-tax) dividend on the
6.5% mandatory convertible preferred stock; and
|
|
|
|
A full twelve months of results from the former Merck Generics
business in calendar year 2008 as compared to three months in
calendar year 2007.
|
Calendar
Year 2007:
|
|
|
|
|
The write-off of acquired in-process research and development
related to the acquisition of the former Merck Generics business
in the amount of $1.27 billion (pre-tax and after-tax);
|
|
|
|
The write-off of acquired in-process research and development
related to the acquisition of Matrix of $147.0 (pre-tax and
after-tax);
|
|
|
|
Charges totaling $57.2 million (pre-tax) related to early
repayment of certain debt and financing fees;
|
|
|
|
Net gains of $85.0 million (pre-tax) on foreign currency
exchange contracts, primarily a foreign currency option contract
related to the purchase price for the former Merck Generics
business acquisition;
|
|
|
|
$170.8 million (pre-tax), which consisted primarily of
incremental amortization expense related to purchased intangible
assets and the amortization of the inventory
step-up
associated with the acquisitions of the former Merck Generics
business and Matrix; and
|
|
|
|
A $16.0 million (pre-tax and after-tax) dividend on the
6.5% mandatory convertible preferred stock.
|
In addition to the above, the loss per common share for calendar
year 2007 was impacted by the issuance of 26.2 million
shares of common stock in March 2007 and the issuance of
55.4 million shares of common stock in November 2007.
Because these offerings occurred during calendar year 2007, the
loss per common share did not bear the full impact of these new
shares. However, these shares were outstanding for the full
calendar year 2008. A more detailed discussion of the
Companys financial results can be found below in the
section titled Results of Operations.
52
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year December 31,
|
|
|
Nine Months December 31,
|
|
|
Fiscal Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
March 31, 2007
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,631,237
|
|
|
$
|
2,646,643
|
|
|
$
|
2,162,943
|
|
|
$
|
1,103,247
|
|
|
$
|
1,586,947
|
|
Other revenues
|
|
|
506,348
|
|
|
|
19,380
|
|
|
|
15,818
|
|
|
|
21,310
|
|
|
|
24,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,137,585
|
|
|
|
2,666,023
|
|
|
|
2,178,761
|
|
|
|
1,124,557
|
|
|
|
1,611,819
|
|
Cost of sales
|
|
|
3,067,364
|
|
|
|
1,556,728
|
|
|
|
1,304,313
|
|
|
|
515,736
|
|
|
|
768,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,070,221
|
|
|
|
1,109,295
|
|
|
|
874,448
|
|
|
|
608,821
|
|
|
|
843,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
317,217
|
|
|
|
182,911
|
|
|
|
146,063
|
|
|
|
66,844
|
|
|
|
103,692
|
|
Acquired in-process research and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
|
|
|
|
|
|
|
1,416,036
|
|
|
|
1,269,036
|
|
|
|
|
|
|
|
147,000
|
|
Goodwill impairment
|
|
|
385,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
1,053,485
|
|
|
|
512,352
|
|
|
|
449,598
|
|
|
|
152,784
|
|
|
|
215,538
|
|
Litigation settlements, net
|
|
|
16,634
|
|
|
|
(5,946
|
)
|
|
|
(1,984
|
)
|
|
|
(46,154
|
)
|
|
|
(50,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,772,336
|
|
|
|
2,105,353
|
|
|
|
1,862,713
|
|
|
|
173,474
|
|
|
|
416,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations
|
|
|
297,885
|
|
|
|
(996,058
|
)
|
|
|
(988,265
|
)
|
|
|
435,347
|
|
|
|
427,554
|
|
Interest expense
|
|
|
357,045
|
|
|
|
200,394
|
|
|
|
179,410
|
|
|
|
31,292
|
|
|
|
52,276
|
|
Other income, net
|
|
|
11,337
|
|
|
|
97,060
|
|
|
|
86,611
|
|
|
|
39,785
|
|
|
|
50,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes and minority interest
|
|
|
(47,823
|
)
|
|
|
(1,099,392
|
)
|
|
|
(1,081,064
|
)
|
|
|
443,840
|
|
|
|
425,512
|
|
Income tax provision
|
|
|
137,423
|
|
|
|
112,823
|
|
|
|
60,073
|
|
|
|
155,267
|
|
|
|
208,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before minority interest
|
|
|
(185,246
|
)
|
|
|
(1,212,215
|
)
|
|
|
(1,141,137
|
)
|
|
|
288,573
|
|
|
|
217,495
|
|
Minority interest (income) expense
|
|
|
(4,031
|
)
|
|
|
(2,901
|
)
|
|
|
(3,112
|
)
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings before preferred dividends
|
|
|
(181,215
|
)
|
|
|
(1,209,314
|
)
|
|
|
(1,138,025
|
)
|
|
|
288,573
|
|
|
|
217,284
|
|
Preferred dividends
|
|
|
139,035
|
|
|
|
15,999
|
|
|
|
15,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings available to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
$
|
(320,250
|
)
|
|
$
|
(1,225,313
|
)
|
|
$
|
(1,154,024
|
)
|
|
$
|
288,573
|
|
|
$
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.05
|
)
|
|
$
|
(4.91
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
1.37
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.05
|
)
|
|
$
|
(4.91
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
1.34
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
304,360
|
|
|
|
249,652
|
|
|
|
257,150
|
|
|
|
211,075
|
|
|
|
215,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
304,360
|
|
|
|
249,652
|
|
|
|
257,150
|
|
|
|
215,275
|
|
|
|
219,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar
Year 2008 Compared to Calendar Year 2007
Total
Revenues and Gross Profit
For calendar year 2008, Mylan reported total revenues of
$5.14 billion compared to $2.67 billion in the same
prior year period. This represents an increase of
$2.47 billion. In calendar year 2008, the former Merck
Generics business contributed third-party revenues of
$2.57 billion of which $2.19 billion are included in
the Generics Segment and $386.0 million are included in the
Specialty Segment. In calendar year 2007, for the three months
following the date of acquisition, the former Merck Generics
business contributed third-party revenues of $700.6 million
of which $598.5 million are included in the Generics
Segment and $102.1 million are included in the Specialty
Segment. Also included in total revenues for the current year is
$468.1 million of previously deferred revenue recognized
related to the sale of our rights of Bystolic. Excluding revenue
contributed by the former Merck Generics business for both
years, and the Bystolic revenue in the current year, total sales
for calendar
53
year 2008 were $2.10 billion compared to
$1.97 billion. This represents an increase of approximately
6.7% or $131.0 million over the comparable twelve-month
period, which includes approximately 1.0% of unfavorable foreign
currency translation impact on Matrixs revenues due to the
strengthening of the U.S. Dollar. Matrix contributed third-party
revenues of $376.0 million compared to $343.6 million
in the comparable twelve-month period.
In arriving at net revenues, gross revenues are reduced by
provisions for estimates, including discounts, customer
performance, indirect rebates and promotions, price adjustments,
returns and chargebacks. See the section titled Application
of Critical Accounting Policies in this Item 7, for a
thorough discussion of our methodology with respect to such
provisions. For calendar year ended December 31, 2008, the
most significant amounts charged against gross revenues were for
chargebacks in the amount of $1.46 billion and promotions
and indirect rebates in the amount of $753.7 million.
Gross profit for calendar year 2008 was $2.07 billion and
gross margins were 40.3%. For calendar year 2007, gross profit
was $1.11 billion and gross margins were 41.6%. Gross
profit was impacted by certain purchase accounting related items
recorded during calendar year 2008 of approximately
$415.6 million, which consisted primarily of incremental
amortization related to the purchased intangible assets and the
amortization of the inventory
step-up
associated with the acquisition of the former Merck Generics
business. In addition, gross profit is impacted by certain
non-cash impairment charges of $65.7 million recorded
during the calendar year ended December 31, 2008. Excluding
these items, as well as the Bystolic revenue, gross margins
would have been approximately 44.6%. Prior year gross profit is
also impacted by similar purchase accounting related items
recorded primarily with respect to the acquisition of the former
Merck Generics business and the acquisition of Matrix in the
amount of $170.8 million. Excluding such items, gross
margins in the prior year would have been approximately 48.0%.
The decrease in gross margins, excluding the items noted above,
can generally be attributed to the fact that, on average, the
newly acquired former Merck Generics business, particularly in
countries outside of the United States, contributes margins that
are lower than those realized by Mylans
U.S. subsidiaries. The impact of these lower margins was
realized for a full twelve months in calendar year 2008 compared
to only three months in calendar year 2007. Additionally, gross
margin is impacted by the timing of significant product
launches. Products generally contribute most significantly to
gross margin at the time of their launch and even more so in
periods of market exclusivity or limited generic competition.
For a period of time during calendar year 2007, Mylan had
exclusivity on both amlodipine and oxybutynin. In the calendar
year 2008, Mylan had exclusivity on levetiracetam upon its
launch of the product on November 4, 2008.
Generics
Segment
For calendar year 2008, the Generics Segment reported total
revenues of $3.91 billion compared to $2.22 billion in
calendar year 2007. Foreign currency translation had a negative
impact on total revenues of approximately 2%, mainly due to the
strengthening of the U.S. dollar in comparison to the Euro
and Australian dollar. Total revenues from North America were
$1.85 billion for calendar year 2008 compared to
$1.68 billion for calendar year 2007, representing an
increase of $176.6 million. Excluding revenue contributed
from the acquisition of Merck Generics from both periods, total
North America revenues increased by $99.8 million or 6.2%.
This increase is the result of new product revenue and favorable
volume, as doses shipped during the twelve months, excluding the
impact of the acquisition, increased by 6.6% to
16.7 billion, partially offset by unfavorable pricing.
Fentanyl, Mylans AB-rated generic alternative to
Duragesic®,
continued to contribute significantly to the financial results
despite the entrance into the market of additional generic
competition. As expected, the additional competition had an
unfavorable impact on fentanyl pricing, and the Company expects
that additional competition in the future could further impact
pricing and market share. However, this was offset by increased
volumes of fentanyl which Mylan was able to supply to the market
as certain competitors experienced recall and supply issues.
Additional generic competition resulted in unfavorable pricing
on several other significant products in the Companys
portfolio. As is the case in the generic industry, the entrance
into the market of additional competition generally has a
negative impact on the volume and pricing of the affected
products. For one product in particular, amlodipine, Mylan had
market exclusivity for a portion of calendar year 2007. As a
result, amlodipine accounted for
54
approximately 7% of calendar year 2007 North American revenues
(excluding the former Merck Generics business). Additional
generic competition was especially heavy on amlodipine and, as a
result, calendar year 2008 revenues were insignificant.
In order to offset decreases in sales as a result of additional
competition, generic pharmaceutical manufacturers must be able
to successfully bring new products to market. Products launched
in the U.S. during calendar year 2008 contributed revenues
of $264.0 million, with paroxetine extended-release and
levetiracetam accounting for the majority.
Total revenues from EMEA were $1.52 billion for calendar
year 2008 compared to $373.1 million for calendar year
2007, all of which were the result of the acquisition of the
former Merck Generics business in both periods. Within EMEA,
approximately 70% of net revenues are derived from the three
largest markets: France, the U.K. and Germany.
Total revenues from Asia Pacific were $537.4 million for
calendar year 2008 compared to $170.9 million for calendar
year 2007, all of which were the result of the acquisition of
the former Merck Generics business in both periods. The majority
of revenues from Asia Pacific are contributed by Alphapharm,
Mylans Australian subsidiary, with the remainder comprised
of sales in Japan and New Zealand.
Certain markets in which the Company does business have recently
undergone, some for the first time, or will soon undergo,
government-imposed price reductions or similar pricing pressures
on pharmaceutical products. This is true in France and
Australia, though this issue is not limited to solely these
markets. In addition, a number of markets in which we operate
have implemented or may implement tender systems for
generic pharmaceuticals in an effort to lower prices. Such
measures are likely to have a negative impact on sales and gross
profit in these markets. However, some pro-generic government
initiatives in certain markets could help to offset some of this
unfavorability by potentially increasing generic substitution.
For calendar year 2008, segment profitability for the Generics
Segment was $969.9 million compared to $782.1 million
in calendar year 2007. Excluding the results of the Merck
Generics business from both years segment profitability
increased by $41.3 million. This increase is the result of
higher revenues and gross profit, as discussed above, partially
offset by increased R&D expense, as further explained below.
Specialty
Segment
For calendar year 2008, the Specialty Segment reported total
revenues of $417.2 million, of which $386.0 million
represented sales to third-parties. For calendar year 2007, from
the date of acquisition, the Specialty Segment reported total
revenues of $105.5 million, of which $102.1 million
represented sales to third-parties. The Specialty Segment
consists of Dey, an entity acquired as part of the former Merck
Generics business that focuses on the development, manufacturing
and marketing of specialty pharmaceuticals in the respiratory
and severe allergy markets. The most significant contributor to
the Specialty Segment revenues and profitability is
EpiPen®,
an epinephrine auto-injector, which is used in the treatment of
severe allergies. EpiPen is the number one prescribed treatment
for severe allergic reactions with a U.S. market share of over
95%.
Segment profitability for the Specialty Segment for calendar
year 2008 was $36.6 million compared to $18.9 million
in calendar year 2007.
Matrix
Segment
For calendar year 2008, the Matrix Segment reported total
revenues of $444.8 million, of which $376.0 million
represented third-party sales, compared to total revenues of
$389.6 million for calendar year 2007, of which
$343.6 million represented third-party sales. Approximately
50% of the Matrix Segments third-party net revenues comes
from the sale of API and intermediates and approximately 20%
comes from the distribution of branded generic products in
Europe. The majority of the remainder comes from the sale of
Matrixs finished dosage form (FDF)
anti-retroviral (ARV) products. Matrix launched its
FDF business in late calendar year 2007. The increase in
third-party revenues contributed by Matrix in calendar year 2008
includes approximately 5.0% unfavorable foreign currency impact
as a result of the U.S. Dollar strengthening against both
the Indian Rupee and the Euro.
55
In addition to its net revenue, Matrix realized other revenue of
$44.9 million through intersegment product development
agreements. Intersegment net revenue consists of API sales to
the Generics Segment primarily in conjunction with Mylans
vertical integration strategy.
Segment profitability for the Matrix Segment for calendar year
2008 was $25.0 million compared to $26.7 million in
calendar year 2007. The decrease in segment profitability is the
result of higher operating expenses, as further explained below,
partially offset by increased sales and gross profit.
Operating
Expenses
R&D expense for calendar year 2008 was $317.2 million
compared to $182.9 million for calendar year 2007.
Excluding R&D expense incurred by the former Merck Generics
business for both years, R&D increased by
$22.6 million or 16.3% primarily as a result of increased
ANDA and other regulatory submissions, payments incurred with
respect to product development agreements, and higher expenses
associated with Matrixs launch of its FDF franchise.
During calendar year 2007, the Company recognized charges of
$147.0 million to write-off acquired in-process R&D
associated with the Matrix acquisition and $1.27 billion to
write-off acquired in-process R&D associated with the
acquisition of the former Merck Generics business. These amounts
represent the fair value of purchased in-process technology for
research projects that, as of the closing dates of the
acquisitions, had not reached technological feasibility and had
no alternative future use.
SG&A expense for calendar year 2008 was $1.05 billion
compared to $512.4 million for the prior year, an increase
of $541.1 million. Excluding SG&A expense incurred by
the former Merck Generics business for both years, SG&A
expense increased by $73.5 million or 20.5%. This increase
was primarily realized by Corporate/Other and the Matrix
Segment. The increase in Corporate/Other SG&A expense is
due primarily to an increase in professional and consulting fees
as well as higher payroll and payroll related costs. The
increase in professional and consulting fees is associated
primarily with the ongoing integration of the former Merck
Generics business. The increase in payroll and related costs is
principally attributable to the
build-up of
additional corporate infrastructure as a direct result of the
acquisition.
The increase in SG&A in the Matrix Segment is primarily due
to costs incurred with respect to a restructuring of
Matrixs European distribution business, including the
closure of several dormant entities.
Litigation
Settlements, net
During calendar year 2008, the Company recorded net charges of
$16.6 million related to the settlement of outstanding
litigation. Of this amount, the majority relates to the awarding
of attorneys fees in a patent infringement case in which
Mylan was the defendant.
Interest
Expense
Interest expense for calendar year 2008 totaled
$357.0 million compared to $200.4 million for calendar
year 2007. The increase is due to the additional debt incurred
to finance the acquisition of the former Merck Generics business
during the fourth quarter of calendar year 2007.
Other
Income, net
Other income, net, was $11.3 million for calendar year
2008, compared to $97.1 million in calendar year 2007.
Calendar year 2007 included a $85.0 million non-cash
mark-to-market
unrealized gain on a deal-contingent foreign currency option
contract that was entered into for the then pending acquisition
of the former Merck Generics business, and a loss of
$57.2 million on the early repayment of debt related to a
tender offer made to holders of the Companys Senior Notes
and financing fees related to an interim term loan.
Excluding these items, other income decreased in calendar year
2008 primarily due to lower interest and dividend income as a
result of lower cash balances and
available-for-sale
securities.
56
Income
Tax Expense
For calendar year 2008, income tax expense was
$137.4 million as compared to $112.8 million for
calendar year 2007. The effective tax rate in 2008 was largely
influenced by the gain on the sale of Bystolic product rights
and the non-deductible non-cash goodwill impairment charge
related to Dey. The effective tax rate in the comparable
twelve-month period was impacted by the write-off of acquired
in-process research and development related to the Merck
Generics acquisition and the acquisition of the controlling
interest in Matrix.
Transition
Period Ended December 31, 2007 Compared to Nine-Month
Period Ended December 31, 2006
As noted above, transition period refers to the
nine-month period from April 1, 2007 through
December 31, 2007. In the discussion that follows,
comparable nine-month period or prior
period refers to the nine-month period from April 1,
2006 through December 31, 2006.
Total
Revenues and Gross Profit
For the transition period, Mylan reported total revenues of
$2.18 billion compared to $1.12 billion in the
comparable nine-month period. This represents an increase of
$1.05 billion or 94%. The acquisition of the former Merck
Generics business contributed revenues of $700.6 million,
of which $598.5 million are included in the Generics
Segment and $102.1 million are included in the Specialty
Segment. Matrix contributed revenues of $264.2 million, all
of which are included in the Matrix Segment, and are incremental
in the current year. The remaining increase is primarily due to
growth in Mylans historical business.
Other revenue for the transition period was $15.8 million
compared to $21.3 million in the comparable nine-month
period. The decrease is primarily the result of the recognition,
in the prior period, of previously deferred amounts related to
the sale of
Apokyn®,
which was fully recognized by December 31, 2006.
In arriving at net revenues, gross revenues are reduced by
provisions for estimates, including discounts, customer
performance and promotions, price adjustments, returns and
chargebacks. See the section titled Application of Critical
Accounting Policies in this Item 7, for a thorough
discussion of our methodology with respect to such provisions.
For the transition period, the most significant amounts charged
against gross revenues were for chargebacks in the amount of
$1.01 billion and customer performance and promotions in
the amount of $199.7 million. For the comparable nine-month
period, chargebacks of $893.3 million and customer
performance and promotions of $122.9 million were charged
against gross revenues. Customer performance and promotions
include direct rebates as well as promotional programs.
Gross profit for the transition period was $874.4 million
and gross margins were 40.1%. Gross profit is impacted by
certain purchase accounting related items recorded during the
nine months ended December 31, 2007 of approximately
$148.9 million, which consisted primarily of incremental
amortization related to purchased intangible assets and the
amortization of the inventory
step-up
associated with the acquisition of both the former Merck
Generics business and Matrix. Excluding such items, gross
margins were 47.0% compared to 54.1% for the nine months ended
December 31, 2006.
A significant portion of gross profit in the transition period,
excluding amounts related to the acquisitions of the former
Merck Generics business and Matrix, was comprised of fentanyl
and new products, including amlodipine. Products generally
contribute most significantly to gross margin at the time of
their launch and even more so in periods of market exclusivity
or limited generic competition. As a result of multiple market
entrants shortly after Mylans launch of amlodipine, Mylan
did not realize all of the benefits of market exclusivity (less
than 180 days) with respect to this product. As it relates
to fentanyl, additional competitors entered the market during
the current period which had a negative impact on pricing and
volume. Additionally, the companies acquired during the period
have lower overall gross margins, and, as such, Mylans
consolidated gross margin was also unfavorably impacted by this
incremental revenue and gross profit.
Generics
Segment
For the transition period, the Generics Segment reported total
revenues of $1.81 billion. Generics Segment revenues are
derived from sales primarily in the U.S. and Canada
(collectively, North America), Europe, the
57
Middle East and Africa (collectively, EMEA) and
Australia, Japan and New Zealand (collectively, Asia
Pacific).
Revenues from North America were $1.27 billion for the
transition period compared to $1.12 billion for the
comparable nine-month period, representing an increase of
$143.8 million or 13%. Of this increase, $54.4 million
is the result of the acquisition of the former Merck Generics
business. Excluding the impact of the acquisition, total North
America revenues increased by $89.4 million or 8%. This
increase is the result of new products and favorable volume,
partially offset by unfavorable pricing.
Products launched subsequent to December 31, 2006,
contributed net revenues of $156.5 million, the majority of
which was amlodipine. Fentanyl, Mylans AB-rated generic
alternative to Duragesic, continued to contribute significantly
to the financial results, accounting for approximately 10% of
Generics Segment net revenues despite the entrance into the
market of additional generic competition in August 2007. As
expected, the additional competition had an unfavorable impact
on fentanyl pricing. Additional generic competition, as well as
the impact of continued consolidation among retail customers,
negatively impacted pricing on other products in our portfolio.
As is the case in the generic industry, the entrance into the
market of additional competition generally has a negative impact
on the volume and pricing of the affected products.
Doses shipped during the transition period, excluding the impact
of acquisitions, increased by over 15% to 11.8 billion.
Revenues from EMEA were $373.1 million for the transition
period, all of which were the result of the acquisition of the
former Merck Generics business. Within EMEA, approximately 70%
of net revenues are derived from the three largest markets;
France, the United Kingdom (U.K.) and Germany.
In France, where Mylan S.A.S remains the market leader, revenues
for the transition period were augmented by the launch of
several
first-to-market
products.
The opposite was observed in the UK where wholesalers decreased
their orders to benefit from declining prices driven by intense
competition and oversupply. In Germany, the results for the
transition period were bolstered by the successful participation
in health insurer contracts which were implemented by the German
government in April of 2007. Mylans German subsidiary,
Mylan dura, has secured contracts covering approximately 70% of
all insured individuals.
Revenues from Asia Pacific were $170.9 million for the
transition period, all of which were the result of the
acquisition of the former Merck Generics business. The majority
of revenues from Asia Pacific are contributed by Alphapharm,
Mylans Australian subsidiary, with the remainder comprised
of sales in Japan, New Zealand and India.
Alphapharm generated strong results due in part to a strategic
partnership entered into in October 2007 with one of
Australias leading wholesalers and distributors.
Additionally, transition period revenues were bolstered by the
launch of several new products.
Japan also produced strong results, which is reflective of the
overall growth of the generics sector in that country. Beginning
in April of 2008, Japanese pharmacists are able to substitute a
generic product for its branded counterpart unless such
substitution is blocked by the physician. This program is
expected to lead to growth in the rate of generic utilization,
for which the government has set a goal of 30% by 2012. However,
as measures are put in place to increase generic utilization,
increased competition from brand companies is expected. Brand
companies are increasingly offering higher discounts in order to
maintain market share against generics.
For the transition period, the segment profitability for the
Generics Segment was $590.4 million compared to
$510.0 million in the comparable nine-month period, an
increase of $80.4 million or 16%. Of this increase
approximately $64.5 million is due to the acquisition of
the former Merck Generics business. Excluding this amount,
segment profitability increased by $15.9 million due to
higher revenues, as discussed above, partially offset by
increased spending for R&D as we increased our ANDA
submission activity.
58
Specialty
Segment
For the transition period, the Specialty Segment reported total
third-party revenues of $102.1 million. The Specialty
Segment consists primarily of Dey L.P. (Dey), an
entity acquired as part of the former Merck Generics business
acquisition that focuses on the development, manufacturing and
marketing of specialty pharmaceuticals in the respiratory and
severe allergy markets. The majority of the Specialty Segment
revenues are derived from two products;
DuoNeb®
and EpiPen.
DuoNeb is a nebulized unit dose formulation of ipratropium
bromide and albuterol sulfate for treatment of chronic
obstructive pulmonary disorder (COPD). DuoNeb lost
exclusivity in July 2007, at which time generic competition
entered the market. The impact on sales of the generic
competition was not as significant as expected during the
transition period, however, sales did subsequently decline
significantly as a result of the additional competition.
EpiPen, which is used in the treatment of severe allergies, is
an epinephrine auto-injector. EpiPen is the number one
prescribed treatment for severe allergic reactions with a
U.S. market share of over 95%. Prescriptions for EpiPen
have continued to grow and during the quarter ended
December 31, 2007, have reached the highest prescription
volume in the history of the brand.
Segment profitability for the Specialty Segment for the
transition period was $18.9 million, due to the acquisition
of the former Merck Generics business.
Matrix
Segment
For the transition period, the Matrix Segment reported total
revenues of $293.8 million, of which $264.2 million
represented third-party sales. Approximately 67% of the Matrix
Segments third-party net revenues come from the sale of
API and intermediates and approximately 27% mainly from the
distribution of branded generic products in Europe. Intersegment
revenue was derived from API sales to the Generics Segment
primarily in conjunction with Mylans vertical integration
strategy, as well as revenue earned through intersegment product
development agreements.
Segment profitability for the Matrix Segment for the transition
period was $18.1 million, due to the acquisition of the
former Merck Generics business.
Operating
Expenses
Research and development expense for the transition period was
$146.1 million compared to $66.8 million in the
comparable nine-month period. Transition period R&D
includes approximately $71.2 million related to newly
acquired entities, all of which was incremental to the
comparable nine-month period. Excluding these amounts, R&D
expense increased by $8.1 million or 12% as a result of
increased clinical studies and higher R&D headcount related
to a higher level of ANDA submission activity.
Additionally, during the nine months ended December 31,
2007, the Company recognized a charge of $1.27 billion to
write-off acquired in-process R&D associated with the
former Merck Generics business acquisition. This amount
represents the fair value of purchased in-process technology for
research projects that, as of the closing date of the
acquisition, had not reached technological feasibility and had
no alternative future use.
The acquisition of the former Merck Generics business and Matrix
added $201.8 million of incremental selling, general and
administrative expense to the current period. Excluding this
amount, SG&A expense increased by $95.1 million or 62%
to $247.8 million compared to $152.8 million in the
comparable nine-month period. The majority of this increase was
realized by Corporate/Other.
The increase in Corporate/Other SG&A expense is due to an
increase of approximately $60.0 million in both
professional and consulting fees and payroll and related
expenses, with the remainder due primarily to higher temporary
services and depreciation. The increase in professional and
consulting fees and temporary services is associated primarily
with the integration of the former Merck Generics business. The
increase in payroll and related costs is principally
attributable to the
build-up of
additional corporate infrastructure as a direct result of the
former Merck Generics business acquisition.
59
Litigation,
net
Litigation settlements, net, in the transition period yielded
income of $2.0 million compared to income of
$46.2 million in the comparable nine-month period. These
amounts are both due to the favorable settlement of outstanding
litigation in the respective periods.
Interest
Expense
Interest expense for the transition period totaled
$179.4 million compared to $31.3 million for the nine
months ended December 31, 2006. The increase is due to the
additional debt incurred to finance the acquisition of the
former Merck Generics business. See Liquidity and Capital
Resources for further discussion.
Other
Income, net
Other income, net was income of $86.6 million in the
transition period compared to $39.8 million in the
comparable nine-month period. The most significant items in the
current period are net foreign exchange gains consisting mainly
of $85.0 million on a contract related to the acquisition
of the former Merck Generics business and a loss of
$57.2 million on the early repayment of certain debt and
expensing certain financing fees, with the remainder of the
other income attributable to interest and dividends. As the
purpose of the foreign currency option contract was to mitigate
exchange rate risk on the Euro-denominated purchase price, in
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended
(SFAS No. 133), the settlement of this
contract was included in current earnings.
The $57.2 million loss relates to a tender offer made to
holders of the Companys Senior Notes and financing fees
related to the Interim Term Loan. As part of its strategy to
establish a new global capital structure related to the
acquisition of the former Merck Generics business, Mylan
refinanced its debt, including making a tender offer to holders
of its Senior Notes. Included as part of this tender was a
premium to holders of the Senior Notes in the amount of
$30.8 million. In addition to this premium, approximately
$12.1 million of deferred financing fees were written off
and approximately $14.3 million for financing fees related
to the Interim Term Loan were incurred.
In the comparable nine-month period, the Company recorded a net
gain of $17.5 million related to a foreign currency forward
contract for the acquisition of Matrix. The remainder of the net
other income realized in the prior period is the result of
interest and dividend income and a $5.0 million payment
received from an investee accounted for using the equity method
in excess of its carrying amount.
Income
Tax Expense
The Companys provision for income taxes was
$60.1 million in the nine-month period ending
December 31, 2007 as compared to $155.3 million in the
nine-month period ending December 31, 2006. The decrease in
tax expense is attributable to a reduction in operating income,
before the acquired in-process R&D charge, of
$255.9 million. The effective tax rate was impacted by the
$1.27 billion non-deductible charge related to in-process
R&D acquired as part of the Merck transaction. The
effective tax rate in 2007 was (5.6%) as compared to 35.0% for
the comparable nine-month period in 2006.
Fiscal
2007 Overview
Total
Revenues and Gross Profit
Total revenues for fiscal 2007 were $1.61 billion. Generics
Segment total revenues were $1.53 billion, and Matrix
Segment total revenues were $79.4 million. For the Generics
Segment, net revenues increased over the prior year primarily as
a result of increased volume and contribution from new products.
Pricing was relatively stable compared to the prior year. New
products in fiscal 2007 contributed net revenues of
$108.7 million primarily due to oxybutynin, which was
launched in the third quarter.
Excluding new products, fentanyl, which was the only
ANDA-approved, AB-rated generic alternative to Duragesic on the
market, was a primary driver of both the increased volume and
relatively stable pricing. Fentanyl
60
accounted for approximately 18% of Generics Segment net revenues
for fiscal 2007. For the Generics Segment, doses shipped during
fiscal 2007 increased over 12% from the same prior year period
to approximately 14.1 billion.
Other revenues for the Generics Segment in fiscal 2007 were
$24.9 million, primarily related to the recognition of
amounts that had been deferred with respect to Apokyn, which was
sold in the prior year, with the remainder related to other
business development activities.
Net revenues for the Matrix Segment were $95.8 million, of
which $79.4 million were sold to third parties. Mylan began
consolidating the results of Matrix on January 8, 2007.
Approximately 50% of the Matrix Segments third-party
revenues come from the sale of API and intermediates and
approximately 27% is generated mainly from the distribution of
branded generic products in Europe. Intercompany revenue was
derived from API sales to the Generics Segment primarily in
conjunction with the launch of amlodipine which is a vertically
integrated product, as well as revenue earned through
intercompany product development agreements.
Consolidated gross profit for fiscal 2007 was
$843.7 million, and gross margins were 52.3%. For the
Generics Segment, gross profit was $846.6 million, while
gross margins were 55.2%. For the Matrix Segment gross profit
was negatively impacted by approximately $17.6 million
representing the reduction of the fair value
step-up in
inventory, intangible assets and property, plant and equipment
recorded as part of the acquisition.
For the Generics Segment, a significant portion of gross profit,
as well as the increase in gross margins, was comprised of
fentanyl and oxybutynin. Fentanyl contributes margins well in
excess of most other products in our portfolio, excluding new
products. Absent any changes to market dynamics or significant
new competition for fentanyl, the Company expects the product to
continue to be a significant contributor to sales and gross
profit. Products generally contribute most significantly to
gross margin at the time of their launch and, as is the case
with oxybutynin, even more so in periods of market exclusivity.
As is typical in the generics industry, the entrance into the
market of other generic competition generally has a negative
impact on the volume and pricing of the affected products.
Operating
Expenses
Consolidated R&D expense for fiscal 2007 was
$103.7 million. Matrix Segment R&D expense was
$12.7 million for fiscal 2007 and Generics Segment R&D
expense was $81.8 million.
Additionally, during the fourth quarter of fiscal 2007, the
Company recognized a charge of $147.0 million to write off
acquired in-process R&D associated with the Matrix
acquisition. This amount represents the fair value of purchased
in-process technology for research projects that, as of the
closing date of the acquisition, had not reached technological
feasibility and had no alternative future use.
SG&A expense for fiscal 2007 was $215.5 million.
Generics Segment SG&A expense was $65.4 million.
SG&A expense decreased primarily due to approximately
$20.0 million of cost savings realized from the closure of
Mylan Bertek, the Companys branded subsidiary, in the
prior year. Partially offsetting this decrease was an increase
of approximately $4.5 million in stock-based compensation
expense. Corporate and Other SG&A expense was
$144.4 million in fiscal 2007. The closure of Mylan Bertek
in the prior year accounts for the majority of the decrease
realized in fiscal 2007. Partially offsetting this were
increases in other general and administrative costs, including
stock-based compensation expense of approximately
$7.7 million. For Matrix, SG&A expense was
$5.8 million in fiscal 2007.
Litigation,
net
Net favorable settlements of $50.1 million were recorded in
fiscal 2007.
Interest
Expense
Interest expense for fiscal 2007 totaled $52.3 million.
Included in fiscal 2007 interest expense is interest related to
the debt assumed in the Matrix acquisition as well as additional
debt borrowed to fund the Matrix acquisition, the convertible
notes issued in March of 2007, a commitment fee on the revolving
credit facilities and the amortization of debt issuance costs.
61
Other
Income, net
Other income, net was $50.2 million for fiscal 2007 and
includes a $16.2 million net gain on a foreign currency
forward contract related to the acquisition of Matrix.
Additionally, during fiscal 2007, the Company received a cash
payment of $5.5 million from an equity method investee.
Liquidity
and Capital Resources
Cash flows from operating activities were $384.4 million
for calendar year 2008, consisting primarily of net income
(after adding back the non-cash depreciation and amortization
expense and the non-cash impairment of $457.5 million),
offset by changes in deferred revenue, accounts receivable, net,
and deferred taxes of $193.6 million.
The change in deferred revenue is driven by the recognition of
previously deferred amounts related to the sale of Bystolic
rights, and the increase in accounts receivable, net, is the
result of increased sales and the timing of cash collections
from our customers.
Cash used in investing activities was $152.8 million for
calendar year 2008. Net sales of investments in
available-for-sale
securities, which consist of a variety of high-credit quality
debt securities, including U.S. government, state and local
government and corporate obligations, generated a net
$47.7 million in cash. These investments are highly liquid
and available for working capital and other needs. As these
instruments mature, the funds are generally reinvested in
instruments with similar characteristics.
Capital expenditures during calendar year 2008 were
$165.1 million. These expenditures were incurred primarily
for equipment, including the Companys previously announced
planned expansions and integration plans with respect to the
former Merck Generics business acquisition. Also included in
investing activities was a cash outflow of $40.0 million to
secure a surety bond with respect to the Companys
lorazepam and clorazepate litigation.
Cash used in financing activities was $166.9 million for
calendar year 2008. Cash dividends of $137.5 million were
paid on the Companys 6.5% mandatory convertible preferred
stock. In September of 2008, Mylan issued $575.0 million in
Cash Convertible Notes, which accounts for the majority of our
total proceeds from long term debt of $581.4 million. In
conjunction with this offering, the Company entered into a
convertible note hedge and warrant transaction that resulted in
a net outflow of $98.6 million. The majority of the
remaining proceeds following the hedge and warrant transactions
were used to repay outstanding indebtedness. In total, debt
repayments of $524.5 million were made during calendar year
2008.
The convertible note hedge and warrant transactions were entered
into between the Company and certain counterparties. The cash
convertible note hedge is comprised of purchased cash-settled
call options. The sale of the warrants resulted in cash proceeds
of $62.6 million which was used along with the proceeds
from the issuance of the Cash Convertible Notes, to purchase the
bond hedge for approximately $161.2 million. Subject to the
conversion provisions outlined in the Cash Convertible Notes
Purchase Agreement, the Cash Convertible Notes have an initial
conversion reference rate of 75.0751 shares of common stock
per $1,000 principal amount (equivalent to an initial conversion
reference price of $13.32 per share), subject to adjustment,
with the principal amount and remainder payable in cash. The
Cash Convertible Notes are not convertible into our common stock
or any other securities under any circumstance.
The Company is involved in various legal proceedings that are
considered normal to its business. While it is not possible to
predict the outcome of such proceedings, an adverse outcome in
any of these proceedings could materially affect the
Companys financial position and results of operations.
Additionally, for certain contingencies assumed in conjunction
with the acquisition of the former Merck Generics business,
Merck KGaA, the seller, has indemnified Mylan under the
provisions of the Share Purchase Agreement. The inability or
denial of Merck KGaA to pay on an indemnified claim, could have
a material adverse effect on our financial position or results
of operations.
The Companys Consolidated Balance Sheet as of
December 31, 2008, includes a $67.0 million
restructuring reserve, which relates to certain estimated exit
costs associated with the acquisition of the former Merck
Generics
62
business. The plans related to these exit activities have now
been finalized. Payments of approximately $9.4 million were
made during the calendar year ended December 31, 2008, of
which $6.1 million were severance costs and the remaining
$3.3 million were other exit costs.
In September 2008, following the completion of the comprehensive
review of strategic alternatives for Dey, the Company announced
its decision to retain the Dey business. This decision included
a plan to realign the business, including positioning the
Company to divest Deys current facilities over the next
two years. As a result, the Company expects to incur certain
related exit costs, including related to the realignment of the
Dey business. In accordance with the provisions of
SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities
(SFAS No. 146), the Company has
recorded a reserve of which approximately $8.0 million
remains at December 31, 2008 and made payments of
approximately $0.7 million. In addition, the Company
recorded approximately $3.7 million for the acceleration of
depreciation expense during the calendar year ended
December 31, 2008. As finalization of the plans are still
in progress, the Company has not yet estimated the total amount
expected to be incurred in connection with such activities.
However, Mylan expects the majority of such costs will relate to
one-time termination benefits and certain asset write-downs and
could be significant.
The Company is actively pursuing, and is currently involved in,
joint projects related to the development, distribution and
marketing of both generic and branded products. Many of these
arrangements provide for payments by the Company upon the
attainment of specified milestones. While these arrangements
help to reduce the financial risk for unsuccessful projects,
fulfillment of specified milestones or the occurrence of other
obligations may result in fluctuations in cash flows.
The Company is continuously evaluating the potential acquisition
of products, as well as companies, as a strategic part of its
future growth. Consequently, the Company may utilize current
cash reserves or incur additional indebtedness to finance any
such acquisitions, which could impact future liquidity. In
addition, on an ongoing basis, the Company reviews its
operations including the evaluation of potential divestitures of
products and businesses as part of our future strategy. Any
divestitures could impact future liquidity.
Mandatory minimum repayments remaining on the outstanding
borrowings under the term loans and convertible notes at
December 31, 2008 are as follows for each of the periods
ending December 31 below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
Euro
|
|
|
U.S.
|
|
|
Euro
|
|
|
Senior
|
|
|
Cash
|
|
|
|
|
|
|
Tranche A
|
|
|
Tranche A
|
|
|
Tranche B
|
|
|
Tranche B
|
|
|
Convertible
|
|
|
Convertible
|
|
|
|
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Notes
|
|
|
Notes
|
|
|
Total
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
2010
|
|
|
46,875
|
|
|
|
73,003
|
|
|
|
25,560
|
|
|
|
7,292
|
|
|
|
|
|
|
|
|
|
|
|
152,730
|
|
2011
|
|
|
62,500
|
|
|
|
97,338
|
|
|
|
25,560
|
|
|
|
7,292
|
|
|
|
|
|
|
|
|
|
|
|
192,690
|
|
2012
|
|
|
78,125
|
|
|
|
121,672
|
|
|
|
25,560
|
|
|
|
7,292
|
|
|
|
600,000
|
|
|
|
|
|
|
|
832,649
|
|
2013
|
|
|
78,125
|
|
|
|
121,671
|
|
|
|
25,560
|
|
|
|
7,292
|
|
|
|
|
|
|
|
|
|
|
|
232,648
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
2,402,640
|
|
|
|
685,415
|
|
|
|
|
|
|
|
|
|
|
|
3,088,055
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
655,442
|
|
|
|
655,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
265,625
|
|
|
$
|
413,684
|
|
|
$
|
2,504,880
|
|
|
$
|
714,583
|
|
|
$
|
600,000
|
|
|
$
|
655,442
|
|
|
$
|
5,154,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Senior Credit Agreement contains customary affirmative
covenants for facilities of this type, including covenants
pertaining to the delivery of financial statements, notices of
default and certain other information, maintenance of business
and insurance, collateral matters and compliance with laws, as
well as customary negative covenants for facilities of this
type, including limitations on the incurrence of indebtedness
and liens, mergers and certain other fundamental changes,
investments and loans, acquisitions, transactions with
affiliates, dispositions of assets, payments of dividends and
other restricted payments, prepayments or amendments to the
terms of specified indebtedness (including the Interim Credit
Agreement described below) and changes in lines of business. The
Senior Credit Agreement contains financial covenants requiring
maintenance of a minimum interest coverage ratio and a senior
leverage ratio, both of which are defined within the agreement.
These financial covenants were not
63
required to be tested earlier than the quarter ended
June 30, 2008. The Company has been compliant with the
financial covenants during the calendar year ended
December 31, 2008.
Contractual
Obligations
The following table summarizes our contractual obligations at
December 31, 2008 and the effect that such obligations are
expected to have on our liquidity and cash flows in future
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
One-Three
|
|
|
Three-Five
|
|
|
|
|
(in thousands)
|
|
Total
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Thereafter
|
|
|
Operating leases
|
|
$
|
154,336
|
|
|
$
|
30,081
|
|
|
$
|
43,408
|
|
|
$
|
22,942
|
|
|
$
|
57,905
|
|
Total debt
|
|
|
5,168,800
|
|
|
|
3,381
|
|
|
|
354,290
|
|
|
|
1,067,449
|
|
|
|
3,743,680
|
|
Scheduled interest payments
|
|
|
1,187,199
|
|
|
|
237,246
|
|
|
|
454,980
|
|
|
|
392,610
|
|
|
|
102,363
|
|
Preferred dividends
|
|
|
278,070
|
|
|
|
139,035
|
|
|
|
139,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,788,405
|
|
|
$
|
409,743
|
|
|
$
|
991,713
|
|
|
$
|
1,483,001
|
|
|
$
|
3,903,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The chart above does not include (i) short-term borrowings
held by Matrix in the amount of approximately
$151.1 million, which represent working capital facilities
with several banks, which are secured first by Matrixs
current assets and second by Matrixs property, plant and
equipment and carry interest rates of 4% 14%; and
(ii) due to the uncertainty with respect to the timing of
future cash flows associated with Companys unrecognized
tax benefits at December 31, 2008, the Company is unable to
make reasonably reliable estimates of the period of cash
settlement with the respective taxing authority. Therefore,
$166.5 million of unrecognized tax benefits have been
excluded from the contractual obligations table above.
We lease certain property under various operating lease
arrangements that expire generally over the next five years.
These leases generally provide us with the option to renew the
lease at the end of the lease term.
Total debt consists of the U.S. Tranche A Term Loans
of $265.6 million, the Euro Tranche A Term Loans of
297.9 ($413.7) million, the U.S. Tranche B
Term Loans of $2.50 billion, the Euro Tranche B Term
Loans of 514.5 ($714.6) million, $600.0 million
in Senior Convertible Notes, $655.4 million in Cash
Convertible Notes and $14.6 million of other miscellaneous
debt.
At December 31, 2008, the $655.4 million of debt
related to the Cash Convertible Notes consists of
$419.7 million of debt ($575.0 million face amount,
net of $155.3 million discount) and a liability with a fair
value of $235.8 million related to the bifurcated
conversion feature. The purchased call options are assets
recorded at their fair value of $235.8 million within other
assets in the Consolidated Balance Sheets at December 31,
2008.
Scheduled interest payments represent the estimated interest
payments on the U.S. Tranche A Term Loans, the Euro
Tranche A Term Loans, the U.S. Tranche B Term
Loans, the Euro Tranche B Term Loans, the Senior
Convertible Notes, the Cash Convertible Notes and other debt.
Variable debt interest payments are estimated using current
interest rates.
At December 31, 2008 and December 31, 2007, the
Company has $83.6 million and $51.3 million in letters
of credit outstanding.
The Company has entered into various product licensing and
development agreements. In some of these arrangements, the
Company provides funding for the development of the product or
to obtain rights to the use of the patent, through milestone
payments, in exchange for marketing and distribution rights to
the product. Milestones represent the completion of specific
contractual events, and it is uncertain if and when these
milestones will be achieved, hence, we have not attempted to
predict the period in which such milestones would possibly be
incurred. In the event that all projects are successful,
milestone and development payments of approximately
$39.3 million would be paid subsequent to December 31,
2008.
The Company periodically enters into licensing agreements with
other pharmaceutical companies for the manufacture, marketing
and/or sale
of pharmaceutical products. These agreements generally call for
the Company to pay a percentage of amounts earned from the sale
of the product as a royalty.
64
We have entered into employment and other agreements with
certain executives and other employees that provide for
compensation and certain other benefits. These agreements
provide for severance payments under certain circumstances.
Impact of
Currency Fluctuations and Inflation
Because Mylans results are reported in U.S. Dollars,
changes in the rate of exchange between the U.S. Dollar and
the local currencies in the markets in which Mylan operates,
mainly the Euro, Australian Dollar, Indian Rupee, Japanese Yen,
Canadian Dollar, and Pound Sterling, affect Mylans results.
Application
of Critical Accounting Policies
Our significant accounting policies are described in Note 2
to Consolidated Financial Statements, which were prepared in
accordance with accounting principles generally accepted in the
United States of America.
Included within these policies are certain policies which
contain critical accounting estimates and, therefore, have been
deemed to be critical accounting policies. Critical
accounting estimates are those which require management to make
assumptions about matters that were uncertain at the time the
estimate was made and for which the use of different estimates,
which reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur from
period to period could have a material impact on our financial
condition or results of operations. The Company has identified
the following to be its critical accounting policies: the
determination of net revenue provisions, intangible assets and
goodwill, income taxes, and the impact of existing legal matters.
Net
Revenue Provisions
Net revenues are recognized for product sales when title and
risk of loss have transferred to the customer and when
provisions for estimates, including discounts, rebates,
promotional adjustments, price adjustments, returns, chargebacks
and other potential adjustments are reasonably determinable.
Accruals for these provisions are presented in the Consolidated
Financial Statements as reductions in determining net revenues
and in accounts receivable and other current liabilities.
Accounts receivable are presented net of allowances relating to
these provisions, which were $496.5 million and
$420.4 million at December 31, 2008 and
December 31, 2007. Other current liabilities include
$236.3 million and $301.8 million at December 31,
2008 and December 31, 2007, for certain rebates and other
adjustments that are paid to indirect customers.
The following is a rollforward of the most significant
provisions for estimated sales allowances during calendar year
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Checks/Credits
|
|
|
Related to Sales
|
|
|
Effects of
|
|
|
|
|
|
|
Balance at
|
|
|
Issued to Third
|
|
|
Made in the
|
|
|
Foreign
|
|
|
Balance at
|
|
(in thousands)
|
|
12/31/2007
|
|
|
Parties
|
|
|
Current Period
|
|
|
Exchange
|
|
|
12/31/2008
|
|
|
Chargebacks
|
|
$
|
215,272
|
|
|
$
|
(1,485,012
|
)
|
|
$
|
1,456,089
|
|
|
$
|
(3,537
|
)
|
|
$
|
182,812
|
|
Promotions and indirect rebates
|
|
$
|
302,495
|
|
|
$
|
(724,742
|
)
|
|
$
|
753,746
|
|
|
$
|
(14,285
|
)
|
|
$
|
317,214
|
|
Returns
|
|
$
|
90,689
|
|
|
$
|
(73,591
|
)
|
|
$
|
66,726
|
|
|
$
|
(2,529
|
)
|
|
$
|
81,295
|
|
The accrual for chargebacks decreased as a result of numerous
factors including a decrease in the estimate of the amount of
inventory on the shelves of our U.S. wholesale customers, a
shift in sales to customers for whom chargebacks are not offered
in Germany, and a decrease in Australia in conjunction with the
country-wide, government-mandated decrease in generic
pharmaceutical pricing. The accrual for promotions and indirect
rebates increased primarily due to accruals for new products in
the U.S. and an increase in the overall business in markets
such as France and Germany, offset by decreases in Canada and
the U.K.
Provisions for estimated discounts, rebates, promotional and
other credits require a lower degree of subjectivity and are
less complex in nature yet, combined, represent a significant
portion of the overall provisions. These provisions are
estimated based on historical payment experience, historical
relationships to revenues, estimated customer inventory levels
and contract terms. Such provisions are determinable due to the
limited number of assumptions and consistency of historical
experience. Others, such as price adjustments, returns and
chargebacks,
65
require management to make more subjective judgments and
evaluate current market conditions. These provisions are
discussed in further detail below.
Price Adjustments Price adjustments, which
include shelf stock adjustments, are credits issued to reflect
decreases in the selling prices of our products. Shelf stock
adjustments are based upon the amount of product that our
customers have remaining in their inventories at the time of the
price reduction. Decreases in our selling prices and the
issuance of credits are discretionary decisions made by us to
reflect market conditions. Amounts recorded for estimated price
adjustments are based upon specified terms with direct
customers, estimated launch dates of competing products,
estimated declines in market price and, in the case of shelf
stock adjustments, estimates of inventory held by the customer.
In most cases, data with respect to the level of inventory held
by the customer is obtained directly from certain of our largest
customers. Additionally, internal estimates are prepared based
upon historical buying patterns and estimated end-user demand.
Such information allows us to assess the impact that a price
adjustment will have given the quantity of inventory on hand. We
regularly monitor these and other factors and evaluate our
reserves and estimates as additional information becomes
available. A variance of 5% between estimated and actual
inventory levels would have an effect on our reserve balance of
approximately $3.0 million.
Returns Consistent with industry practice, we
maintain a return policy that allows our customers to return
product within a specified period prior to and subsequent to the
expiration date. Our estimate of the provision for returns is
based upon our historical experience with actual returns, which
is applied to the level of sales for the period that corresponds
to the period during which our customers may return product.
This period is known by us based on the shelf lives of our
products at the time of shipment. Additionally, we consider
factors such as levels of inventory in the distribution channel,
product dating, and expiration period, size and maturity of the
market prior to a product launch, entrance into the market of
additional generic competition, changes in formularies or launch
of
over-the-counter
products, and make adjustments to the provision for returns in
the event that it appears that actual product returns may differ
from our established reserves. We obtain data with respect to
the level of inventory in the channel directly from certain of
our largest customers. Although the introduction of additional
generic competition does not give our customers the right to
return product outside of our established policy, we do
recognize that such competition could ultimately lead to
increased returns. We analyze this on a
case-by-case
basis, when significant, and make adjustments to increase our
reserve for product returns as necessary. A change of 5% in the
estimated product return rate used in our calculation of our
return reserve would have an effect on our reserve balance of
approximately $4.0 million.
Chargebacks The provision for chargebacks is
the most significant and complex estimate used in the
recognition of revenue. The Company markets products directly to
wholesalers, distributors, retail pharmacy chains, mail order
pharmacies and group purchasing organizations. The Company also
markets products indirectly to independent pharmacies, managed
care organizations, hospitals, nursing homes and pharmacy
benefit management companies, collectively referred to as
indirect customers. Mylan enters into agreements
with its indirect customers to establish contract pricing for
certain products. The indirect customers then independently
select a wholesaler from which to actually purchase the products
at these contracted prices. Alternatively, certain wholesalers
may enter into agreements with indirect customers that establish
contract pricing for certain products, which the wholesalers
provide. Under either arrangement, Mylan will provide credit to
the wholesaler for any difference between the contracted price
with the indirect party and the wholesalers invoice price.
Such credit is called a chargeback, while the difference between
the contracted price and the wholesalers invoice price is
referred to as the chargeback rate. The provision for
chargebacks is based on expected sell-through levels by our
wholesaler customers to indirect customers, as well as estimated
wholesaler inventory levels. For the latter, in most cases,
inventory levels are obtained directly from certain of our
largest wholesalers. Additionally, internal estimates are
prepared based upon historical buying patterns and estimated
end-user demand. Such information allows us to estimate the
potential chargeback that we may ultimately owe to our customers
given the quantity of inventory on hand. We continually monitor
our provision for chargebacks and evaluate our reserve and
estimates as additional information becomes available. A change
of 5% in the estimated sell-through levels by our wholesaler
customers and in the estimated wholesaler inventory levels would
have an effect on our reserve balance of approximately
$8.0 million.
While we do not anticipate any significant changes to the
methodologies that we use to measure chargebacks, customer
performance and promotions or returns, the balances within these
reserves can fluctuate significantly
66
through the consistent application of our methodologies.
Historically, we have not recorded in any current period any
material amounts related to adjustments made to prior period
reserves. Should any material amounts from any prior period be
recorded in any current period such amounts will be disclosed.
Intangible
Assets and Goodwill
We account for acquired businesses using the purchase method of
accounting, which requires that the assets acquired and
liabilities assumed be recorded at the date of acquisition at
their respective estimated fair values. The cost to acquire a
business, including transaction costs, has been allocated to the
underlying net assets of the acquired business based on
estimates of their respective fair values. Amounts allocated to
acquired in-process research and development have been expensed
at the date of acquisition. Intangible assets are amortized over
the expected life of the asset. Any excess of the purchase price
over the estimated fair values of the net assets acquired is
recorded as goodwill.
The judgments made in determining the estimated fair value
assigned to each class of assets acquired and liabilities
assumed, as well as asset lives, can materially impact our
results of operations. Fair values and useful lives are
determined based on, among other factors, the expected future
period of benefit of the asset, the various characteristics of
the asset and projected cash flows. Because this process
involves management making estimates with respect to future
sales volumes, pricing, new product launches, anticipated cost
environment and overall market conditions and because these
estimates form the basis for the determination of whether or not
an impairment charge should be recorded, these estimates are
considered to be critical accounting estimates.
Goodwill and intangible assets are reviewed for impairment
annually or when events or other changes in circumstances
indicate that the carrying amount of the assets may not be
recoverable. Impairment of goodwill and indefinite-lived
intangibles is determined to exist when the fair value is less
than the carrying value of the net assets being tested.
Impairment of definite-lived intangibles is determined to exist
when undiscounted cash flows related to the assets are less than
the carrying value of the assets being tested. Future events and
decisions may lead to asset impairment
and/or
related costs.
As discussed above with respect to determining an assets
fair value and useful life, because this process involves
management making certain estimates and because these estimates
form the basis for the determination of whether or not an
impairment charge should be recorded, these estimates are
considered to be critical accounting estimates. The Company will
continue to assess the carrying value of its goodwill and
intangible assets in accordance with applicable accounting
guidance.
Income
Taxes
We compute our income taxes based on the statutory tax rates and
tax planning opportunities available to the Company in the
various jurisdictions in which we earn income. Significant
judgment is required in determining the Companys income
taxes and in evaluating its tax positions. We establish reserves
in accordance with FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
an Interpretation of FASB Statement 109
(FIN 48). FIN 48 provides that the tax
effects from an uncertain tax position be recognized in the
Companys financial statements, only if the position is
more likely than not of being sustained upon audit, based on the
technical merits of the position. The Company adjusts these
reserves in light of changing facts and circumstances, such as
the settlement of a tax audit. The Companys provision for
income taxes includes the impact of reserve provisions and
changes to reserves. Favorable resolution would be recognized as
a reduction to the Companys provision for income taxes in
the period of resolution.
The Company records valuation allowances to reduce deferred tax
assets to the amount that is more likely than not to be
realized. When assessing the need for valuation allowances, the
Company considers future taxable income and ongoing prudent and
feasible tax planning strategies. Should a change in
circumstances lead to a change in judgment about the
realizability of deferred tax assets in future years, the
Company would adjust related valuation allowances in the period
that the change in circumstances occurs, along with a
corresponding increase or charge to income taxes.
67
The resolution of tax reserves and changes in valuation
allowances could be material to the Companys results of
operations or financial position.
Legal
Matters
The Company is involved in various legal proceedings, some of
which involve claims for substantial amounts. An estimate is
made to accrue for a loss contingency relating to any of these
legal proceedings if it is probable that a liability was
incurred as of the date of the financial statements and the
amount of loss can be reasonably estimated. Because of the
subjective nature inherent in assessing the outcome of
litigation and because of the potential that an adverse outcome
in a legal proceeding could have a material adverse effect on
the Companys financial position or results of operations,
such estimates are considered to be critical accounting
estimates.
Recent
Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP)
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP
No. EITF 03-6-1).
FSP
No. EITF 03-6-1 states
that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method. FSP
No. EITF 03-6-1
is effective for fiscal years beginning after December 15,
2008. The adoption of FSP
No. EITF 03-6-01
will not have an impact on the Companys Consolidated
Financial Statements.
In May 2008, the FASB issued FSP No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash
Settlement) (FSP No. APB
14-1).
Under the new rules for convertible debt instruments (including
our Senior Convertible Notes) that may be settled entirely or
partially in cash upon conversion, an entity should separately
account for the liability and equity components of the
instrument in a manner that reflects the issuers economic
interest cost. The effect of the new rules for the debentures is
that the equity component would be included in the
paid-in-capital
section of stockholders equity on our consolidated balance
sheet and the value of the equity component would be treated as
original issue discount for purposes of accounting for the debt
component of the Senior Convertible Notes. FSP No. APB
14-1 will be
effective for fiscal years beginning after December 15,
2008, and for interim periods within those fiscal years, with
retrospective application required. Higher interest expense will
result through the accretion of the discounted carrying value of
the Senior Convertible Notes to their face amount over the term
of the Senior Convertible Notes. Prior period interest expense
will also be higher than previously reported interest expense
due to retrospective application. Early adoption is not
permitted. The Company has evaluated the impact of adopting FSP
No. APB
14-1 on its
Consolidated Financial Statements and determined that the
retrospective application will increase the net loss available
to common shareholders by approximately $10.0 million for
the nine months ended December 31, 2007, and
$15.0 million for calendar year ended December 31,
2008. In addition, at December 31, 2008, additional paid-in
capital will increase by $85.0 million and long-term debt,
retained earnings and tax assets will decrease by
$87.0 million, $26.0 million and $28.0 million,
respectively.
In April 2008, the FASB issued FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
No. FAS 142-3).
FSP
No. FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, in order to improve the consistency
between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under
SFAS No. 141(R), Business Combinations
(SFAS No. 141(R)) and other accounting
principles generally accepted in the United States of America
(GAAP). FSP
No. FAS 142-3
is effective for fiscal years beginning after December 15,
2008. The adoption of FSP
No. FAS 142-3
will not have a material impact on the Companys
Consolidated Financial Statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS No. 161).
SFAS No. 161 requires enhanced disclosures about an
entitys derivative and hedging activities, including
(i) how and why an entity uses derivative instruments,
(ii) how derivative instruments and related hedged items
are accounted for under SFAS No. 133, and
68
(iii) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance, and cash flows. This standard is effective for
fiscal years beginning after November 15, 2008. Management
is currently assessing the impact of the disclosures on the
Companys Consolidated Financial Statements.
In March 2008, the Emerging Issues Task Force (EITF)
issued EITF
No. 07-5,
Determining Whether an Instrument (or Embedded Feature) is
Indexed to an Entitys Own Stock (EITF
No. 07-5).
EITF
No. 07-5 states
that if an instrument (or an embedded feature) has the
characteristics of a derivative instrument under
paragraphs 6-9
of SFAS No. 133, and is indexed to an entitys
own stock, it is necessary to evaluate whether it is classified
in shareholders equity (or would be classified in
stockholders equity if it were a freestanding instrument).
EITF
No. 07-5
is effective for fiscal years beginning after December 15,
2008. The adoption of EITF No. 07-5 will not have a
material impact on the Companys Consolidated Financial
Statements.
On January 1, 2008, the Company adopted
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities including an
amendment of FASB Statement No. 115
(SFAS No. 159). SFAS No. 159
permits entities to choose to measure many financial instruments
and certain other assets and liabilities at fair value on an
instrument-by-instrument
basis (the fair value option) with changes in fair value
reported in earnings. The Company already records marketable
securities at fair value in accordance with
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities
(SFAS No. 115), and derivative
contracts and hedging activities at fair value in accordance
with SFAS No. 133. The adoption of
SFAS No. 159 did not have a material impact on the
Companys Consolidated Financial Statements as management
did not elect the fair value option for any other financial
instruments or certain other assets and liabilities.
On January 1, 2008, the Company adopted Statement 133
Implementation Issue No. E23, Hedging
General: Issues Involving the Application of the Shortcut Method
under Paragraph 58 (Issue No. E23).
Issue No. E23 provides guidance on certain practice issues
related to the application of the shortcut method by amending
paragraph 68 of SFAS No. 133 with respect to the
conditions that must be met in order to apply the shortcut
method for assessing hedge effectiveness of interest rate swaps.
In addition to applying the provisions of Issue No. E23 on
hedging arrangements designated on or after January 1,
2008, an assessment was required to be made on January 1,
2008 to determine whether preexisting hedging arrangements met
the provisions of Issue No. E23 as of their original
inception. Management performed such an assessment and
determined that the adoption of Issue No. E23 did not have
a material impact on preexisting hedging arrangements.
In December 2007, the FASB issued SFAS No. 141(R).
SFAS No. 141(R) replaces SFAS No. 141,
Business Combinations,
(SFAS No. 141) and retains the fundamental
requirements in SFAS No. 141, including that the
purchase method be used for all business combinations and for an
acquirer to be identified for each business combination. This
standard defines the acquirer as the entity that obtains control
of one or more businesses in the business combination and
establishes the acquisition date as the date that the acquirer
achieves control instead of the date that the consideration is
transferred. SFAS No. 141(R) requires an acquirer in a
business combination, including business combinations achieved
in stages (step acquisition), to recognize the assets acquired,
liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values
at that date, with limited exceptions. It also requires the
recognition of assets acquired and liabilities assumed arising
from certain contractual contingencies as of the acquisition
date, measured at their acquisition-date fair values.
SFAS No. 141(R) is effective for any business
combination with an acquisition date on or after January 1,
2009. The Company is currently evaluating the potential impact
of SFAS No. 141(R) on the Consolidated Financial
Statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to establish
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. This standard defines a noncontrolling interest,
sometimes called a minority interest, as the portion of equity
in a subsidiary not attributable, directly or indirectly, to a
parent. SFAS No. 160 requires, among other items, that
a noncontrolling interest be included in the consolidated
balance sheet within equity separate from the parents
equity; consolidated net income to be reported at amounts
inclusive of both the parents and noncontrolling
interests shares and, separately, the amounts of
consolidated net income attributable to the parent and
noncontrolling interest all on the consolidated statement of
operations; and if a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the
69
former subsidiary be measured at fair value and a gain or loss
be recognized in net income based on such fair value.
SFAS No. 160 is effective for fiscal years beginning
after December 15, 2008. Although certain captions and
disclosures will be revised, the adoption of SFAS No. 160 will
not have a material impact on the Companys Consolidated
Financial Statements.
In March 2007, the EITF issued EITF
No. 06-10,
Accounting for Collateral Assignment Split-Dollar Life
Insurance Arrangements (EITF
No. 06-10).
Under the provisions of EITF
No. 06-10,
an employer is required to recognize a liability for the
postretirement benefit related to a collateral assignment
split-dollar life insurance arrangement with the employee. The
provisions of EITF
No. 06-10
also require an employer to recognize and measure the asset in a
collateral assignment split-dollar life insurance arrangement
based on the nature and substance of the arrangement. The
Company adopted the provisions of EITF
No. 06-10
as of January 1, 2008. As a result of the adoption, the
Company recognized a liability of $8.3 million,
representing the present value of the future premium payments to
be made under the existing policies. In accordance with the
transition provisions of EITF
No. 06-10,
this amount was recorded as a direct decrease to retained
earnings.
In March 2007, the EITF issued EITF
No. 06-04,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsed Split-Dollar Life Insurance
Arrangements (EITF
No. 06-4),
which concludes that an employer should recognize a liability
for post-employment benefits promised an employee based on the
substantive arrangement between the employer and the employee.
The Company adopted the provisions of EITF
No. 06-04
as of January 1, 2008. The adoption of EITF
No. 06-04
did not have a material impact on the Companys
Consolidated Financial Statements.
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
The Company is subject to market risk from changes in foreign
currency exchange rates and interest rates. In conjunction with
the acquisition of the former Merck Generics business in 2007,
Mylans exposure to these areas was materially increased.
The Company now manages these increased financial exposures
through operational means and by using various financial
instruments. These practices may change as economic conditions
change.
In conjunction with the acquisition of the former Merck Generics
business, the Company incurred substantial indebtedness, most of
which has variable interest rates (see Liquidity and Capital
Resources) and the Company became subjected to increased
foreign currency exchange risk.
Foreign
Currency Exchange Risk
A significant portion of our revenues and earnings are exposed
to changes in foreign currency exchange rates. The Company seeks
to manage this foreign exchange risk in part through operational
means, including managing same currency revenues in relation to
same currency costs, and same currency assets in relation to
same currency liabilities.
Foreign exchange risk is also managed through the use of foreign
currency forward-exchange contracts. These contracts are used to
offset the potential earnings effects from mostly intercompany
foreign currency assets and liabilities that arise from
operations and from intercompany loans. The Companys
primary areas of foreign exchange risk relative to the
U.S. Dollar are the Euro, Indian Rupee, Japanese Yen,
Australian Dollar, Canadian Dollar, and Pound Sterling.
In addition, the Company protects against possible declines in
the reported net assets of Mylans Euro functional-currency
subsidiaries through the use of Euro denominated debt.
In conjunction with the Matrix transaction in 2007, the Company
entered into a deal-contingent foreign exchange forward contract
to purchase Indian Rupees with U.S. Dollars in order to
mitigate the risk of foreign currency exposure related to the
Indian Rupee-denominated purchase price. In conjunction with the
acquisition of the former Merck Generics business in 2007, Mylan
entered into a deal-contingent foreign currency option contract
in order to mitigate the risk of foreign currency exposure
related to the Euro-denominated purchase price. The Company
accounted for these instruments under the provisions of
SFAS No. 133. The instruments did not qualify for
hedge accounting treatment under SFAS No. 133 and
therefore were required to be adjusted to fair value with the
change in the fair value of the instrument recorded in current
earnings.
70
The Companys financial instrument holdings at year end
were analyzed to determine their sensitivity to foreign exchange
rate changes. The fair values of these instruments were
determined as follows:
|
|
|
|
|
foreign currency forward-exchange contracts net
present values
|
|
|
|
foreign currency denominated receivables, payables, debt and
loans changes in exchange rates
|
In this sensitivity analysis, we assumed that the change in one
currencys rate relative to the U.S. dollar would not
have an effect on other currencies rates relative to the
U.S. dollar. All other factors were held constant.
If there were an adverse change in foreign currency exchange
rates of 10%, the expected net effect on net income related to
Mylans foreign currency denominated financial instruments
would be immaterial.
Interest
Rate and Long-Term Debt Risk
Mylans exposure to interest rate risk arises primarily
from our U.S. Dollar and Euro borrowings and investments.
The Company invests primarily on a variable-rate basis. Mylan
borrows on both a fixed and variable basis. From time to time,
depending on market conditions, Mylan will fix interest rates on
variable-rate borrowings through the use of derivative financial
instruments such as interest rate swaps. In 2008, the Company
issued $575.0 million in Cash Convertible Notes with a
fixed coupon of 3.75%.
Mylans long-term borrowings consist principally of
$2.77 billion in U.S. dollar denominated loans and
$1.13 billion in Euro denominated debt under our Senior
Credit Agreement, $600.0 million in Senior Convertible
Notes and $655.4 million in Cash Convertible Notes.
Generally, the fair value of fixed interest rate debt will
decrease as interest rates rise and increase as interest rates
fall. The fair value of the Senior Convertible Notes and the
Cash Convertible Notes will fluctuate as the market value of our
common stock fluctuates. As of December 31, 2008, the fair
value of our Senior Convertible Notes was approximately
$444.0 million and the fair value of Mylans Cash
Convertible Notes was approximately $524.4 million. A 10%
change in interest rates on the variable rate debt, net of
interest rate swaps, would result in a change in interest
expense of approximately $12.0 million per year.
Investments
In addition to
available-for-sale
securities, investments are made in overnight deposits, highly
rated money market funds and marketable securities with
maturities of less than three months. These instruments are
classified as cash equivalents for financial reporting purposes
and have minimal or no interest rate risk due to their
short-term nature.
The marketable equity securities are not material for the
periods ended December 31, 2008 or 2007. The primary
objectives for the
available-for-sale
securities investment portfolio are liquidity and safety of
principal. Investments are made to achieve the highest rate of
return while retaining principal. Our investment policy limits
investments to certain types of instruments issued by
institutions and government agencies with investment grade
credit ratings. At December 31, 2008, the Company had
invested $41.7 million in
available-for-sale
securities, of which $2.8 million will mature within one
year and $38.9 million will mature after one year. The
short duration to maturity creates minimal exposure to
fluctuations in fair values for investments that will mature
within one year. However, a significant change in current
interest rates could affect the fair value of the remaining
$38.9 million of
available-for-sale
securities that mature after one year. An approximate 5% adverse
change in interest rates on
available-for-sale
securities that mature after one year would result in a
$2.0 million decrease in the fair value of
available-for-sale
securities.
71
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Index to
Consolidated Financial Statements and
Supplementary Financial Information
|
|
|
|
|
|
|
Page
|
|
|
|
|
73
|
|
|
|
|
74
|
|
|
|
|
75
|
|
|
|
|
77
|
|
|
|
|
78
|
|
|
|
|
120
|
|
|
|
|
121
|
|
|
|
|
123
|
|
72
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
557,147
|
|
|
$
|
484,202
|
|
Restricted cash
|
|
|
40,309
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
42,260
|
|
|
|
91,361
|
|
Accounts receivable, net
|
|
|
1,164,613
|
|
|
|
1,132,121
|
|
Inventories
|
|
|
1,065,990
|
|
|
|
1,063,840
|
|
Deferred income tax benefit
|
|
|
199,278
|
|
|
|
192,113
|
|
Prepaid expenses and other current assets
|
|
|
105,076
|
|
|
|
95,664
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,174,673
|
|
|
|
3,059,301
|
|
Property, plant and equipment, net
|
|
|
1,063,996
|
|
|
|
1,102,932
|
|
Intangible assets, net
|
|
|
2,453,161
|
|
|
|
2,978,706
|
|
Goodwill
|
|
|
3,161,580
|
|
|
|
3,855,971
|
|
Deferred income tax benefit
|
|
|
16,493
|
|
|
|
18,703
|
|
Other assets
|
|
|
539,956
|
|
|
|
337,563
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,409,859
|
|
|
$
|
11,353,176
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
585,711
|
|
|
$
|
608,070
|
|
Short-term borrowings
|
|
|
151,109
|
|
|
|
144,355
|
|
Income taxes payable
|
|
|
92,158
|
|
|
|
169,518
|
|
Current portion of long-term debt and other long-term obligations
|
|
|
5,099
|
|
|
|
410,934
|
|
Deferred income tax liability
|
|
|
1,935
|
|
|
|
24,344
|
|
Other current liabilities
|
|
|
708,638
|
|
|
|
645,130
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,544,650
|
|
|
|
2,002,351
|
|
Deferred revenue
|
|
|
18,021
|
|
|
|
122,870
|
|
Long-term debt
|
|
|
5,165,419
|
|
|
|
4,706,716
|
|
Other long-term obligations
|
|
|
404,031
|
|
|
|
206,672
|
|
Deferred income tax liability
|
|
|
545,121
|
|
|
|
876,816
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,677,242
|
|
|
|
7,915,425
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
29,108
|
|
|
|
34,325
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Preferred stock par value $0.50 per share
|
|
|
|
|
|
|
|
|
Shares authorized: 5,000,000 as of December 31, 2008 and
2007
|
|
|
|
|
|
|
|
|
Shares issued: 2,139,000 as of December 31, 2008 and 2007
|
|
|
1,070
|
|
|
|
1,070
|
|
Common stock par value $0.50 per share
|
|
|
|
|
|
|
|
|
Shares authorized: 600,000,000 as of December 31, 2008 and
2007
|
|
|
|
|
|
|
|
|
Shares issued: 395,368,062 and 395,260,355 as of
December 31, 2008 and 2007
|
|
|
197,684
|
|
|
|
197,630
|
|
Additional paid-in capital
|
|
|
3,873,743
|
|
|
|
3,785,729
|
|
Retained earnings
|
|
|
594,352
|
|
|
|
922,857
|
|
Accumulated other comprehensive (loss) earnings
|
|
|
(380,802
|
)
|
|
|
83,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,286,047
|
|
|
|
4,990,330
|
|
Less treasury stock at cost
|
|
|
|
|
|
|
|
|
Shares: 90,635,441 and 90,885,188 as of December 31, 2008
and 2007
|
|
|
1,582,538
|
|
|
|
1,586,904
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,703,509
|
|
|
|
3,403,426
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
10,409,859
|
|
|
$
|
11,353,176
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
March 31, 2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,631,237
|
|
|
$
|
2,162,943
|
|
|
$
|
1,586,947
|
|
Other revenues
|
|
|
506,348
|
|
|
|
15,818
|
|
|
|
24,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,137,585
|
|
|
|
2,178,761
|
|
|
|
1,611,819
|
|
Cost of sales
|
|
|
3,067,364
|
|
|
|
1,304,313
|
|
|
|
768,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,070,221
|
|
|
|
874,448
|
|
|
|
843,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
317,217
|
|
|
|
146,063
|
|
|
|
103,692
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
1,269,036
|
|
|
|
147,000
|
|
Goodwill impairment
|
|
|
385,000
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
1,053,485
|
|
|
|
449,598
|
|
|
|
215,538
|
|
Litigation settlements, net
|
|
|
16,634
|
|
|
|
(1,984
|
)
|
|
|
(50,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,772,336
|
|
|
|
1,862,713
|
|
|
|
416,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations
|
|
|
297,885
|
|
|
|
(988,265
|
)
|
|
|
427,554
|
|
Interest expense
|
|
|
357,045
|
|
|
|
179,410
|
|
|
|
52,276
|
|
Other income, net
|
|
|
11,337
|
|
|
|
86,611
|
|
|
|
50,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes and minority interest
|
|
|
(47,823
|
)
|
|
|
(1,081,064
|
)
|
|
|
425,512
|
|
Income tax provision
|
|
|
137,423
|
|
|
|
60,073
|
|
|
|
208,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before minority interest
|
|
|
(185,246
|
)
|
|
|
(1,141,137
|
)
|
|
|
217,495
|
|
Minority interest (income) expense
|
|
|
(4,031
|
)
|
|
|
(3,112
|
)
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings before preferred dividends
|
|
|
(181,215
|
)
|
|
|
(1,138,025
|
)
|
|
|
217,284
|
|
Preferred dividends
|
|
|
139,035
|
|
|
|
15,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings available to common shareholders
|
|
$
|
(320,250
|
)
|
|
$
|
(1,154,024
|
)
|
|
$
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.05
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.05
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
304,360
|
|
|
|
257,150
|
|
|
|
215,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
304,360
|
|
|
|
257,150
|
|
|
|
219,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
|
|
|
Earnings (Loss)
|
|
|
|
Shares
|
|
|
Cost
|
|
|
Shares
|
|
|
Cost
|
|
|
Capital
|
|
|
Earnings
|
|
|
Shares
|
|
|
Cost
|
|
|
Earnings
|
|
|
Equity
|
|
Balance at March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
309,150,251
|
|
|
$
|
154,575
|
|
|
$
|
418,954
|
|
|
$
|
1,939,045
|
|
|
|
(98,971,431
|
)
|
|
$
|
(1,727,373
|
)
|
|
$
|
2,450
|
|
|
$
|
787,651
|
|
Net earnings
|
|
|
|
|
|
$
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,266
|
|
|
|
1,266
|
|
Net unrealized loss on marketable securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
|
(1,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification for losses included in net earnings
|
|
|
669
|
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(900
|
)
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
|
|
|
|
|
217,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,162,500
|
|
|
|
13,081
|
|
|
|
476,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,096
|
|
Stock options exercised, net of shares tendered for payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,048,450
|
|
|
|
2,025
|
|
|
|
47,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,267
|
|
Sale of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,360
|
|
Issuance of restricted stock, net of shares withheld
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,526
|
)
|
|
|
|
|
|
|
(35,665
|
)
|
|
|
(1,716
|
)
|
|
|
|
|
|
|
(4,242
|
)
|
Shares issued for the acquisition of Matrix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,045
|
|
|
|
|
|
|
|
8,058,139
|
|
|
|
140,696
|
|
|
|
|
|
|
|
163,741
|
|
Purchase of bond hedge, net of tax of $44,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,900
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,156
|
|
Tax benefit of stock option plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,419
|
|
Dividends declared ($0.24 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,047
|
)
|
Adjustment to intitially adopt SFAS No. 158, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of tax of $751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,272
|
)
|
|
|
(1,272
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,361,201
|
|
|
|
169,681
|
|
|
|
962,746
|
|
|
|
2,103,282
|
|
|
|
(90,948,957
|
)
|
|
|
(1,588,393
|
)
|
|
|
1,544
|
|
|
|
1,648,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
$
|
(1,138,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,138,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,138,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrecognized losses and prior service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cost related to post-retirement plans, net of tax
|
|
|
|
|
|
|
(663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(663
|
)
|
|
|
(663
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
87,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,602
|
|
|
|
87,602
|
|
Net unrecognized losses on derivatives, net of tax
|
|
|
|
|
|
|
(4,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,723
|
)
|
|
|
(4,723
|
)
|
Net unrealized loss on marketable securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification for gains included in net earnings
|
|
|
(191
|
)
|
|
|
(716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(716
|
)
|
|
|
(716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings
|
|
|
|
|
|
|
81,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
(1,056,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,440,000
|
|
|
|
27,720
|
|
|
|
720,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
748,051
|
|
Stock options exercised, net of shares tendered for payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459,154
|
|
|
|
229
|
|
|
|
7,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,732
|
|
Issuance of preferred stock, net
|
|
|
|
|
|
|
|
|
|
|
|
2,139,000
|
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
|
2,072,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,073,886
|
|
Issuance of restricted stock, net of shares withheld
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,485
|
)
|
|
|
|
|
|
|
63,769
|
|
|
|
1,489
|
|
|
|
|
|
|
|
4
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,332
|
|
Tax benefit of stock option plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,648
|
|
Adoption of FIN 48, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,478
|
)
|
Dividends on preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,999
|
)
|
Dividends declared ($0.06 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,923
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
2,139,000
|
|
|
$
|
1,070
|
|
|
|
395,260,355
|
|
|
$
|
197,630
|
|
|
$
|
3,785,729
|
|
|
$
|
922,857
|
|
|
|
(90,885,188
|
)
|
|
$
|
(1,586,904
|
)
|
|
$
|
83,044
|
|
|
$
|
3,403,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
75
MYLAN
INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders Equity
(Continued)
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
|
|
|
Earnings (Loss)
|
|
|
|
Shares
|
|
|
Cost
|
|
|
Shares
|
|
|
Cost
|
|
|
Capital
|
|
|
Earnings
|
|
|
Shares
|
|
|
Cost
|
|
|
Earnings
|
|
|
Equity
|
|
Net loss
|
|
|
|
|
|
$
|
(181,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrecognized losses and prior service cost related to
post-retirement plans, net of tax
|
|
|
|
|
|
|
(2,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,529
|
)
|
|
|
(2,529
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(420,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(420,167
|
)
|
|
|
(420,167
|
)
|
Net unrecognized gains on derivatives, net of tax
|
|
|
|
|
|
|
(40,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,633
|
)
|
|
|
(40,633
|
)
|
Net unrealized loss on marketable securities, net of tax
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification for losses included in net earnings
|
|
|
60
|
|
|
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(517
|
)
|
|
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
(463,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
$
|
(645,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised, net of shares tendered for payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,707
|
|
|
|
54
|
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,191
|
|
Issuance of restricted stock, net of shares withheld
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,529
|
)
|
|
|
|
|
|
|
249,747
|
|
|
|
4,366
|
|
|
|
|
|
|
|
(1,163
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,639
|
|
Tax expense of stock option plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223
|
)
|
Sale of warrants, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,560
|
|
Adoption of EITF
06-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,255
|
)
|
Dividends on preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139,035
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
2,139,000
|
|
|
$
|
1,070
|
|
|
|
395,368,062
|
|
|
$
|
197,684
|
|
|
$
|
3,873,743
|
|
|
$
|
594,352
|
|
|
|
(90,635,441
|
)
|
|
$
|
(1,582,538
|
)
|
|
$
|
(380,802
|
)
|
|
$
|
2,703,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
March 31, 2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings before preferred dividends
|
|
$
|
(181,215
|
)
|
|
$
|
(1,138,025
|
)
|
|
$
|
217,284
|
|
Adjustments to reconcile net (loss) earnings before preferred
dividends to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
425,279
|
|
|
|
157,800
|
|
|
|
61,512
|
|
Stock-based compensation expense
|
|
|
30,639
|
|
|
|
17,332
|
|
|
|
22,156
|
|
In-process research and development
|
|
|
|
|
|
|
1,269,036
|
|
|
|
147,000
|
|
Minority interest
|
|
|
(4,031
|
)
|
|
|
(3,112
|
)
|
|
|
211
|
|
Net income from equity method investees
|
|
|
(4,161
|
)
|
|
|
(2,573
|
)
|
|
|
(6,659
|
)
|
Change in estimated sales allowances
|
|
|
10,576
|
|
|
|
31,337
|
|
|
|
14,386
|
|
Deferred income taxes
|
|
|
(193,564
|
)
|
|
|
(77,131
|
)
|
|
|
(50,479
|
)
|
Non-cash impairments
|
|
|
457,517
|
|
|
|
|
|
|
|
|
|
Other non-cash items
|
|
|
31,076
|
|
|
|
54,408
|
|
|
|
7,914
|
|
Litigation settlements, net
|
|
|
16,635
|
|
|
|
(4,526
|
)
|
|
|
6,464
|
|
Cash received from Somerset
|
|
|
|
|
|
|
|
|
|
|
5,870
|
|
Gain on foreign exchange contract
|
|
|
|
|
|
|
(85,063
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(172,447
|
)
|
|
|
(124,385
|
)
|
|
|
(60,773
|
)
|
Inventories
|
|
|
(83,327
|
)
|
|
|
16,305
|
|
|
|
(28,987
|
)
|
Trade accounts payable
|
|
|
23,166
|
|
|
|
86,467
|
|
|
|
(29,312
|
)
|
Income taxes
|
|
|
73,983
|
|
|
|
(34,632
|
)
|
|
|
73,567
|
|
Deferred revenue
|
|
|
(113,998
|
)
|
|
|
34,864
|
|
|
|
(5,504
|
)
|
Other operating assets and liabilities, net
|
|
|
68,319
|
|
|
|
(30,413
|
)
|
|
|
15,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
384,447
|
|
|
|
167,689
|
|
|
|
390,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(165,113
|
)
|
|
|
(110,538
|
)
|
|
|
(161,851
|
)
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(7,001,930
|
)
|
|
|
(761,049
|
)
|
Increase in restricted cash
|
|
|
(38,182
|
)
|
|
|
|
|
|
|
|
|
Purchase of
available-for-sale
securities
|
|
|
(18,032
|
)
|
|
|
(275,802
|
)
|
|
|
(655,948
|
)
|
Proceeds from sale of
available-for-sale
securities
|
|
|
65,712
|
|
|
|
357,922
|
|
|
|
848,520
|
|
Other items, net
|
|
|
2,785
|
|
|
|
(4,976
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(152,830
|
)
|
|
|
(7,035,324
|
)
|
|
|
(730,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(137,495
|
)
|
|
|
(29,825
|
)
|
|
|
(50,751
|
)
|
Payment of financing fees
|
|
|
(15,074
|
)
|
|
|
(89,538
|
)
|
|
|
(15,329
|
)
|
Proceeds from the issuance of preferred stock, net
|
|
|
|
|
|
|
2,073,886
|
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
|
|
|
|
748,051
|
|
|
|
657,678
|
|
Purchase of bond hedge
|
|
|
(161,173
|
)
|
|
|
|
|
|
|
(126,000
|
)
|
Proceeds from issuance of warrants
|
|
|
62,560
|
|
|
|
|
|
|
|
45,360
|
|
Change in short-term borrowing, net
|
|
|
26,239
|
|
|
|
26,240
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
581,352
|
|
|
|
7,701,240
|
|
|
|
1,556,251
|
|
Payment of long-term debt
|
|
|
(524,536
|
)
|
|
|
(4,389,183
|
)
|
|
|
(689,938
|
)
|
Proceeds from exercise of stock options
|
|
|
1,191
|
|
|
|
7,732
|
|
|
|
49,824
|
|
Change in outstanding checks in excess of cash disburements
accounts
|
|
|
|
|
|
|
18,008
|
|
|
|
10,403
|
|
Other items, net
|
|
|
|
|
|
|
2,171
|
|
|
|
5,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(166,936
|
)
|
|
|
6,068,782
|
|
|
|
1,442,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on cash and cash equivalents of changes in exchange rates
|
|
|
8,264
|
|
|
|
30,690
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
72,945
|
|
|
|
(768,163
|
)
|
|
|
1,102,241
|
|
Cash and cash equivalents beginning of period
|
|
|
484,202
|
|
|
|
1,252,365
|
|
|
|
150,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
557,147
|
|
|
$
|
484,202
|
|
|
$
|
1,252,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
218,012
|
|
|
$
|
179,092
|
|
|
$
|
176,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
307,895
|
|
|
$
|
174,034
|
|
|
$
|
59,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
77
Mylan
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
|
|
Note 1.
|
Nature of
Operations
|
Mylan Inc. and its subsidiaries (the Company or
Mylan) are engaged in the development, licensing,
manufacture, marketing and distribution of generic, brand and
branded generic pharmaceutical products for resale by others and
active pharmaceutical ingredients (API) globally
through three reportable segments in accordance with Statement
of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131),
the Generics Segment, the Specialty Segment and the Matrix
Segment. The principal markets for the Generics Segment products
are proprietary and ethical pharmaceutical wholesalers and
distributors, drug store chains, drug manufacturers,
institutions, and public and governmental agencies primarily
within the United States (U.S.) and Canada
(collectively, North America), Europe, Middle East
and Africa (collectively, EMEA), and Australia,
Japan and New Zealand (collectively, Asia Pacific).
The Matrix Segment has a wide range of products in multiple
therapeutic categories and focuses mainly on developing API with
non-infringing processes to partner with generic manufacturers
in regulated markets such as the U.S. and the European
Union (EU) at market formation. The principal market
for the Specialty Segment is also pharmaceutical wholesalers and
distributors primarily in the U.S.
The Company amended its articles of incorporation to change its
name from Mylan Laboratories Inc. to Mylan Inc., effective as of
October 2, 2007.
Effective October 2, 2007, the Company amended its bylaws,
to change the Companys fiscal year from beginning
April 1st and ending on March 31st, to beginning
January 1st and ending on December 31st.
|
|
Note 2.
|
Summary
of Significant Accounting Policies
|
Principles of Consolidation. The Consolidated
Financial Statements include the accounts of Mylan Inc. and
those of its wholly-owned and majority-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in
consolidation. Non-controlling interests in the Companys
subsidiaries are recorded net of tax as minority interest.
On October 2, 2007, Mylan completed its acquisition of
Merck KGaAs generics business (the former Merck
Generics business). Accordingly, Mylan began consolidating
the results of operations of the former Merck Generics business
as of October 2, 2007 (see Note 3).
Cash and Cash Equivalents. Cash and cash
equivalents are comprised of highly liquid investments with an
original maturity of three months or less at the date of
purchase.
Available-for-Sale Securities. Debt and
marketable equity securities are classified as
available-for-sale and are recorded at fair value, with net
unrealized gains and losses, net of income taxes, reflected in
accumulated other comprehensive earnings as a component of
shareholders equity. Net realized gains and losses on
sales of available-for-sale securities are computed on a
specific security basis and are included in other income in the
Consolidated Statements of Operations.
Concentrations of Credit Risk. Financial
instruments that potentially subject the Company to credit risk
consist principally of interest-bearing investments, derivatives
and accounts receivable.
Mylan invests its excess cash in high-quality, liquid money
market instruments, principally overnight deposits, highly rated
money market funds and market auction securities. The Company
maintains deposit balances at certain financial institutions in
excess of federally insured amounts. Periodically, the Company
reviews the creditworthiness of its counterparties to derivative
transactions, and it does not expect to incur a loss from
failure of any counterparties to perform under agreements it has
with such counterparties.
Mylan performs ongoing credit evaluations of its customers and
generally does not require collateral. Approximately 37% and 34%
of the accounts receivable balances represent amounts due from
three customers at December 31, 2008 and December 31,
2007. Total allowances for doubtful accounts were
$26.9 million and $38.1 million at December 31,
2008 and December 31, 2007.
78
Inventories. Inventories are stated at the lower
of cost or market, with cost determined by the
first-in,
first-out method. Provisions for potentially obsolete or
slow-moving inventory, including pre-launch inventory, are made
based on our analysis of inventory levels, historical
obsolescence and future sales forecasts.
Property, Plant and Equipment. Property,
plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed and recorded on a
straight-line basis over the assets estimated service
lives (3 to 19 years for machinery and equipment and 15 to
39 years for buildings and improvements). The Company
periodically reviews the original estimated useful lives of
assets and makes adjustments when appropriate. Depreciation
expense was $122.8 million, $57.1 million and
$39.1 million for the calendar year ended December 31,
2008, the nine months ended December 31, 2007 and fiscal
year ended March 31, 2007, respectively.
Intangible Assets and Goodwill. Intangible
assets are stated at cost less accumulated amortization.
Amortization is generally recorded on a straight-line basis over
estimated useful lives ranging from 5 to 20 years. The
Company periodically reviews the original estimated useful lives
of assets and makes adjustments when events indicate that a
shorter life is appropriate.
The Company accounts for acquired businesses using the purchase
method of accounting, which requires that the assets acquired
and liabilities assumed be recorded at the date of acquisition
at their respective fair values. The cost to acquire a business,
including transaction costs, is allocated to the underlying net
assets of the acquired business in proportion to their
respective fair values. Amounts allocated to acquired in-process
research and development are expensed at the date of
acquisition. Definite lived intangible assets are amortized over
the expected life of the asset. Any excess of the purchase price
over the estimated fair values of the net assets acquired is
recorded as goodwill.
The judgments made in determining the estimated fair value
assigned to each class of assets acquired and liabilities
assumed, as well as asset lives, can materially impact the
Companys results of operations. Fair values and useful
lives are determined based on, among other factors, the expected
future period of benefit of the asset, the various
characteristics of the asset and projected cash flows.
Impairment of Long-Lived Assets. The carrying
values of long-lived assets, which include property, plant and
equipment and intangible assets with finite lives, are evaluated
periodically in relation to the expected future cash flows of
the underlying assets and monitored for other potential
triggering events. Adjustments are made in the event that
estimated undiscounted net cash flows are less than the carrying
value.
Goodwill is tested for impairment at least annually or when
events or other changes in circumstances indicate that the
carrying amount of the assets may not be recoverable based on
managements assessment of the fair value of the
Companys identified reporting units as compared to their
related carrying value. If the fair value of a reporting unit is
less than its carrying value, additional steps, including an
allocation of the estimated fair value to the assets and
liabilities of the reporting unit, would be necessary to
determine the amount, if any, of goodwill impairment.
Indefinite-lived intangibles are tested at least annually for
impairment. Impairment is determined to exist when the fair
value is less than the carrying value of the assets being tested.
Other Assets. Investments in business
entities in which the Company has the ability to exert
significant influence over operating and financial policies
(generally 20% to 50% ownership) are accounted for using the
equity method. Under the equity method, investments are
initially recorded at cost and are adjusted for dividends,
distributed and undistributed earnings and losses, changes in
foreign exchange rates, and additional investments. Other assets
are periodically reviewed for other-than-temporary declines in
fair value.
Short-Term Borrowings. Matrix has a financing
arrangement for the sale of its accounts receivable with certain
commercial banks. The commercial banks purchase the receivables
at a discount and Matrix records the proceeds as short-term
borrowings. Upon receipt of payment of the receivable, the
short-term borrowings are reversed. As the banks have recourse
to Matrix on the receivables sold, the receivables are included
in accounts receivable, net in the Consolidated Balance Sheets.
Additionally, Matrix has working capital facilities with several
banks which are secured first by Matrixs current assets
and second by Matrixs property, plant and equipment. The
working capital facilities carry interest rates of 4%-14%.
79
Revenue Recognition. Mylan recognizes revenue
for product sales when title and risk of loss pass to its
customers and when provisions for estimates, including
discounts, rebates, price adjustments, returns, chargebacks and
other promotional programs, are reasonably determinable. No
revisions were made to the methodology used in determining these
provisions during the calendar year ended December 31,
2008. The following briefly describes the nature of each
provision and how such provisions are estimated.
Discounts are reductions to invoiced amounts offered to
customers for payment within a specified period and are
estimated upon sale utilizing historical customer payment
experience.
Rebates are offered to key customers to promote customer loyalty
and encourage greater product sales. These rebate programs
provide that upon the attainment of pre-established volumes or
the attainment of revenue milestones for a specified period, the
customer receives credit against purchases. Other promotional
programs are incentive programs periodically offered to our
customers. The Company is able to estimate provisions for
rebates and other promotional programs based on the specific
terms in each agreement at the time of sale.
Consistent with industry practice, Mylan maintains a return
policy that allows customers to return product within a
specified period prior to and subsequent to the expiration date.
The Companys estimate of the provision for returns is
generally based upon historical experience with actual returns.
Price adjustments, which include shelf stock adjustments, are
credits issued to reflect decreases in the selling prices of
products. Shelf stock adjustments are based upon the amount of
product which the customer has remaining in its inventory at the
time of the price reduction. Decreases in selling prices are
discretionary decisions made by the Company to reflect market
conditions. Amounts recorded for estimated price adjustments are
based upon specified terms with direct customers, estimated
launch dates of competing products, estimated declines in market
price and, in the case of shelf stock adjustments, estimates of
inventory held by the customer.
The Company has agreements with certain indirect customers, such
as independent pharmacies, managed care organizations,
hospitals, nursing homes, governmental agencies and pharmacy
benefit management companies, which establish contract prices
for certain products. The indirect customers then independently
select a wholesaler from which to actually purchase the products
at these contracted prices. Mylan will provide credit to the
wholesaler for any difference between the contracted price with
the indirect party and the wholesalers invoice price. Such
credit is called a chargeback. The provision for chargebacks is
based on expected sell-through levels by our wholesaler
customers to indirect customers, as well as estimated wholesaler
inventory levels.
At March 31, 2007, as a result of significant uncertainties
surrounding the Food and Drug Administrations
(FDAs) approval of additional abbreviated new
drug applications (ANDAs) with respect to a product
launched by the Company in late March 2007, the Company was not
able to reasonably estimate the amount of potential price
adjustments that would occur as a result of the additional
approvals. As a result, revenues on shipments of this product
were deferred until such uncertainties were resolved. Initially,
such uncertainties were considered to be resolved upon our
customers sale of this product. During the quarter ended
September 30, 2007, as a result of additional competition
entering the market upon companies receiving final FDA approval,
these uncertainties were resolved and the Company was able to
reasonably estimate the amount of potential price adjustments.
Accordingly, all revenues on shipments previously deferred were
recognized and revenue is currently being recorded as described
above.
Accounts receivable are presented net of allowances relating to
the above provisions. No revisions were made to the methodology
used in determining these provisions during the calendar year
ended December 31, 2008 and the nine months ended
December 31, 2007. Such allowances were $496.5 million
and $420.4 million at December 31, 2008 and
December 31, 2007. Other current liabilities include
$236.3 million and $301.8 million at December 31,
2008 and December 31, 2007, for certain rebates and other
adjustments that are paid to indirect customers.
The Company periodically enters into various types of revenue
arrangements with third-parties, including agreements for the
sale or license of product rights or technology, research and
development agreements, collaboration agreements and others.
These agreements may include the receipt of upfront and
milestone payments, royalties, and payment for contract
manufacturing and other services.
80
The Company recognizes all non-refundable payments as revenue in
accordance with the guidance provided in the Securities and
Exchange Commission (SEC) Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition,
corrected copy, and Emerging Issues Task Force
(EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables.
Non-refundable fees received upon entering into license and
other collaborative agreements where the Company has continuing
involvement are recorded as deferred revenue and recognized as
other revenue over an appropriate period of time.
Royalty revenue from licensees, which are based on third-party
sales of licensed products and technology, is earned in
accordance with the contract terms when third-party sales can be
reliably measured and collection of the funds is reasonably
assured. Royalty revenue is included in other revenue in the
Consolidated Statements of Operations.
The Company recognizes contract manufacturing and other service
revenue when the service is performed or when the Companys
partners take ownership and title has passed, collectability is
reasonably assured, the sales price is fixed or determinable and
there is persuasive evidence of an arrangement.
During the calendar year ended December 31, 2008, sales to
McKesson Corporation and Cardinal Health, Inc. represented 12%
and 10% of consolidated net revenues. Sales to Cardinal Health,
Inc. and McKesson Corporation represented 11% and 16% of
consolidated net revenues during the nine months ended
December 31, 2007. Sales to AmerisourceBergen Corporation,
Cardinal Health, Inc. and McKesson Corporation represented
approximately 13%, 18% and 19%, respectively, of net revenues in
fiscal 2007.
Research and Development. Research and
development expenses are charged to operations as incurred.
Income Taxes. Income taxes have been provided
for using an asset and liability approach in which deferred
income taxes reflect the tax consequences on future years of
events that the Company has already recognized in the financial
statements or tax returns. Changes in enacted tax rates or laws
will result in adjustments to the recorded tax assets or
liabilities in the period that the new tax law is enacted.
(Loss) Earnings per Common Share. Basic
(loss) earnings per share excludes dilution and is computed by
dividing net (loss) earnings available to common shareholders by
the weighted average number of shares outstanding during the
period. Diluted (loss) earnings per share is computed by
dividing net (loss) earnings available to common shareholders by
the weighted average number of shares outstanding during the
period increased by the number of additional shares that would
have been outstanding related to stock options, convertible
instruments, warrants and other instruments indexed in the
Companys stock if the impact is dilutive.
With respect to the Companys convertible preferred stock,
the Company considered the effect on diluted earnings per share
of the preferred stock conversion feature using the if-converted
method. The preferred stock is convertible into between
125,234,172 shares and 152,785,775 shares of the
Companys common stock, subject to anti-dilution
adjustments, depending on the average stock price of its common
stock over the 20
trading-day
period ending on the third trading day prior to conversion. For
the calendar year ended December 31, 2008 and the nine
months ended December 31, 2007, the preferred stock
conversion would have been anti-dilutive and, as such, was not
assumed in the computation of diluted loss per share.
81
Basic and diluted (loss) earnings per common share is calculated
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
(in thousands, except per share amounts)
|
|
|
Basic (loss) earnings available to common shareholders
(numerator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings before preferred dividends
|
|
$
|
(181,215
|
)
|
|
$
|
(1,138,025
|
)
|
|
$
|
217,284
|
|
Less: Preferred stock dividends
|
|
|
139,035
|
|
|
|
15,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings available to common shareholders
|
|
$
|
(320,250
|
)
|
|
$
|
(1,154,024
|
)
|
|
$
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
304,360
|
|
|
|
257,150
|
|
|
|
215,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share
|
|
$
|
(1.05
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive (loss) earnings available to common shareholders
(numerator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings available to common shareholders
|
|
$
|
(320,250
|
)
|
|
$
|
(1,154,024
|
)
|
|
$
|
217,284
|
|
Add: Preferred stock dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders and assumed conversions
|
|
$
|
(320,250
|
)
|
|
$
|
(1,154,024
|
)
|
|
$
|
217,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based awards
|
|
|
|
|
|
|
|
|
|
|
4,024
|
|
Preferred stock conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dilutive shares outstanding assuming conversions
|
|
|
304,360
|
|
|
|
257,150
|
|
|
|
219,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share
|
|
$
|
(1.05
|
)
|
|
$
|
(4.49
|
)
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional stock options or restricted stock awards representing
20.7 million, 12.5 million and 1.6 million shares
were outstanding for the calendar year ended December 31,
2008, the nine months ended December 31, 2007, and fiscal
year ended March 31, 2007, respectively, but were not
included in the computation of diluted (loss) earnings per share
because the effect would be anti-dilutive.
During the calendar year ended December 31, 2008, the
Company paid dividends of $137.5 million on the preferred
stock. On January 29, 2009, the Company announced that a
quarterly dividend of $16.25 per share was declared (based on
the annual dividend rate of 6.5% and a liquidation preference of
$1,000 per share) payable on February 17, 2009, to the
holders of preferred stock of record as of February 1, 2009.
Stock Options. The Company adopted
SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R), effective
April 1, 2006. SFAS No. 123R requires the
recognition of the fair value of stock-based compensation in net
earnings. Prior to April 1, 2006, the Company accounted for
its stock options using the intrinsic value method of accounting
provided under Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to
Employees, (APB No. 25), and related
Interpretations, as permitted by SFAS No. 123,
Accounting for Share Based Compensation
(SFAS No. 123).
82
Mylan adopted the provisions of SFAS No. 123R, using
the modified prospective transition method. Under this method,
compensation expense recognized in the calendar year ended
December 31, 2008, the nine-month period ended
December 31, 2007, and the fiscal year ended March 31,
2007 includes: (a) compensation cost for all share-based
payments granted prior to April 1, 2006, but for which the
requisite service period had not been completed as of
April 1, 2006 based on the grant date fair value, estimated
in accordance with the original provisions of
SFAS No. 123, and (b) compensation cost for all
share-based payments granted subsequent to April 1, 2006,
based on the grant date fair value estimated in accordance with
the provisions of SFAS No. 123R.
Foreign Currencies. The Consolidated
Financial Statements are presented in the reporting currency of
Mylan, U.S. Dollars (USD). Statements of
Operations and Cash Flows of all of the Companys
subsidiaries that have functional currencies other than USD are
translated at a weighted average exchange rate for the period,
whereas assets and liabilities are translated at the end of the
period exchange rates. Translation differences are recorded
directly in shareholders equity as cumulative translation
adjustments. Gains or losses on transactions denominated in a
currency other than the subsidiaries functional currency,
which arise as a result of changes in foreign currency exchange
rates, are recorded in the Consolidated Statements of Operations.
Derivatives. From time to time the Company
may enter into derivative instruments (mainly foreign currency
exchange forward contracts, purchased currency options, interest
rate swaps and purchased equity call options) designed to hedge
the cash flows resulting from existing assets and liabilities
and transactions expected to be entered into over the next
twelve months, in currencies other than the functional currency,
to hedge the variability in interest expense on floating rate
debt or to hedge cash or share payments required on conversion
of issued convertible notes. When such instruments qualify for
hedge accounting under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS No. 133), they are recognized on
the balance sheet with the change in the fair value recorded as
a component of other comprehensive income until the underlying
hedged item is recognized in the Consolidated Statements of
Operations. When such derivatives do not qualify for hedge
accounting under SFAS No. 133, they are recognized on
the balance sheet at their fair value, with changes in the fair
value recorded in the Consolidated Statements of Operations and
included in other income, net.
Financial Instruments. The Companys
financial instruments consist primarily of short-term and
long-term debt, interest rate swaps, forward contracts, and
option contracts. The Companys financial instruments also
include cash and cash equivalents as well as accounts and other
receivables and accounts payable, the fair values of which
approximate their carrying values. As a policy, the Company does
not engage in speculative or leveraged transactions, nor does
the Company hold or issue financial instruments for trading
purposes.
The Company uses derivative financial instruments for the
purpose of hedging foreign currency and interest rate exposures,
which exist as part of ongoing business operations or to hedge
cash or share payments required on conversion of issued
convertible notes. The Company carries derivative instruments on
the balance sheet at fair value, determined by reference to
market data such as forward rates for currencies, implied
volatilities and interest rate swap yield curves. The accounting
for changes in the fair value of a derivative instrument depends
on whether it has been designated and qualifies as part of a
hedging relationship and, if so, the reason for holding it.
Use of Estimates in the Preparation of Financial
Statements. The preparation of financial
statements, in conformity with accounting principles generally
accepted in the United States of America (GAAP),
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Because of
the uncertainty inherent in such estimates, actual results could
differ from those estimates.
Recent Accounting Pronouncements. In June
2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position (FSP)
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP
No. EITF 03-6-1).
FSP
No. EITF 03-6-1 states
that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method. FSP
No. EITF 03-6-1
is effective for fiscal years beginning after December 15,
2008. The adoption of FSP
No. EITF 03-6-01
will not have a material impact on the Companys
Consolidated Financial Statements.
83
In May 2008, the FASB issued FSP No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash
Settlement) (FSP No. APB
14-1).
Under the new rules for convertible debt instruments (including
our Senior Convertible Notes) that may be settled entirely or
partially in cash upon conversion, an entity should separately
account for the liability and equity components of the
instrument in a manner that reflects the issuers economic
interest cost. The effect of the new rules for the debentures is
that the equity component would be included in the
paid-in-capital
section of stockholders equity on our consolidated balance
sheet and the value of the equity component would be treated as
original issue discount for purposes of accounting for the debt
component of the Senior Convertible Notes. FSP No. APB
14-1 will be
effective for fiscal years beginning after December 15,
2008, and for interim periods within those fiscal years, with
retrospective application required. Higher interest expense will
result through the accretion of the discounted carrying value of
the Senior Convertible Notes to their face amount over the term
of the Senior Convertible Notes. Prior period interest expense
will also be higher than previously reported interest expense
due to retrospective application. Early adoption is not
permitted. The Company evaluated the impact of adopting FSP
No. APB
14-1 on its
Consolidated Financial Statements and determined that the
retrospective application will increase the net loss available
to common shareholders by approximately $10.0 million for
the nine months ended December 31, 2007, and
$15.0 million for calendar year ended December 31,
2008. In addition, at December 31, 2008, additional paid-in
capital will increase by $85.0 million and long-term debt,
retained earnings and tax assets will decrease by
$87.0 million, $26.0 million and $28.0 million,
respectively.
In April 2008, the FASB issued FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
No. FAS 142-3).
FSP
No. FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142) in order to improve the
consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected
cash flows used to measure the fair value of the asset under
SFAS No. 141(R), Business Combinations
(SFAS No. 141(R)), and other
GAAP. FSP
No. FAS 142-3
is effective for fiscal years beginning after December 15,
2008. The adoption of FSP
No. FAS 142-3
will not have a material impact on the Companys
Consolidated Financial Statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS No. 161).
SFAS No. 161 requires enhanced disclosures about an
entitys derivative and hedging activities, including
(i) how and why an entity uses derivative instruments,
(ii) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and
(iii) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance, and cash flows. This standard is effective for
fiscal years beginning after November 15, 2008. Management
is currently assessing the impact of the disclosures on the
Companys Consolidated Financial Statements.
In March 2008, the Emerging Issues Task Force (EITF)
issued EITF
No. 07-5,
Determining Whether an Instrument (or Embedded Feature) is
Indexed to an Entitys Own Stock (EITF
No. 07-5).
EITF
No. 07-5 states
that if an instrument (or an embedded feature) has the
characteristics of a derivative instrument under
paragraphs 6-9
of SFAS No. 133, and is indexed to an entitys
own stock, it is necessary to evaluate whether it is classified
in shareholders equity (or would be classified in
shareholders equity if it were a freestanding instrument).
EITF
No. 07-5
is effective for fiscal years beginning after December 15,
2008. The adoption of EITF No. 07-5 will not have a
material impact on the Companys Consolidated Financial
Statements.
On January 1, 2008, the Company adopted Statement 133
Implementation Issue No. E23, Hedging
General: Issues Involving the Application of the Shortcut Method
under Paragraph 58 (Issue No. E23).
Issue No. E23 provides guidance on certain practice issues
related to the application of the shortcut method by amending
paragraph 68 of SFAS No. 133 with respect to the
conditions that must be met in order to apply the shortcut
method for assessing hedge effectiveness of interest rate swaps.
In addition to applying the provisions of Issue No. E23 on
hedging arrangements designated on or after January 1,
2008, an assessment was required to be made on January 1,
2008 to determine whether preexisting hedging arrangements met
the provisions of Issue No. E23 as of their original
inception. Management performed such an assessment and
determined that the adoption of Issue No. E23 did not have
a material impact on preexisting hedging arrangements.
84
On January 1, 2008, the Company adopted
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities including an
amendment of FASB Statement No. 115
(SFAS No. 159). SFAS No. 159
permits entities to choose to measure many financial instruments
and certain other assets and liabilities at fair value on an
instrument-by-instrument
basis (the fair value option) with changes in fair value
reported in earnings. The Company already records marketable
securities at fair value in accordance with
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities
(SFAS No. 115), and derivative
contracts and hedging activities at fair value in accordance
with SFAS No. 133. The adoption of
SFAS No. 159 did not have a material impact on the
Companys Consolidated Financial Statements as management
did not elect the fair value option for any other financial
instruments or certain other assets and liabilities.
In December 2007, the FASB issued SFAS No. 141(R).
SFAS No. 141(R) replaces SFAS No. 141,
Business Combinations,
(SFAS No. 141) and retains the fundamental
requirements in SFAS No. 141, including that the
purchase method be used for all business combinations and for an
acquirer to be identified for each business combination. This
standard defines the acquirer as the entity that obtains control
of one or more businesses in the business combination and
establishes the acquisition date as the date that the acquirer
achieves control instead of the date that the consideration is
transferred. SFAS No. 141(R) requires an acquirer in a
business combination, including business combinations achieved
in stages (step acquisition), to recognize the assets acquired,
liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values
at that date, with limited exceptions. It also requires the
recognition of assets acquired and liabilities assumed arising
from certain contractual contingencies as of the acquisition
date, measured at their acquisition-date fair values.
SFAS No. 141(R) is effective for any business
combination with an acquisition date on or after January 1,
2009. The Company is currently evaluating the potential impact
of SFAS No. 141(R) on the Consolidated Financial
Statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to establish
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. This standard defines a noncontrolling interest,
sometimes called a minority interest, as the portion of equity
in a subsidiary not attributable, directly or indirectly, to a
parent. SFAS No. 160 requires, among other items, that
a noncontrolling interest be included in the consolidated
balance sheet within equity separate from the parents
equity; consolidated net income to be reported at amounts
inclusive of both the parents and noncontrolling
interests shares and, separately, the amounts of
consolidated net income attributable to the parent and
noncontrolling interest all on the consolidated statement of
operations; and if a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be
measured at fair value and a gain or loss be recognized in net
income based on such fair value. SFAS No. 160 is
effective for fiscal years beginning after December 15,
2008. Although certain captions and disclosures will be revised,
the adoption of SFAS No. 160 will not have a material
impact on the Companys Consolidated Financial Statements.
In March 2007, the EITF issued EITF
No. 06-10,
Accounting for Collateral Assignment Split-Dollar Life
Insurance Arrangements (EITF
No. 06-10).
Under the provisions of EITF
No. 06-10,
an employer is required to recognize a liability for the
postretirement benefit related to a collateral assignment
split-dollar life insurance arrangement with the employee. The
provisions of EITF
No. 06-10
also require an employer to recognize and measure the asset in a
collateral assignment split-dollar life insurance arrangement
based on the nature and substance of the arrangement. The
Company adopted the provisions of EITF
No. 06-10
as of January 1, 2008. As a result of the adoption, the
Company recognized a liability of $8.3 million,
representing the present value of the future premium payments to
be made under the existing policies. In accordance with the
transition provisions of EITF
No. 06-10,
this amount was recorded as a direct decrease to retained
earnings.
In March 2007, the EITF issued EITF
No. 06-04,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsed Split-Dollar Life Insurance
Arrangements (EITF
No. 06-4),
which concludes that an employer should recognize a liability
for post-employment benefits promised an employee based on the
substantive arrangement between the employer and the employee.
The Company adopted the provisions of EITF
No. 06-04
as of January 1, 2008. The adoption of EITF
No. 06-04
did not have a material impact on the Companys
Consolidated Financial Statements.
85
Acquisition
of the Former Merck Generics Business
On May 12, 2007, Mylan and Merck KGaA announced the signing
of a definitive agreement under which Mylan agreed to purchase
Mercks generic pharmaceutical business in an all-cash
transaction. On October 2, 2007, Mylan completed its
acquisition of the former Merck Generics business.
In accordance with SFAS No. 141, the Company used the
purchase method of accounting to account for this transaction.
Under the purchase method of accounting, the assets acquired and
liabilities assumed in the transaction were recorded at the date
of acquisition at the estimate of their respective fair values.
The purchase price plus acquisition costs exceeded the estimate
of fair values of acquired assets and assumed liabilities
resulting in the recognition of goodwill in the preliminary
amount of $3.17 billion. This was a cash-free/debt-free
transaction as defined in the Share Purchase Agreement
(SPA). The total purchase price, including
acquisition costs of $38.7 million, was approximately
$7.0 billion. The operating results of the former Merck
Generics business from October 2, 2007 are included in the
Consolidated Financial Statements. The allocation of assets
acquired and liabilities assumed for the former Merck Generics
business as of the acquisition date is as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
Current assets (excluding inventories)
|
|
$
|
765,495
|
|
Inventories
|
|
|
645,449
|
|
Property, plant and equipment,
net(4)
|
|
|
344,454
|
|
Identified intangible assets
|
|
|
2,654,163
|
|
Other non-current
assets(2)
|
|
|
140,015
|
|
In-process research and
development(1)
|
|
|
1,269,036
|
|
Goodwill
|
|
|
3,166,005
|
|
|
|
|
|
|
Total assets acquired
|
|
|
8,984,617
|
|
Current
liabilities(3)
|
|
|
(820,444
|
)
|
Deferred tax liabilities
|
|
|
(1,020,040
|
)
|
Other non-current liabilities
|
|
|
(142,203
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
7,001,930
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount allocated to acquired in-process research and
development represents an estimate of the fair value of
purchased in-process technology for research projects that, as
of the closing date of the acquisition, had not reached
technological feasibility and had no alternative future use. The
fair value of the acquired in-process technology and research
projects was based on the excess earnings method on a
project-by-project
basis. This amount was written-off upon acquisition as acquired
in-process research and development expense. |
|
(2) |
|
Included in non-current assets is $137.1 million of
receivables for the agreement of Merck KGaA under the terms of
the SPA to indemnify Mylan for certain acquired significant
litigation (see Note 19). |
|
(3) |
|
Included in current liabilities are $74.3 million of
restructuring reserves that impacted goodwill. These estimated
exit costs are associated with involuntary termination benefits
for the former Merck Generics business employees and costs to
exit certain activities of the former Merck Generics business
and were recorded as a liability in conjunction with recording
the initial purchase price. |
|
(4) |
|
Included in property, plant and equipment are $36.4 million
of asset writedowns that have impacted goodwill. These
writedowns relate to adjusting equipment and buildings down to
their expected residual value upon their sale or closure. |
At December 31, 2007, as a result of the Companys
preliminary allocation of goodwill, approximately
$2.4 billion and $711.2 million were allocated to its
Generics Segment and Specialty Segment.
86
As of December 31, 2008, the Company has finalized the
purchase price allocation. Finalization of the purchase price
allocation consisted of net adjustments to deferred tax
liabilities, adjustments to certain asset fair values, and
additional restructuring liabilities. During the calendar year
ended December 31, 2008, a net decrease of approximately
$53.1 million was recorded to goodwill related to the
finalization of the purchase price allocation (see Note 10).
The Company has finalized its plans to exit certain activities
of the former Merck Generics business as of December 31,
2008. As a result, the Company has a $67.0 million reserve
at December 31, 2008 related to involuntary termination
benefits and certain other exit costs accounted for in
accordance with EITF
No. 95-3,
Recognition of Liabilities in Conjunction with a Purchased
Business Combination (EITF
No. 95-3)
(see Note 6).
In conjunction with the acquisition of the former Merck Generics
business, the Company assumed certain loss contingencies. As
disclosed in Note 19 Contingencies, Merck KGaA
has indemnified Mylan under the provisions of the SPA for
certain of these contingencies.
Also in conjunction with the acquisition, Mylan entered into a
deal-contingent foreign currency option contract in order to
mitigate the risk of foreign currency exposure related to the
Euro-denominated purchase price. The contract was contingent
upon the closing of the acquisition, and included a premium of
$121.9 million, which was paid upon such closing on
October 2, 2007. The value of the foreign currency option
contract fluctuated depending on the value of the
U.S. dollar compared to the Euro. The Company accounted for
this instrument under the provisions of SFAS No. 133.
This instrument did not qualify for hedge accounting treatment
under SFAS No. 133 and therefore was required to be
adjusted to fair value with the change in the fair value of the
instrument recorded in current earnings. The Company recorded a
gain of $85.0 million (net of the premium), during the
nine-month period ended December 31, 2007, related to the
deal-contingent foreign currency option contract. This amount is
included within other income, net in the Consolidated Statements
of Operations. In conjunction with the closing on
October 2, 2007 of the acquisition of the former Merck
Generics business, this foreign currency option contract was
settled (net of the premium).
Acquisition
of Matrix Laboratories Limited
On August 28, 2006, Mylan Inc. entered into a Share
Purchase Agreement (the Share Purchase Agreement) to
acquire, through MP Laboratories (Mauritius) Ltd, its
wholly-owned indirect subsidiary, a controlling interest in
Matrix, a publicly traded company in India. Matrix is engaged in
the manufacture of APIs and solid oral dosage forms and is
headquartered in Hyderabad, India.
Pursuant to the Share Purchase Agreement, Mylan agreed to pay a
cash purchase price of 306 Rupees per share for approximately
51.5% of the outstanding share capital of Matrix held by certain
selling shareholders (the Selling Shareholders).
In accordance with applicable Indian law, MP Laboratories
(Mauritius) Ltd, along with the Company, commenced an open offer
to acquire up to an additional 20% of the outstanding shares of
Matrix (the Public Offer) from Matrixs
shareholders (other than the Selling Shareholders) on
November 22, 2006, which Public Offer expired on
December 11, 2006. The price in the Public Offer was 306
Rupees per share, in accordance with applicable Indian
regulations.
On December 21, 2006, the Public Offer was completed and a
total of 54,585,189 shares were validly tendered, of which
Mylan accepted 30,836,662 shares. Payment in the amount of
$210.6 million for the shares properly tendered and
accepted was dispatched to the shareholders. On January 8,
2007, Mylan completed its acquisition of approximately 51.5% of
Matrixs outstanding shares from the Selling Shareholders
for approximately $545.6 million, thereby increasing its
ownership to approximately 71.5% of the voting share capital of
Matrix. Including the Matrix shareholdings maintained by Prasad
Nimmagadda (one of the Selling Shareholders), which are subject
to a voting arrangement with Mylan, Mylan controls in excess of
75% of the voting share capital of Matrix.
Following the closing of this transaction, certain of the
Selling Shareholders used approximately $168.0 million of
their proceeds to acquire Mylan Inc. common stock from the
Company in a private sale at a price of $20.85 per share. In
connection with these transactions a total of
8,058,139 shares were issued to the Selling
87
Shareholders. For purchase accounting purposes, the Company
valued these shares at $20.32 per share, which represents
Mylans average stock price for the period two business
days before and two business days after the August 28, 2006
announcement of the acquisition.
As a result of Mylans aggregate ownership in Matrix, Mylan
accounted for this transaction as a purchase under
SFAS No. 141 and has consolidated the results of
operations of Matrix since January 8, 2007. The purchase
price has been allocated to the fair value of the tangible and
intangible assets and liabilities with the excess being recorded
as goodwill as of the effective date of the acquisition. As the
acquisition was structured as a purchase of equity, the
amortization of the portion of the purchase price assigned to
assets in excess of Matrixs historic tax basis will not be
deductible for income tax purposes.
The total purchase price of $776.2 million, including
acquisition costs of $24.3 million, less cash acquired of
$10.9 million, was $765.2 million. The allocation of
assets acquired and liabilities assumed for Matrix is as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
Current assets (excluding cash and inventories)
|
|
$
|
129,621
|
|
Inventories
|
|
|
123,000
|
|
Property, plant and equipment, net
|
|
|
152,580
|
|
Identified intangible assets
|
|
|
270,440
|
|
Other non-current assets
|
|
|
65,878
|
|
In-process research and
development(1)
|
|
|
147,000
|
|
Goodwill
|
|
|
505,801
|
|
|
|
|
|
|
Total assets acquired
|
|
|
1,394,320
|
|
Current liabilities
|
|
|
(374,458
|
)
|
Deferred tax liabilities
|
|
|
(106,470
|
)
|
Other non-current liabilities
|
|
|
(104,045
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(584,973
|
)
|
Total minority interest
|
|
|
(44,117
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
765,230
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount allocated to acquired in-process research and
development represents an estimate of the fair value of
purchased in-process technology for research projects that, as
of the closing date of the acquisition, had not reached
technological feasibility and had no alternative future use. The
fair value of the acquired in-process technology and research
projects was based on the excess earnings method on a
project-by-project
basis. This amount was written-off upon acquisition as acquired
in-process research and development expense. |
In conjunction with the Matrix transaction, the Company entered
into a foreign exchange forward contract to purchase Indian
Rupees with U.S. Dollars in order to mitigate the risk of
foreign currency exposure related to the Indian
Rupee-denominated purchase price. The Company accounted for this
instrument under the provisions of SFAS No. 133. This
instrument did not qualify for hedge accounting treatment under
SFAS No. 133 and therefore was required to be adjusted
to fair value with the change in the fair value of the
instrument recorded in current earnings. The Company recorded a
gain of $16.2 million for the fiscal year ended
March 31, 2007 related to this deal-contingent forward
contract. This amount is included within other income, net in
the Consolidated Statements of Operations.
Pro forma
financial results
The operating results of the former Merck Generics business have
been included in Mylans Consolidated Financial Statements
since October 2, 2007. The operating results of Matrix have
been included in Mylans Consolidated Financial Statements
since January 8, 2007. Pro forma results of operations for
the nine months ended December 31, 2007 included below
assumes that the former Merck Generics business acquisition
occurred on April 1, 2007. Matrixs actual results of
operations are included in the calendar year ended
December 31, 2008 and
88
the nine months ended December 31, 2007. Pro forma results
of operations for the fiscal year ended March 31, 2007
included below assume both acquisitions occurred on
April 1, 2006. This summary of the unaudited pro forma
results of operations is not necessarily indicative of what
Mylans results of operations would have been had the
former Merck Generics business and Matrix been acquired at the
beginning of the periods indicated, nor does it purport to
represent results of operations for any future periods.
The unaudited pro forma financial information for each of
periods below includes the following material, non-recurring
charges directly attributable to the accounting for the
acquisitions: In the nine-month period ended December 31,
2007, amortization of the
step-up of
inventory of $109.4 million and an acquired in-process
research and development charge of $1.27 billion for the
former Merck Generics business. For the fiscal year ended
March 31, 2007, $141.7 million related to the
amortization of the
step-up of
inventory and an acquired in-process research and development
charge of $147.0 million for Matrix and $1.27 billion
for the former Merck Generics business. In addition, the pro
forma financial information for each period presented includes
the effects of the preferred and common stock offerings closed
in November 2007, the proceeds of which were used to repay the
Interim Term Loans (see Notes 12 and 14).
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2007
|
|
|
March 31, 2007
|
|
(in thousands, except per share data)
|
|
|
|
|
|
Total revenues
|
|
$
|
3,428,231
|
|
|
$
|
4,197,786
|
|
|
|
|
|
|
|
|
|
|
Net loss before preferred dividend
|
|
$
|
(1,290,242
|
)
|
|
$
|
(1,311,466
|
)
|
Preferred dividend
|
|
|
(104,276
|
)
|
|
|
(121,656
|
)
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
$
|
(1,394,518
|
)
|
|
$
|
(1,433,122
|
)
|
|
|
|
|
|
|
|
|
|
Loss per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(4.91
|
)
|
|
$
|
(5.35
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(4.91
|
)
|
|
$
|
(5.35
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
|
|
|
|
|
|
Basic
|
|
|
283,900
|
|
|
|
267,984
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
283,900
|
|
|
|
267,984
|
|
|
|
|
|
|
|
|
|
|
In July 2008, Mylan purchased from Watson Pharmaceutical Inc. a
50% interest in the outstanding shares of Somerset
Pharmaceuticals, Inc. Mylan had previously owned the other 50%
of Somerset and had accounted for the investment using the
equity method. This acquisition was not material to the
Companys statements of financial position, results of
operations, or cash flows.
|
|
Note 4.
|
Impairment
of Long-lived Assets Including Goodwill
|
On February 27, 2008, the Company announced that it was
reviewing strategic alternatives for its specialty business,
Dey, including the potential sale of the business. This decision
was based upon several factors, including a strategic review of
the business, the expected performance of the
Perforomist®
product, where anticipated growth was determined to be slower
than expected and the timeframe to reach peak sales was
determined to be longer than was originally anticipated.
As a result of its ongoing review of strategic alternatives, the
Company determined that it was more likely than not that the
business would be sold or otherwise disposed of significantly
before the end of its previously estimated useful life.
Accordingly, a recoverability test of Deys long-lived
assets was performed during the three months ended
March 31, 2008 in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144). The Company
included both cash flow projections and estimated proceeds from
the eventual disposition of the long-lived assets. The estimated
undiscounted future cash flows exceeded the book values of the
long-lived assets and, as a result, no impairment charge was
recorded.
89
Upon the closing of the former Merck Generics business
acquisition, Dey was defined as the Specialty Segment under the
provisions of SFAS No. 131. Dey is also considered a
reporting unit under the provisions of SFAS No. 142.
Upon closing of the transaction, the Company allocated
$711.2 million of goodwill to Dey.
The Company tests goodwill for possible impairment on an annual
basis and at any other time events occur or circumstances
indicate that the carrying amount of goodwill may be impaired.
As the Company had determined that it was more likely than not
that the business would be sold or otherwise disposed of
significantly before the end of its previously estimated useful
life, the Company was required, during the three months ended
March 31, 2008, to assess whether any portion of its
recorded goodwill balance was impaired.
The first step of the SFAS No. 142 impairment analysis
consisted of a comparison of the fair value of the reporting
unit with its carrying amount, including the goodwill. The
Company performed extensive valuation analyses, utilizing both
income and market-based approaches, in its goodwill assessment
process. The following describes the valuation methodologies
used to derive the estimated fair value of the reporting unit.
Income Approach: To determine fair value, the
Company discounted the expected future cash flows of the
reporting unit, using a discount rate, which reflected the
overall level of inherent risk and the rate of return an outside
investor would have expected to earn. To estimate cash flows
beyond the final year of its model, the Company used a terminal
value approach. Under this approach, the Company used estimated
operating income before interest, taxes, depreciation and
amortization in the final year of its model, adjusted to
estimate a normalized cash flow, applied a perpetuity growth
assumption, and discounted by a perpetuity discount factor to
determine the terminal value. The Company incorporated the
present value of the resulting terminal value into its estimate
of fair value.
Market-Based Approach: To corroborate the
results of the income approach described above, Mylan estimated
the fair value of its reporting unit using several market-based
approaches, including the guideline company method which focused
on comparing its risk profile and growth prospects to a select
group of publicly traded companies with reasonably similar
guidelines.
Based on the SFAS No. 142 step one
analysis that was performed for Dey, the Company determined that
the carrying amount of the net assets of the reporting unit was
in excess of its estimated fair value. As such, the Company was
required to perform the step two analysis for Dey,
in order to determine the amount of any goodwill impairment. The
step two analysis consisted of comparing the implied
fair value of the goodwill with the carrying amount of the
goodwill, with an impairment charge resulting from any excess of
the carrying value of the goodwill over the implied fair value
of the goodwill based on a hypothetical allocation of the
estimated fair value to the net assets. Based on the second step
analysis, the Company concluded that $385.0 million of the
goodwill recorded at Dey was impaired. As a result, the Company
recorded a non-cash goodwill impairment charge of
$385.0 million during the three months ended March 31,
2008, which represented its best estimate as of March 31,
2008. The allocation discussed above was performed only for
purposes of assessing goodwill for impairment; accordingly,
Mylan has not adjusted the net book value of the assets and
liabilities on the Companys Consolidated Balance Sheet,
other than goodwill, as a result of this process.
The determination of the fair value of the reporting unit
required the Company to make significant estimates and
assumptions that affect the reporting units expected
future cash flows. These estimates and assumptions primarily
include, but are not limited to, the discount rate, terminal
growth rates, operating income before depreciation and
amortization, and capital expenditures forecasts. Due to the
inherent uncertainty involved in making these estimates, actual
results could differ from those estimates. In addition, changes
in underlying assumptions would have a significant impact on
either the fair value of the reporting unit or the goodwill
impairment charge.
The hypothetical allocation of the fair value of the reporting
unit to individual assets and liabilities within the reporting
unit also requires the Company to make significant estimates and
assumptions. The hypothetical allocation requires several
analyses to determine the estimate of the fair value of assets
and liabilities of the reporting unit (see Note 10).
In September 2008, following the completion of the comprehensive
review of strategic alternatives for Dey, the Company announced
its decision to retain the Dey business. This decision included
a plan to realign the
90
business, including positioning the Company to divest Deys
current facilities over the next two years (see Note 6). As
a result, the Company expects to incur severance and other exit
costs. In addition, the comprehensive review resulted in the
impairment of certain non-core, insignificant, third-party
products.
|
|
Note 5.
|
Revenue
Recognition
|
In January 2006, the Company announced an agreement with Forest
Laboratories Holdings, Ltd. (Forest), a wholly-owned
subsidiary of Forest Laboratories, Inc., for the
commercialization, development and distribution of
Bystolic®
in the United States and Canada (the 2006
Agreement). Under the terms of that agreement, Mylan
received a $75.0 million up-front payment and
$25.0 million upon approval of the product. Such amounts
were being deferred until the commercial launch of the product
and were to be amortized over the remaining term of the license
agreement. Mylan also had the potential to earn future
milestones and royalties on Bystolic sales and an option to
co-promote the product, while Forest assumed all future
development and selling and marketing expenses.
In February 2008, Mylan executed an agreement with Forest
whereby Mylan sold to Forest its rights to Bystolic (the
Amended Agreement). Under the terms of the Amended
Agreement, Mylan received a one-time cash payment of
$370.0 million, which was deferred along with the
$100.0 million received under the 2006 Agreement, and
retained its contractual royalties for three years, through
2010. Mylans obligations under the 2006 Agreement to
supply Bystolic to Forest were unchanged by the Amended
Agreement. Mylan believed that these supply obligations
represented significant continuing involvement as Mylan remained
contractually obligated to manufacture the product for Forest
while the product was being commercialized. As a result of this
continuing involvement, Mylan had been amortizing the
$470.0 million of deferred revenue ratably through 2020
pending the transfer of manufacturing responsibility that was
anticipated to occur in the second half of 2008.
In September 2008, Mylan completed the transfer of all
manufacturing responsibilities for the product to Forest, and
Mylans supply obligations have therefore been eliminated.
The Company believes that it no longer has significant
continuing involvement and that the earnings process has been
completed. As such, the remaining deferred revenue of
$455.0 million was recognized and included in other
revenues in the Companys Consolidated Statements of
Operations.
Future royalties are considered to be contingent consideration
and are recognized in other revenues as earned upon sales of the
product by Forest. Such royalties are recorded at the net
royalty rates specified in the Amended Agreement.
The Companys Consolidated Balance Sheet as of
December 31, 2008, includes a $67.0 million
restructuring reserve, which relates to certain estimated exit
costs associated with the acquisition of the former Merck
Generics business. The plans related to these exit activities
have now been finalized. Payments of approximately
$9.4 million were made during the calendar year ended
December 31, 2008, of which $6.1 million were
severance costs and the remaining $3.3 million were other
exit costs.
The Company announced its intent to restructure certain
activities and incur certain related exit costs, including
related to the realignment of the Dey business. In accordance
with the provisions of SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities
(SFAS No. 146), the Company has
recorded a reserve for such activities of which approximately
$8.0 million remains at December 31, 2008 and made
payments of approximately $0.7 million. In addition, the
Company recorded approximately $3.7 million for the
acceleration of depreciation expense, during the calendar year
ended December 31, 2008. As finalization of the plans are
still in progress, the Company has not yet estimated the total
amount expected to be incurred in connection with such
activities. However, Mylan expects the majority of such costs
will relate to one-time termination benefits and certain asset
write-downs and could be significant.
91
|
|
Note 7.
|
Comparative
Nine-Month Financial Information
|
Effective as of October 2, 2007, the Board of Directors of
Mylan approved a change to its fiscal year end from
March 31st to December 31st. Consolidated
Statements of Operations for the nine months ended
December 31, 2007 and 2006 are summarized below. All data
for the nine months ended December 31, 2006 are derived
from the Companys unaudited Condensed Consolidated
Financial Statements.
MYLAN
INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
Nine Months Ended December
31,
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Unaudited)
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
2,162,943
|
|
|
$
|
1,103,247
|
|
Other revenues
|
|
|
15,818
|
|
|
|
21,310
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,178,761
|
|
|
|
1,124,557
|
|
Cost of sales
|
|
|
1,304,313
|
|
|
|
515,736
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
874,448
|
|
|
|
608,821
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
146,063
|
|
|
|
66,844
|
|
Acquired in-process research and development
|
|
|
1,269,036
|
|
|
|
|
|
Selling, general and administrative
|
|
|
449,598
|
|
|
|
152,784
|
|
Litigation settlements, net
|
|
|
(1,984
|
)
|
|
|
(46,154
|
)
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,862,713
|
|
|
|
173,474
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations
|
|
|
(988,265
|
)
|
|
|
435,347
|
|
Interest expense
|
|
|
179,410
|
|
|
|
31,292
|
|
Other income, net
|
|
|
86,611
|
|
|
|
39,785
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes and minority interest
|
|
|
(1,081,064
|
)
|
|
|
443,840
|
|
Provision for income taxes
|
|
|
60,073
|
|
|
|
155,267
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before minority interest
|
|
|
(1,141,137
|
)
|
|
|
288,573
|
|
Minority interest income
|
|
|
3,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings before preferred dividends
|
|
|
(1,138,025
|
)
|
|
|
288,573
|
|
Preferred dividend
|
|
|
15,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings available to common shareholders
|
|
|
(1,154,024
|
)
|
|
|
288,573
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(4.49
|
)
|
|
$
|
1.37
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(4.49
|
)
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
257,150
|
|
|
|
211,075
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
257,150
|
|
|
|
215,275
|
|
|
|
|
|
|
|
|
|
|
92
|
|
Note 8.
|
Balance
Sheet Components
|
Selected balance sheet components consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
(in thousands)
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
273,232
|
|
|
$
|
255,744
|
|
Work in process
|
|
|
157,473
|
|
|
|
160,918
|
|
Finished goods
|
|
|
635,285
|
|
|
|
647,178
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,065,990
|
|
|
$
|
1,063,840
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
56,945
|
|
|
$
|
62,824
|
|
Buildings and improvements
|
|
|
577,182
|
|
|
|
583,097
|
|
Machinery and equipment
|
|
|
1,012,748
|
|
|
|
980,340
|
|
Construction in progress
|
|
|
110,721
|
|
|
|
125,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,757,596
|
|
|
|
1,751,943
|
|
Less accumulated depreciation
|
|
|
693,600
|
|
|
|
649,011
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,063,996
|
|
|
$
|
1,102,932
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
Payroll and employee benefit plan accruals
|
|
$
|
181,316
|
|
|
$
|
136,232
|
|
Accrued rebates
|
|
|
236,312
|
|
|
|
301,829
|
|
Fair value of financial instruments
|
|
|
91,797
|
|
|
|
|
|
Legal and professional accruals
|
|
|
71,813
|
|
|
|
58,883
|
|
Other
|
|
|
127,400
|
|
|
|
148,186
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
708,638
|
|
|
$
|
645,130
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9.
|
Available-for-Sale
Fixed Income Securities
|
The amortized cost and estimated fair value of
available-for-sale fixed income securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$
|
42,146
|
|
|
$
|
1,772
|
|
|
$
|
(2,260
|
)
|
|
$
|
41,658
|
|
Equity securities
|
|
|
|
|
|
|
602
|
|
|
|
|
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,146
|
|
|
$
|
2,374
|
|
|
$
|
(2,260
|
)
|
|
$
|
42,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$
|
88,806
|
|
|
$
|
1,748
|
|
|
$
|
(315
|
)
|
|
$
|
90,239
|
|
Equity securities
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,806
|
|
|
$
|
2,870
|
|
|
$
|
(315
|
)
|
|
$
|
91,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
Maturities of debt securities at fair value as of
December 31, 2008, were as follows:
|
|
|
|
|
(in thousands)
|
|
|
Mature within one year
|
|
$
|
2,819
|
|
Mature in one to five years
|
|
|
14,115
|
|
Mature in five years and later
|
|
|
24,724
|
|
|
|
|
|
|
|
|
$
|
41,658
|
|
|
|
|
|
|
Gross gains of $0.1 million, $1.8 million and
$0.8 million and gross losses of $0.2 million,
$1.5 million and $1.8 million were realized during the
calendar year ended December 31, 2008, the nine months
ended December 31, 2007 and fiscal year 2007, respectively.
The Company also had approximately $9.1 million and
$40.6 million of auction rate securities (ARS)
at December 31, 2008 and December 31, 2007. During the
nine months ended December 31, 2007, no auctions failed.
During the calendar year ended December 31, 2008, the
securities were subject to a failed auction in May 2008. These
ARS continue to pay interest according to their terms. The
securities were issued by a state educational loan authority and
are backed by student loans. The state educational loan
authority has requested and received required consent from
bondholders to amend the existing indentures governing the
securities to add a call provision, which permits the securities
to be called at par after August 1, 2008. The Company does
not believe these securities are subject to any impairment as
the Company has the intent and the ability to hold these
securities until maturity or until called.
|
|
Note 10.
|
Goodwill
and Other Intangible Assets
|
A rollforward of goodwill from December 31, 2007 to
December 31, 2008 and from March 31, 2007 to
December 31, 2007 is as follows:
|
|
|
|
|
|
|
Total
|
|
(in thousands)
|
|
|
Goodwill balance at December 31, 2007
|
|
$
|
3,855,971
|
|
Impairment loss on goodwill
|
|
|
(385,000
|
)
|
Foreign currency translation and other
|
|
|
(309,391
|
)
|
|
|
|
|
|
Goodwill balance at December 31, 2008
|
|
$
|
3,161,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
(in thousands)
|
|
|
Goodwill balance at March 31, 2007
|
|
$
|
612,742
|
|
Acquisition of Merck Generics
|
|
|
3,166,005
|
|
Foreign currency translation and other
|
|
|
77,224
|
|
|
|
|
|
|
Goodwill balance at December 31, 2007
|
|
$
|
3,855,971
|
|
|
|
|
|
|
Included in foreign currency translation and other for the
calendar year ended December 31, 2008 is an approximate
$53.1 million net decrease to goodwill related to the
finalization of the Merck Generics acquisition purchase price
allocation. Finalization of the purchase price allocation
consisted of net adjustments to deferred tax liabilities,
adjustments to certain asset fair values, and additional
restructuring liabilities.
At December 31, 2008, approximately $2.39 billion,
$320.0 million and $455.4 million were allocated to
our Generics Segment, Specialty Segment and Matrix Segment,
respectively.
94
Intangible assets consist of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Life
|
|
|
Original
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
(Years)
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technologies
|
|
|
20
|
|
|
$
|
118,926
|
|
|
$
|
71,631
|
|
|
$
|
47,295
|
|
Product rights and licenses
|
|
|
10
|
|
|
|
2,738,191
|
|
|
|
433,169
|
|
|
|
2,305,022
|
|
Other
|
|
|
8
|
|
|
|
129,563
|
|
|
|
28,719
|
|
|
|
100,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,986,680
|
|
|
$
|
533,519
|
|
|
$
|
2,453,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technologies
|
|
|
20
|
|
|
$
|
118,926
|
|
|
$
|
65,578
|
|
|
$
|
53,348
|
|
Product rights and licenses
|
|
|
10
|
|
|
|
2,961,712
|
|
|
|
152,865
|
|
|
|
2,808,847
|
|
Other
|
|
|
8
|
|
|
|
129,031
|
|
|
|
12,520
|
|
|
|
116,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,209,669
|
|
|
$
|
230,963
|
|
|
$
|
2,978,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles consist principally of customer lists and
contracts. As a result of the acquisition of a controlling
interest in Matrix the Company recorded intangible assets of
$270.4 million, primarily product rights and licenses,
which have a weighted average useful life of eight years. As a
result of the acquisition of the former Merck Generics business,
the Company recorded intangible assets of $2.65 billion,
primarily product rights and licenses, which have a weighted
average useful life of 10 years (see Note 3).
Amortization expense, which is classified within cost of sales
on the Companys Consolidated Statements of Operations, for
the calendar year ended December 31, 2008, the nine months
ended December 31, 2007 and the fiscal year ended
March 31, 2007 was $368.2 million, $100.7 million
and $22.4 million, respectively, and is expected to be
$298.5 million, $291.6 million, $283.1 million,
$267.7 million and $244.8 million for the years ended
December 31, 2009 through 2013, respectively.
Included within amortization expense for calendar year ended
December 31, 2008, is approximately $65.7 million of
non-cash intangible impairment charges related primarily to
certain non-core, insignificant, third-party manufactured
products and assets.
|
|
Note 11.
|
Financial
Instruments and Risk Management
|
Foreign
Currency Exchange Risk
A significant portion of the Companys revenues and
earnings are exposed to changes in foreign currency exchange
rates. The Company seeks to manage its foreign exchange risk in
part through operational means, including managing same currency
revenues in relation to same currency costs, and same currency
assets in relation to same currency liabilities.
Foreign exchange risk is also managed through the use of foreign
currency forward-exchange contracts. These contracts are used to
hedge the potential earnings effects from mostly intercompany
foreign currency assets and liabilities that arise from
operations and from intercompany loans.
The Company enters into financial instruments to hedge or
offset, by the same currency, a portion of the currency risk and
the timing of the hedged or offset item.
95
As of December 31, 2008, the more significant financial
instruments employed to manage foreign exchange risk are as
follows:
|
|
|
|
|
812.4 million ($1.13 billion) of borrowings
under the Senior Credit Agreement that are designated as a hedge
of our net investment in certain Euro-functional currency
subsidiaries. The after-tax impact of revaluing these borrowings
due to changes in spot exchange rates is included in the foreign
currency translation adjustment component of other comprehensive
(loss) earnings in the Consolidated Statements of
Shareholders Equity.
|
|
|
|
$489.6 million net notional value of foreign exchange
forward contracts maturing within one month that serve to offset
changes in spot exchange rates of intercompany foreign currency
denominated assets or liabilities. The Company recognizes the
earnings impact of these contracts in other income, net in the
Consolidated Statements of Operations during the terms of the
contracts, along with the earnings impact of the items they
generally offset.
|
As of December 31, 2007, the more significant financial
instruments employed to manage foreign exchange risk are as
follows:
|
|
|
|
|
875.4 million ($1.23 billion) of borrowings
under the Senior Credit Agreement that are designated as a hedge
of our net investment in certain Euro-functional currency
subsidiaries. The after-tax impact of revaluing these borrowings
due to changes in spot exchange rates is included in the foreign
currency translation adjustment component of other comprehensive
(loss) earnings in the Consolidated Statements of
Shareholders Equity.
|
|
|
|
$345.6 million net notional value of foreign exchange
forward contracts maturing within one month that serve to offset
changes in spot exchange rates of intercompany foreign currency
denominated assets or liabilities. The Company recognizes the
earnings impact of these contracts in other income, net in the
Consolidated Statements of Operations during the terms of the
contracts, along with the earnings impact of the items they
generally offset.
|
All derivative contracts used to manage foreign currency
exchange risk are measured at fair value and reported as assets
or liabilities on the balance sheet. Any ineffectiveness in a
hedging relationship is recognized immediately into earnings.
There was no significant ineffectiveness during the calendar
year ended December 31, 2008 or the nine months ended
December 31, 2007.
Interest
Rate Risk
The Companys interest-bearing investments and borrowings
are subject to interest rate risk. The Company invests primarily
on a variable-rate basis. The Company borrows on both a fixed
and variable-rate basis. From time to time, depending on market
conditions, the Company will fix interest rates either through
entering into fixed-rate borrowings or through the use of
derivative financial instruments.
In 2008, the Company executed the following interest rate
derivatives in order to fix the interest rate on a portion of
the Companys variable-rate U.S. Tranche B Term
Loans under the Senior Credit Agreement. These swaps are
designated as cash flow hedges of expected future borrowings
under the Senior Credit Agreement.
|
|
|
|
|
$500.0 million of notional interest rate swaps that fix a
rate of 5.44% until March 2010
|
|
|
|
$500.0 million of notional interest rate swaps that fix a
rate of 6.03% until December 2010
|
During the nine months ended December 31, 2007, the Company
executed $1.0 billion of notional interest rate swaps in
order to fix the interest rate on a portion of the
Companys U.S. Tranche B Term Loans under the
Senior Credit Agreement (see Note 12). These swaps are
designated as cash flow hedges of the variability of interest
expense related to our variable rate debt and fix a rate of
7.37% until December 2010.
The Company recognizes the earnings impact of the interest rate
swaps in interest expense in the Companys Consolidated
Statements of Operations upon the recognition of the interest
related to the hedged items.
96
All derivative contracts used to manage interest rate risk are
measured at fair value and reported as assets or liabilities on
the balance sheet. Changes in fair value are reported in
earnings or deferred, depending on the nature and effectiveness
of the offset. Any ineffectiveness in a hedging relationship is
recognized immediately in earnings. There was no significant
ineffectiveness during the calendar year ended December 31,
2008 or the nine months ended December 31, 2007.
In February 2009, the Company executed an additional 200.0
($277.8) million of notional interest rate swaps in order
to fix the interest rate on a portion of our Euro Tranche B
Term Loans. This swap fixes a rate of 5.38% on a portion of the
Companys variable rate debt until March 2011 and are
designated as a cash flow hedge of expected future borrowings
under the Senior Credit Agreement.
Equity
Risk
From time to time the Company may enter into derivative
instruments to hedge cash or share-based payments required on
conversion of issued convertible notes.
Fair
Value Measurement
On January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements,
(SFAS No. 157) for financial assets and
liabilities and any other assets and liabilities carried at fair
value. This pronouncement defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. The Companys adoption of
SFAS No. 157 did not have a material effect on the
Companys Condensed Consolidated Financial Statements for
financial assets and liabilities and any other assets and
liabilities carried at fair value.
Effective September 30, 2008, the Company adopted FSP
No. FAS 157-3,
Determining the Fair Value of a Financial Asset when the
Market for that Asset is not Active, (FSP
No. FAS 157-3).
FAS No. FAS 157-3
clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial
asset when the market for that financial asset is not active.
The Companys adoption of FSP
No. FAS 157-3
did not have a material impact on the Companys Condensed
Consolidated Financial Statements.
As defined in SFAS No. 157, fair value is based on the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. In order to increase
consistency and comparability in fair value measurements,
SFAS No. 157 establishes a fair value hierarchy that
prioritizes observable and unobservable inputs used to measure
fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active
markets that are accessible at the measurement date for assets
or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
Level 2: Observable prices that are based on
inputs not quoted on active markets, but corroborated by market
data.
Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy
gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation
techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs to the extent possible
as well as considers counterparty credit risk in its assessment
of fair value.
97
Financial assets and liabilities carried at fair value as of
December 31, 2008 are classified in the table below in one
of the three categories described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale fixed income investments
|
|
$
|
|
|
|
$
|
32,583
|
|
|
$
|
|
|
|
$
|
32,583
|
|
Available-for-sale equity securities
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
602
|
|
Foreign exchange derivative assets
|
|
|
|
|
|
|
14,632
|
|
|
|
|
|
|
|
14,632
|
|
Purchased cash convertible note hedge
|
|
|
|
|
|
|
235,750
|
|
|
|
|
|
|
|
235,750
|
|
Auction rate
securities(2)
|
|
|
|
|
|
|
|
|
|
|
9,075
|
|
|
|
9,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair
value(1)
|
|
$
|
602
|
|
|
$
|
282,965
|
|
|
$
|
9,075
|
|
|
$
|
292,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative liabilities
|
|
$
|
|
|
|
$
|
19,402
|
|
|
$
|
|
|
|
$
|
19,402
|
|
Interest rate swap derivative liabilities
|
|
|
|
|
|
|
72,395
|
|
|
|
|
|
|
|
72,395
|
|
Cash conversion feature of cash convertible notes
|
|
|
|
|
|
|
235,750
|
|
|
|
|
|
|
|
235,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair
value(1)
|
|
$
|
|
|
|
$
|
327,547
|
|
|
$
|
|
|
|
$
|
327,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company chose not to elect the fair value option as
prescribed by SFAS No. 159 for its financial assets
and liabilities that had not been previously carried at fair
value. Therefore, material financial assets and liabilities such
as short-term and long-term debt obligations and trade accounts
receivable and payable, are still reported at their carrying
values. |
|
(2) |
|
There have been no changes to the fair value of these securities
during the quarter ended December 31, 2008. |
Due to the lack of observable market quotes on the
Companys ARS portfolio, the Company utilizes valuation
models that rely exclusively on Level 3 inputs, including
those that are based on expected cash flow streams and
collateral values. The Company has approximately
$9.1 million in ARS, which were subject to a failed auction
in May 2008. These ARS continue to pay interest according to
their terms. The securities were issued by a state educational
loan authority and are backed by student loans. The state
educational loan authority has requested and received required
consent from bondholders to amend the existing indentures
governing the securities to add a call provision, which permits
the securities to be called at par after August 1, 2008.
The Company does not believe these securities are subject to any
other than temporary impairment as the Company has the intent
and the ability to hold these securities until maturity or until
called.
For financial assets and liabilities that utilize Level 2
inputs, the Company utilizes both direct and indirect observable
price quotes, including the LIBOR yield curve, foreign exchange
forward prices, and bank price quotes. Below is a summary of
valuation techniques for Level 1 and Level 2 financial
assets and liabilities:
|
|
|
|
|
Municipal bonds valued at the quoted market
price from broker or dealer quotations or transparent pricing
sources at the reporting date.
|
|
|
|
Other available-for-sale fixed income investments
valued at the quoted market price from broker or
dealer quotations or transparent pricing sources at the
reporting date.
|
|
|
|
Equity Securities valued using quoted stock
prices from the London Exchange at the reporting date and
translated to U.S. dollars at prevailing spot exchange
rates.
|
|
|
|
Interest rate swap derivative assets and liabilities
valued using the LIBOR yield curve at the
reporting date. Counterparties to these contracts are highly
rated financial institutions, none of which experienced any
significant downgrades during the calendar year ended
December 31, 2008, that would reduce the receivable amount
owed, if any, to the Company.
|
98
|
|
|
|
|
Foreign exchange derivative assets and liabilities
valued using quoted forward foreign exchange
prices at the reporting date. Counterparties to these contracts
are highly rated financial institutions, none of which
experienced any significant downgrades during the calendar year
ended December 31, 2008, that would reduce the receivable
amount owed, if any, to the Company.
|
|
|
|
Cash Conversion Feature of Cash Convertible Notes and
Purchased Convertible Note Hedge valued using
quoted prices for the Companys cash convertible notes, its
implied volatility and the quoted yield on the Companys
other long-term debt at the reporting date. Counterparties to
the Purchased Convertible Note Hedge are highly rated financial
institutions, none of which experienced any significant
downgrades during the calendar year ended December 31,
2008, that would reduce the receivable amount owed, if any, to
the Company.
|
Although the Company has not elected the fair value option for
financial assets and liabilities existing at January 1,
2008 or transacted during the calendar year ended
December 31, 2008, any future transacted financial asset or
liability will be evaluated for the fair value election as
prescribed by SFAS No. 159 and adjusted to fair value
as determined under the provisions of SFAS No. 157.
A summary of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
(in thousands)
|
|
|
|
|
|
|
|
U.S. Tranche A Term
Loans(A)
|
|
$
|
265,625
|
|
|
$
|
312,500
|
|
Euro Tranche A Term
Loans(A)
|
|
|
413,684
|
|
|
|
516,127
|
|
U.S. Tranche B Term
Loans(A)
|
|
|
2,504,880
|
|
|
|
2,556,000
|
|
Euro Tranche B Term
Loans(A)
|
|
|
714,583
|
|
|
|
773,273
|
|
Revolving
Facility(A)
|
|
|
|
|
|
|
300,000
|
|
Senior Convertible
Notes(B)
|
|
|
600,000
|
|
|
|
600,000
|
|
Cash Convertible
Notes(C)
|
|
|
655,442
|
|
|
|
|
|
Other
|
|
|
14,586
|
|
|
|
54,194
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,168,800
|
|
|
$
|
5,112,094
|
|
Less: Current portion
|
|
|
3,381
|
|
|
|
405,378
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
5,165,419
|
|
|
$
|
4,706,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
On October 2, 2007, the Company entered into a credit
agreement (the Senior Credit Agreement) among the
Company, a wholly-owned European subsidiary (the Euro
Borrower), certain lenders and JPMorgan Chase Bank,
National Association, as Administrative Agent, pursuant to which
the Company borrowed $500.0 million in Tranche A Term
Loans (the U.S. Tranche A Term Loans) and
$2.0 billion in Tranche B Term Loans (the U.S.
Tranche B Term Loans), and the Euro Borrower borrowed
approximately 1.13 billion ($1.6 billion) in
Euro Term Loans (the Euro Term Loans and, together
with the U.S. Tranche A Term Loans and the U.S.
Tranche B Term Loans, the Term Loans). The
proceeds of the Term Loans were used (1) to pay a portion
of the consideration for the acquisition of the former Merck
Generics business, (2) to refinance the 2007 credit
facility and the 2006 credit facility, (together the
Existing Credit Agreements), by and among the
Company, the lenders party thereto and JPMorgan Chase Bank,
National Association, as administrative agent, (3) to
purchase the Senior Notes tendered pursuant to the cash tender
offers therefore and (4) to pay a portion of the fees and
expenses in respect of the foregoing transactions (collectively,
the Transactions). The termination of the Existing
Credit Agreements was concurrent with, and contingent upon, the
effectiveness of the Senior Credit Agreement. The Senior Credit
Agreement also contains a $750.0 million revolving facility
(the Revolving Facility and, together with the Term
Loans, the Senior Credit Facilities) under which
either the Company or the Euro Borrower may obtain extensions of
credit, subject to the satisfaction of specified conditions. In
conjunction with the closing of the former Merck Generics
business acquisition the |
99
|
|
|
|
|
Company borrowed $300.0 million under the Revolving
Facility. The Revolving Facility includes a $100.0 million
subfacility for the issuance of letters of credit and a
$50.0 million subfacility for swingline borrowings.
Borrowings under the Revolving Facility are available in U.S.
dollars, Euro, Pounds Sterling, Yen or other currencies that may
be agreed. The Euro Term Loans are guaranteed by the Company and
the Senior Credit Facilities are guaranteed by substantially all
of the Companys domestic subsidiaries (the
Guarantors). The Senior Credit Facilities are also
secured by a pledge of the capital stock of substantially all
direct subsidiaries of the Company and the Guarantors (limited
to 65% of outstanding voting stock of foreign holding companies
and any foreign subsidiaries) and substantially all of the other
tangible and intangible property and assets of the Company and
the Guarantors. The Revolving Facility expires in October 2013. |
|
|
|
|
|
The U.S. Tranche A Term Loans currently bear interest at
LIBOR (determined in accordance with the Senior Credit
Agreement) plus 3% per annum, if the Company chooses to make
LIBOR borrowings, or at a base rate (determined in accordance
with the Senior Credit Agreement) plus 2% per annum. The U.S.
Tranche B Term Loans currently bear interest at LIBOR
(determined in accordance with the Senior Credit Agreement) plus
3.25% per annum, if the Company chooses to make LIBOR
borrowings, or at a base rate (determined in accordance with the
Senior Credit Agreement) plus 2.25% per annum. The Euro
Tranche A Term Loans currently bear interest at the Euro
Interbank Offered Rate (EURIBO) determined in
accordance with the Senior Credit Agreement) plus 3% per annum.
The Euro Tranche B Term Loans currently bear interest at the
EURIBO determined in accordance with the Senior Credit
Agreement) plus 3.25% per annum. Borrowings under the Revolving
Facility currently bear interest at LIBOR (or EURIBO, in the
case of borrowings denominated in Euro) plus 2.50% per annum, if
the Company chooses to make LIBOR (or EURIBO, in the case of
borrowings denominated in Euro) borrowings, or at a base rate
plus 1.50% per annum. The applicable margins over LIBOR, EURIBO
or the base rate for the Revolving Facility and the U.S.
Tranche A Term Loans can fluctuate based on a calculation
of the Companys Consolidated Leverage Ratio as defined in
the Senior Credit Agreement. The Company also pays a facility
fee on the entire amount of the Revolving Facility. The facility
fee is currently 0.50% per annum, but can decrease to 0.375% per
annum based on the Companys Consolidated Leverage Ratio. |
|
|
|
The Senior Credit Agreement contains customary affirmative
covenants for facilities of this type, including covenants
pertaining to the delivery of financial statements, notices of
default and certain other information, maintenance of business
and insurance, collateral matters and compliance with laws, as
well as customary negative covenants for facilities of this
type, including limitations on the incurrence of indebtedness
and liens, mergers and certain other fundamental changes,
investments and loans, acquisitions, transactions with
affiliates, dispositions of assets, payments of dividends and
other restricted payments, prepayments or amendments to the
terms of specified indebtedness (including the Interim Credit
Agreement described below) and changes in lines of business. The
Senior Credit Agreement contains financial covenants requiring
maintenance of a minimum interest coverage ratio and a senior
leverage ratio, both of which are defined within the agreement. |
|
|
|
The Senior Credit Agreement contains default provisions
customary for facilities of this type, which are subject to
customary grace periods and materiality thresholds, including,
among other things, defaults related to payment failures,
failure to comply with covenants, misrepresentations, defaults
or the occurrence of a change of control under other
material indebtedness, bankruptcy and related events, material
judgments, certain events related to pension plans, specified
changes in control of the Company and invalidity of guarantee
and security agreements. If an event of default occurs under the
Senior Credit Agreement, the lenders may, among other things,
terminate their commitments, declare immediately payable all
borrowings and foreclose on the collateral. |
|
|
|
The U.S. Tranche A Term Loans and the Euro Tranche A
Term Loans mature on October 2, 2013. The U.S.
Tranche B Term Loans and the Euro Tranche B Term Loans
mature on October 2, 2014. The U.S. Tranche B Term
Loans and the Euro Term Loans amortize quarterly at the rate of
1.0% per annum beginning in 2008. The Senior Credit Agreement
requires prepayments of the Term Loans with (1) up to 50%
of Excess Cash Flow, as defined within the Senior Credit
Agreement, beginning in 2009, with reductions based on the
Companys Consolidated Leverage Ratio, (2) the
proceeds from certain asset sales and casualty events, unless
the Companys Consolidated Leverage Ratio is equal to or
less than 3.5 to 1.0, and (3) the proceeds from certain
issuances of indebtedness not permitted by the Senior Credit
Agreement. Amounts drawn on the Revolving |
100
|
|
|
|
|
Facility become due and payable on October 2, 2013. The
Term Loans and amounts drawn on the Revolving Facility may be
voluntarily prepaid without penalty or premium. |
|
|
|
In addition, on October 2, 2007, the Company entered into a
credit agreement (the Interim Credit Agreement)
among the Company, certain lenders and Merrill Lynch Capital
Corporation, as Administrative Agent, pursuant to which the
Company borrowed $2.85 billion in term loans (the
Interim Term Loans). The proceeds of the Interim
Term Loans were used to finance in part the acquisition of the
former Merck Generics business. On November 19, 2007, the
Interim Term Loans were paid using primarily the proceeds
received from the preferred stock and common stock issuances of
$2.82 billion and the remaining $28.1 million was paid
using existing cash of the Company. |
|
|
|
On December 20, 2007, the Euro Borrower, certain lenders
and the Administrative Agent entered into an Amended and
Restated Credit Agreement (the Amended Senior Credit
Agreement), which became effective December 28, 2007,
that, among other things, amends certain provisions of the
Original Senior Credit Agreement as set out below. |
|
|
|
The Amended Senior Credit Agreement (i) reduced the
principal amount of the U.S. Tranche A Term Loans of the
Company to an aggregate principal amount of $312.5 million,
(ii) increased the principal amount of the U.S.
Tranche B Term Loans of the Company to an aggregate
principal amount of $2.56 billion, (iii) created a
tranche of Euro Tranche A Term Loans of the Euro Borrower
in an aggregate principal amount of 350.4
($516.1) million and (iv) reduced the Euro
Tranche B Term Loans of the Euro Borrower to an aggregate
principal amount of 525.0 ($773.3) million. |
|
|
|
The Euro Tranche A Term Loans currently bear interest at
EURIBO (determined in accordance with the Amended Senior Credit
Agreement) plus 3.25% per annum. Under the terms of the Amended
Senior Credit Agreement, the applicable margin over EURIBO for
the Euro Tranche A Term Loans can fluctuate based on the
Companys Consolidated Leverage Ratio. |
|
|
|
The Amended Senior Credit Agreement added a prepayment premium
of 1.0% of the principal amount of the U.S. Tranche B Term
Loans or Euro Tranche B Term Loans prepaid in connection
with voluntary and certain mandatory prepayments during the
12 months following the date of effectiveness of the
Amended Senior Credit Agreement. |
|
|
|
During the calendar year ended December 31, 2008, the
company paid $46.9 million on the U.S. Tranche A Term
Loans, which included $31.3 million of prepayments related
to 2009, 52.6 ($74.4) million on the Euro
Tranche A Term Loans, which included 35.0
($49.6) million of prepayments related to 2009,
$51.1 million on the U.S. Tranche B Term Loans, which
included $25.6 million of prepayments related to 2009, and
10.5 ($15.2) million on the Euro Tranche B Term
Loans, which included 5.3 ($7.4) million of
prepayments related to 2009. On September 15, 2008, the
outstanding borrowings under the Revolving Facility were repaid
in the amount of $300.0 million using proceeds from the
Cash Convertible Notes. |
|
|
|
At December 31, 2008 and December 31, 2007, the
Company had outstanding letters of credit of $83.6 million
and $51.3 million. |
|
|
|
(B) |
|
On March 1, 2007, Mylan entered into a purchase agreement
relating to the sale by the Company of $600.0 million
aggregate principal amount of the Companys
1.25% Senior Convertible Notes due 2012 (the Senior
Convertible Notes). The Senior Convertible Notes bear
interest at a rate of 1.25% per year, accruing from
March 7, 2007. Interest is payable semiannually in arrears
on March 15 and September 15 of each year, beginning
September 15, 2007. The Senior Convertible Notes will
mature on March 15, 2012, subject to earlier repurchase or
conversion. Holders may convert their notes subject to certain
conversion provisions determined by, among others, the market
price of the Companys common stock and the trading price
of the Senior Convertible Notes. The Senior Convertible Notes
have an initial conversion rate of 44.5931 shares of common
stock per $1,000 principal amount (equivalent to an initial
conversion price of approximately $22.43 per share),
subject to adjustment, with the principal amount payable in cash
and the remainder in cash or stock at the option of the Company.
The accounting related to the Senior Convertible Notes will
change in accordance with the adoption of FSP No. APB
14-1 (see
Note 2). |
|
|
|
|
|
On March 1, 2007, concurrently with the sale of the Senior
Convertible Notes, Mylan entered into a convertible note hedge
transaction, comprised of a purchased call option, and two
warrant transactions with each of Merrill Lynch International,
an affiliate of Merrill Lynch, and JPMorgan Chase Bank, National |
101
|
|
|
|
|
Association, London Branch, an affiliate of JPMorgan, each of
which the Company refers to as a counterparty. The net cost of
the transactions was $80.6 million. The purchased call
options will cover approximately 26.8 million shares of
Mylan common stock, subject to anti-dilution adjustments
substantially similar to the anti-dilution adjustments for the
Senior Convertible Notes, which under most circumstances
represents the maximum number of shares that underlie the Senior
Convertible Notes. Concurrently with entering into the purchased
call options, the Company entered into warrant transactions with
the counterparties. Pursuant to the warrant transactions, the
Company will sell to the counterparties warrants to purchase in
the aggregate approximately 26.8 million shares of Mylan
common stock, subject to customary anti-dilution adjustments.
The warrants may not be exercised prior to the maturity of the
Senior Convertible Notes, subject to certain limited exceptions. |
|
|
|
The purchased call options are expected to reduce the potential
dilution upon conversion of the Senior Convertible Notes in the
event that the market value per share of Mylan common stock at
the time of exercise is greater than approximately $22.43, which
corresponds to the initial conversion price of the Senior
Convertible Notes. The sold warrants have an exercise price that
is 60.0% higher than the price per share of $19.50 at which the
Company offered common stock in a concurrent equity offering. If
the market price per share of Mylan common stock at the time of
conversion of any Senior Convertible Notes is above the strike
price of the purchased call options, the purchased call options
will, in most cases, entitle the Company to receive from the
counterparties in the aggregate the same number of shares of our
common stock as the Company would be required to issue to the
holder of the converted Senior Convertible Notes. Additionally,
if the market price of Mylan common stock at the time of
exercise of the sold warrants exceeds the strike price of the
sold warrants, the Company will owe the counterparties an
aggregate of approximately 26.8 million shares of Mylan
common stock. The purchased call options and sold warrants may
be settled for cash at the Companys election. |
|
|
|
The purchased call options and sold warrants are separate
transactions entered into by the Company with the
counterparties, are not part of the terms of the Senior
Convertible Notes, and will not affect the holders rights
under the Senior Convertible Notes. Holders of the Senior
Convertible Notes will not have any rights with respect to the
purchased call options or the sold warrants. The purchased call
options and sold warrants meet the definition of derivatives
under SFAS No. 133 (as amended by
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities and
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities). However,
because these instruments have been determined to be indexed to
the Companys own stock (in accordance with the guidance of
EITF Issue
No. 01-6,
The Meaning of Indexed to a Companys Own Stock
(EITF Issue
No. 01-6))
and have been recorded in stockholders equity in the
Companys Consolidated Balance Sheet (as determined under
EITF
Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
(EITF Issue
No. 00-19)),
the instruments are exempted from the scope of
SFAS No. 133 and are not subject to the fair value
provisions of that standard. |
|
|
|
(C) |
|
On September 15, 2008, Mylan entered into a purchase
agreement relating to the sale by the Company of
$575.0 million aggregate principal amount of Cash
Convertible Notes due 2015 (Cash Convertible Notes).
The Cash Convertible Notes bear stated interest at a rate of
3.75% per year, accruing from September 15, 2008. The
effective interest rate at December 31, 2008 is 9.5%.
Interest is payable semi-annually in arrears on March 15 and
September 15 of each year, beginning on March 15, 2009. The
Cash Convertible Notes will mature on September 15, 2015,
subject to earlier repurchase or conversion. Holders may convert
their notes subject to certain conversion provisions determined
by the market price of the Companys common stock,
specified distributions to common shareholders, a fundamental
change, and certain time periods specified in the purchase
agreement. The Cash Convertible Notes have an initial conversion
reference rate of 75.0751 shares of common stock per $1,000
principal amount (equivalent to an initial conversion reference
price of $13.32 per share), subject to adjustment, with the
principal amount and remainder payable in cash. The Cash
Convertible Notes are not convertible into our common stock or
any other securities under any circumstance. |
|
|
|
|
|
On September 15, 2008, concurrent with the sale of the Cash
Convertible Notes, Mylan entered into a convertible note hedge
and warrant transaction with certain counterparties. The net
cost of the transactions was $98.6 million. The cash
convertible note hedge is comprised of purchased cash-settled
call options that are expected to reduce the Companys
exposure to potential cash payments required to be made by Mylan
upon the |
102
|
|
|
|
|
cash conversion of the Cash Convertible Notes. Concurrent with
entering into the purchased cash-settled call options, the
Company entered into respective warrant transactions with the
counterparties pursuant to which the Company has sold to each
counterparty warrants for the purchase of shares of our common
stock. Pursuant to the warrant transactions, the Company sold to
the counterparties warrants to purchase in the aggregate up to
approximately 43.2 million shares of Mylan common stock,
subject to anti-dilution adjustments substantially similar to
the anti-dilution adjustments for the Cash Convertible Notes,
which under most circumstances represents the maximum number of
shares that underlie the conversion reference rate for the Cash
Convertible Notes. The warrants may not be exercised prior to
the maturity of the Cash Convertible Notes. |
|
|
|
Pursuant to the call option transactions, if the market price
per share of the Companys common stock at the time of cash
conversion of any Cash Convertible Notes is above the strike
price of the purchased cash-settled call options, such call
options will, in most cases, entitle us to receive from the
counterparties in the aggregate the same amount of cash as we
would be required to issue to the holder of the cash converted
notes in excess of the principal amount thereof. The sold
warrants have an exercise price of $20.00 (which represents an
exercise price of approximately 80% higher than the market price
per share of $11.10) and are net share settled, meaning that
Mylan will issue a number of shares per warrant corresponding to
the difference between our share price at each warrant
expiration date and the exercise price. |
|
|
|
The purchased call options and sold warrants are separate
contracts entered into by us with the counterparties, are not
part of the notes and do not affect the rights of holders under
the Cash Convertible Notes. Holders of the Cash Convertible
Notes will not have any rights with respect to the purchased
call options or the sold warrants. The purchased cash-settled
call options meet the definition of derivatives under
SFAS No. 133. As such, the instrument is marked to
market each period. In addition, the liability associated with
the cash conversion feature of the Cash Convertible Notes is
marked to market each period. At December 31, 2008, the
$655.4 million consists of $419.7 million of debt
($575.0 million face amount, net of $155.3 million
discount) and a liability with a fair value of
$235.8 million related to the bifurcated conversion
feature. The purchased call options are assets recorded at their
fair value of $235.8 million within other assets in the
Consolidated Balance Sheets at December 31, 2008. The
warrants meet the definition of derivatives under
SFAS No. 133; however, because these instruments have
been determined to be indexed to the Companys own stock
(in accordance with the guidance of EITF Issue
No. 01-6
and have been recorded in shareholders equity in the
Companys Consolidated Balance Sheets (as determined under
EITF Issue
No. 00-19),
the instruments are exempt from the scope of
SFAS No. 133 and are not subject to the fair value
provisions of that standard. |
Details of the interest rates in effect at December 31,
2008 and December 31, 2007 on the outstanding borrowings
under the Term Loans are in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Outstanding
|
|
|
Basis
|
|
Rate
|
|
(in thousands, except interest rates)
|
|
|
|
|
|
|
|
|
|
U.S. Tranche A Term Loans
|
|
$
|
265,625
|
|
|
LIBOR + 3%
|
|
|
6.50
|
%
|
Euro Tranche A Term Loans
|
|
$
|
413,684
|
|
|
EURIBO + 3%
|
|
|
7.86
|
%
|
U.S. Tranche B Term Loans
|
|
|
|
|
|
|
|
|
|
|
Swapped to Fixed Rate December
2010(1)
|
|
$
|
500,000
|
|
|
Fixed
|
|
|
6.03
|
%
|
Swapped to Fixed Rate March
2010(1)(2)
|
|
|
500,000
|
|
|
Fixed
|
|
|
5.44
|
%
|
Swapped to Fixed Rate December
2010(1)
|
|
|
1,000,000
|
|
|
Fixed
|
|
|
7.37
|
%
|
Floating Rate
|
|
|
504,880
|
|
|
LIBOR + 3.25%
|
|
|
5.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Tranche B Term Loans
|
|
$
|
2,504,880
|
|
|
|
|
|
|
|
Euro Tranche B Term Loans
|
|
$
|
714,583
|
|
|
EURIBO + 3.25%
|
|
|
8.11
|
%
|
|
|
|
(1) |
|
Designated as a cash flow hedge of expected future borrowings
under the Senior Credit Agreement |
|
(2) |
|
This interest rate swap has been extended to March 2012 at a
rate of 5.38%, effective March 2010 |
103
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Outstanding
|
|
|
Basis
|
|
Rate
|
|
(in thousands, except interest rates)
|
|
|
|
|
|
|
|
|
U.S. Tranche A Term Loans
|
|
$
|
312,500
|
|
|
LIBOR + 3.25%
|
|
|
8.31
|
%
|
Euro Tranche A Term Loans
|
|
$
|
516,127
|
|
|
EURIBO + 3.25%
|
|
|
7.75
|
%
|
U.S. Tranche B Term Loans
|
|
|
|
|
|
|
|
|
|
|
Swapped to Fixed Rate December 2010
|
|
$
|
1,000,000
|
|
|
Fixed
|
|
|
7.37
|
%
|
Floating Rate
|
|
|
1,556,000
|
|
|
LIBOR + 3.25%
|
|
|
8.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Tranche B Term Loans
|
|
$
|
2,556,000
|
|
|
|
|
|
|
|
Euro Tranche B Term Loans
|
|
$
|
773,273
|
|
|
EURIBO + 3.25%
|
|
|
7.75
|
%
|
All financing fees associated with the Companys borrowings
are being amortized over the life of the related debt. The total
unamortized amounts of $83.8 million and $83.0 million
are included in other assets in the Consolidated Balance Sheets
at December 31, 2008 and December 31, 2007.
In conjunction with the refinancing of debt, approximately
$12.1 million of deferred financing fees were written off
for the Senior Notes and Credit Facilities on October 2,
2007. There was also a tender offer premium to the Senior Notes
holders made in the amount of approximately $30.8 million.
In conjunction with the financing for the former Merck Generics
business acquisition, Mylan incurred approximately
$132.4 million in financing fees, of which approximately
$42.8 million were refunded from our financial institution
upon the repayment of the Interim Term Loans, and an additional
$14.3 million was expensed.
At December 31, 2008 and December 31, 2007, the fair
value of the Senior Convertible Notes was approximately
$444.0 million and $545.5 million. At
December 31, 2008, the fair value of the Cash Convertible
Notes was approximately $524.4 million.
Certain of the Companys debt agreements contain certain
cross-default provisions.
Mandatory minimum repayments remaining on the outstanding
borrowings under the term loans and convertible notes at
December 31, 2008 are as follows for each of the periods
ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
Euro
|
|
|
U.S.
|
|
|
Euro
|
|
|
Senior
|
|
|
Cash
|
|
|
|
|
|
|
Tranche A
|
|
|
Tranche A
|
|
|
Tranche B
|
|
|
Tranche B
|
|
|
Convertible
|
|
|
Convertible
|
|
|
|
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Term Loans
|
|
|
Notes
|
|
|
Notes
|
|
|
Total
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
2010
|
|
|
46,875
|
|
|
|
73,003
|
|
|
|
25,560
|
|
|
|
7,292
|
|
|
|
|
|
|
|
|
|
|
|
152,730
|
|
2011
|
|
|
62,500
|
|
|
|
97,338
|
|
|
|
25,560
|
|
|
|
7,292
|
|
|
|
|
|
|
|
|
|
|
|
192,690
|
|
2012
|
|
|
78,125
|
|
|
|
121,672
|
|
|
|
25,560
|
|
|
|
7,292
|
|
|
|
600,000
|
|
|
|
|
|
|
|
832,649
|
|
2013
|
|
|
78,125
|
|
|
|
121,671
|
|
|
|
25,560
|
|
|
|
7,292
|
|
|
|
|
|
|
|
|
|
|
|
232,648
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
2,402,640
|
|
|
|
685,415
|
|
|
|
|
|
|
|
|
|
|
|
3,088,055
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
655,442
|
|
|
|
655,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
265,625
|
|
|
$
|
413,684
|
|
|
$
|
2,504,880
|
|
|
$
|
714,583
|
|
|
$
|
600,000
|
|
|
$
|
655,442
|
|
|
$
|
5,154,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
Income tax expense (benefit) consisted of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
March 31, 2007
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
219,370
|
|
|
$
|
101,659
|
|
|
$
|
242,434
|
|
Deferred
|
|
|
(90,470
|
)
|
|
|
(29,343
|
)
|
|
|
(46,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,900
|
|
|
|
72,316
|
|
|
|
195,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
28,226
|
|
|
|
9,598
|
|
|
|
16,746
|
|
Deferred
|
|
|
15,978
|
|
|
|
1,903
|
|
|
|
(3,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,204
|
|
|
|
11,501
|
|
|
|
13,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
79,187
|
|
|
|
23,413
|
|
|
|
174
|
|
Deferred
|
|
|
(114,868
|
)
|
|
|
(47,157
|
)
|
|
|
(1,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,681
|
)
|
|
|
(23,744
|
)
|
|
|
(830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
137,423
|
|
|
$
|
60,073
|
|
|
$
|
208,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(303,167
|
)
|
|
$
|
(413,886
|
)
|
|
$
|
586,298
|
|
Foreign
|
|
|
255,344
|
|
|
|
(667,178
|
)
|
|
|
(160,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(47,823
|
)
|
|
$
|
(1,081,064
|
)
|
|
$
|
425,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(287.4
|
)%
|
|
|
(5.6
|
)%
|
|
|
48.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
Temporary differences and carry forwards that result in the
deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
$
|
48,868
|
|
|
$
|
40,038
|
|
|
$
|
16,501
|
|
Legal matters
|
|
|
65,988
|
|
|
|
59,388
|
|
|
|
5,048
|
|
Accounts receivable allowances
|
|
|
145,579
|
|
|
|
152,123
|
|
|
|
126,191
|
|
Inventories
|
|
|
23,916
|
|
|
|
|
|
|
|
8,859
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
43,250
|
|
Investments
|
|
|
16,852
|
|
|
|
4,321
|
|
|
|
7,256
|
|
Other reserves
|
|
|
26,158
|
|
|
|
6,767
|
|
|
|
|
|
Tax credits
|
|
|
4,200
|
|
|
|
3,575
|
|
|
|
3,112
|
|
Net operating losses
|
|
|
134,779
|
|
|
|
99,289
|
|
|
|
17,111
|
|
Convertible debt
|
|
|
42,733
|
|
|
|
40,514
|
|
|
|
44,100
|
|
Other
|
|
|
82,428
|
|
|
|
20,885
|
|
|
|
3,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
591,501
|
|
|
|
426,900
|
|
|
|
275,229
|
|
Less: Valuation allowance
|
|
|
(110,194
|
)
|
|
|
(76,100
|
)
|
|
|
(18,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
481,307
|
|
|
|
350,800
|
|
|
|
256,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
2,818
|
|
|
|
16,897
|
|
|
|
|
|
Plant and equipment
|
|
|
77,056
|
|
|
|
67,425
|
|
|
|
40,698
|
|
Intangible assets
|
|
|
663,987
|
|
|
|
947,009
|
|
|
|
98,285
|
|
Investments
|
|
|
2,541
|
|
|
|
9,813
|
|
|
|
10,779
|
|
Other
|
|
|
66,190
|
|
|
|
|
|
|
|
1,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
812,592
|
|
|
|
1,041,144
|
|
|
|
151,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (liabilities) assets, net
|
|
$
|
(331,285
|
)
|
|
$
|
(690,344
|
)
|
|
$
|
105,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit current
|
|
$
|
199,278
|
|
|
$
|
192,113
|
|
|
$
|
145,343
|
|
Deferred income tax liability current
|
|
|
(1,935
|
)
|
|
|
(24,344
|
)
|
|
|
|
|
Deferred income tax benefit noncurrent
|
|
|
16,493
|
|
|
|
18,703
|
|
|
|
45,779
|
|
Deferred income tax liability noncurrent
|
|
|
(545,121
|
)
|
|
|
(876,816
|
)
|
|
|
(85,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (liability) asset, net
|
|
$
|
(331,285
|
)
|
|
$
|
(690,344
|
)
|
|
$
|
105,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
A reconciliation of the statutory tax rate to the effective tax
rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
March 31, 2007
|
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and Puerto Rico income taxes and credits
|
|
|
(41.0
|
)%
|
|
|
(0.6
|
)%
|
|
|
2.8
|
%
|
Research and Development tax credits
|
|
|
4.9
|
%
|
|
|
0.3
|
%
|
|
|
(0.3
|
)%
|
Acquired In-Process R & D
|
|
|
0.0
|
%
|
|
|
(41.1
|
)%
|
|
|
12.1
|
%
|
Effect of foreign operations
|
|
|
9.5
|
%
|
|
|
1.8
|
%
|
|
|
0.0
|
%
|
Impairment of goodwill
|
|
|
(281.8
|
)%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Other items
|
|
|
(14.0
|
)%
|
|
|
(1.0
|
)%
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(287.4
|
)%
|
|
|
(5.6
|
)%
|
|
|
48.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
Allowance
A valuation allowance is provided when it is more likely than
not that some portion or all of the deferred tax assets will not
be realized. A valuation allowance has been applied to certain
foreign and state deferred tax assets in the amount of
$110.2 million.
Net
Operating Losses
As of December 31, 2008, the Company has net operating loss
carryforwards for international and U.S. state income tax
purposes of approximately $1.06 billion, some of which will
expire in fiscal years 2009 through 2029, while others can be
carried forward indefinitely. Of these loss carryforwards, there
is an amount of $568.1 million related to state losses. A
majority of the state net operating losses are attributable to
Pennsylvania, where a taxpayers use is limited to the
greater of 12.5% of taxable income or $3.0 million each
taxable year. In addition, the Company has foreign net operating
loss carryforwards of approximately $494.7 million, of
which $367.6 million can be carried forward indefinitely,
with the remainder expiring in years 2009 through 2023. Most of
the net operating losses (foreign and state) are fully reserved.
Acquired
In-Process Research and Development
On January 8, 2007, the Company acquired a controlling
interest in Matrix, as discussed in Note 3. Of the purchase
price, $147.0 million was allocated to acquired in-process
research and development and expensed. This amount is not
deductible for tax purposes, and no deferred tax benefit is
recorded, as required by EITF Issue
No. 96-7,
Accounting for Deferred Taxes on In-Process Research and
Development Activities Acquired in a Purchase Business
Combination (EITF
No. 96-7).
On October 2, 2007, the Company acquired the former Merck
Generics business. Of the purchase price, $1.27 billion was
allocated to acquired in-process research and development and
expensed. Applying the guidance in EITF
No. 96-7,
we determined that this amount is not deductible for tax
purposes.
Undistributed
Earnings
Operations in Puerto Rico benefit from incentive grants from the
government of Puerto Rico, which partially exempt the Company
from income, property and municipal taxes. In fiscal 2001, a tax
grant was negotiated with the government of Puerto Rico,
extending tax incentives until fiscal years 2010. This grant
exempts all earnings during this grant period from tollgate tax
upon repatriation of cash to the United States. In fiscal year
2007 and fiscal year 2004, $46.5 million and
$100.0 million of cash from post-fiscal 2000 earnings was
repatriated to the United States. Pursuant to the terms of our
tax grant, no tollgate tax was due for these repatriations.
107
Federal
Tax Credits and Ongoing IRS Examinations
Federal tax credits result principally from qualified research
and development expenditures in the United States. State tax
credits are comprised mainly of awards for expansion and wage
credits at the Companys manufacturing facilities and
research credits awarded by certain states. State income taxes
and state tax credits are shown net of the federal tax effect.
Beginning with fiscal year 2007, Mylan became a voluntary
participant in the IRS Compliance Assurance Process
(CAP) which results in real-time federal issue
resolution. The calendar year 2007 CAP return was filed in the
third quarter of calendar year 2008 and a Partial Acceptance
Letter was received. Mylan did not reach agreement on a single
issue that will be audited in accordance with regular IRS
processes. The Company anticipates that the CAP 2007 year
will be settled in the first quarter of 2009. Tax and interest
continue to be accrued related to certain tax positions.
FIN 48
Effective April 1, 2007, the Company adopted FIN 48,
which prescribes a comprehensive model for how a company should
recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or
expects to take on a tax return. Though the validity of any tax
position is a matter of tax law, the body of statutory,
regulatory and interpretive guidance on the application of the
law is complex and often ambiguous. Because of this, whether a
tax position will ultimately be sustained may be uncertain.
Prior to April 1, 2007, the impact of an uncertain tax
position that did not create a difference between the financial
statement basis and the tax basis of an asset or liability was
included in our income tax provision if it was probable the
position would be sustained upon audit. The benefit of any
uncertain tax position that was temporary was reflected in our
tax provision if it was more likely than not that the position
would be sustained upon audit. Prior to the adoption of
FIN 48, Mylan recognized interest expense based on our
estimates of the ultimate outcomes of the uncertain tax
positions.
Under FIN 48, the impact of an uncertain tax position that
is more likely than not of being sustained upon audit by the
relevant taxing authority must be recognized at the largest
amount that is more likely than not to be sustained. No portion
of an uncertain tax position will be recognized if the position
has less than a 50% likelihood of being sustained. Also, under
FIN 48, interest expense is recognized on the full amount
of deferred benefits for uncertain tax positions.
As of December 31, 2008 and December 31, 2007, the
Companys Consolidated Balance Sheet reflects a liability
for unrecognized tax benefits of $166.5 million and
$77.6 million. Accrued interest and penalties included in
the Consolidated Balance Sheet were $34.8 million and
$24.4 million as of December 31, 2008 and
December 31, 2007. For the calendar year ended
December 31, 2008 and the nine months ended
December 31, 2007, Mylan recognized $8.9 million and
$1.8 million for interest expense related to uncertain tax
positions.
The major state taxing jurisdictions applicable to the Company
remain open from fiscal year 2005 through fiscal year 2008. The
major taxing jurisdictions for the Company internationally
remain open from 2002 through 2008 some of which are indemnified
by Merck KGaA for tax assessments.
108
A reconciliation of the unrecognized tax benefits from
December 31, 2007 to December 31, 2008 and from
March 31, 2007 to December 31, 2007 is as follows:
|
|
|
|
|
|
|
Unrecognized Tax
|
|
|
|
Benefits
|
|
(in thousands)
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
77,600
|
|
Additions for current year tax positions
|
|
|
49,169
|
|
Additions for prior year tax positions
|
|
|
538
|
|
Reductions for prior year tax positions
|
|
|
(3,313
|
)
|
Settlements
|
|
|
|
|
Reductions related to expirations of statute of limitations
|
|
|
(4,819
|
)
|
Addition due to cumulative adjustment
|
|
|
47,338
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
166,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized Tax
|
|
|
|
Benefits
|
|
(in thousands)
|
|
|
|
|
Balance at March 31, 2007
|
|
$
|
42,900
|
|
Additions for current year tax positions
|
|
|
5,700
|
|
Additions for prior year tax positions
|
|
|
4,400
|
|
Reductions for prior year tax positions
|
|
|
(3,300
|
)
|
Settlements
|
|
|
(10,500
|
)
|
Reductions related to expirations of statute of limitations
|
|
|
(1,200
|
)
|
Addition due to cumulative adjustment
|
|
|
39,600
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
77,600
|
|
|
|
|
|
|
In accordance with Mylans accounting policy, both before
and after adoption of FIN 48, interest expense and
penalties related to income taxes are included in the tax
provision.
It is anticipated that the amount of unrecognized tax benefits
will decrease in the next twelve months. The Company foresees
issues involving purchase accounting, state tax audits and the
expiration of certain statutes of limitations having a
significant impact on its results of operations, cash flows and
financial position. We expect the range of the decrease of our
existing reserve to be between $20.0 million and
$35.0 million. We do not anticipate significant increases
to the reserve within the next twelve months.
|
|
Note 14.
|
Preferred
and Common Stock
|
The Company entered into a Rights Agreement (the Rights
Agreement) with American Stock Transfer &
Trust Company, as rights agent, to provide the Board with
sufficient time to assess and evaluate any takeover bid and
explore and develop a reasonable response. Effective November
1999, the Rights Agreement was amended to eliminate certain
limitations on the Boards ability to redeem or amend the
rights to permit an acquisition and also to eliminate special
rights held by incumbent directors unaffiliated with an
acquiring shareholder. The Rights Agreement will expire on
August 13, 2014 unless it is extended or such rights are
earlier redeemed or exchanged.
In fiscal year 1985, the Board of Directors (the
Board) authorized 5,000,000 shares of
$0.50 par value preferred stock. Prior to November 19,
2007, no preferred stock had been issued. On November 19,
2007, the Company completed public offerings of
2,139,000 shares of 6.5% mandatory convertible preferred
stock (preferred stock) at $1,000 per share, as well
as an offering of 55,440,000 shares of common stock at
$14.00 per share, pursuant to a shelf registration statement
previously filed with the Securities and Exchange Commission.
109
The preferred stock will pay, when declared by the Board of
Directors, dividends at a rate of 6.50% per annum on the
liquidation preference of $1,000 per share, payable quarterly in
arrears in cash, shares of Mylan common stock or a combination
thereof at the Companys election. The first dividend date
was February 15, 2008. Each share of preferred stock will
automatically convert on November 15, 2010, into between
58.5480 shares and 71.4286 shares of the
Companys common stock, depending on the average daily
closing price per share of our common stock over the 20 trading
day period ending on the third trading day prior to
November 15, 2010. The conversion rate will be subject to
anti-dilution adjustments in certain circumstances. Holders may
elect to convert at any time at the minimum conversion rate of
58.5480 shares of common stock for each share of preferred
stock.
During the calendar year ended December 31, 2008, the
Company paid dividends of $137.5 million on the preferred
stock. On January 29, 2009, the Company announced that a
quarterly dividend of $16.25 per share was declared, payable on
February 17, 2009, to the holders of preferred stock of
record as of February 1, 2009. Accordingly, Mylan recorded
a dividend payable of $17.5 million and $16.0 million
at December 31, 2008 and December 31, 2007. The
Company expects to pay dividends in cash on February 15,
May 15, August 15, and November 15 (or, as applicable,
the next business day) of each year prior to November 15,
2010. Under certain circumstances, the Company may not be
allowed to pay dividends in cash. If this were to occur, any
unpaid dividend would be payable in shares of common stock on
November 15, 2010 based on the market value of common stock
at that time.
|
|
Note 15.
|
Stock-Based
Incentive Plan
|
Mylans shareholders approved the 2003 Long-Term
Incentive Plan on July 25, 2003, and approved certain
amendments on July 28, 2006 and April 25, 2008 (as
amended, the 2003 Plan). Under the 2003 Plan,
37,500,000 shares of common stock are available for
issuance to key employees, consultants, independent contractors
and non-employee directors of Mylan through a variety of
incentive awards, including: stock options, stock appreciation
rights, restricted shares and units, performance awards, other
stock-based awards and short-term cash awards. Awards are
granted at the fair value of the shares underlying the options
at the date of the grant, generally become exercisable over
periods ranging from three to four years, and generally expire
in ten years. In the 2003 Plan, no more than
5,000,000 shares may be issued as restricted shares,
restricted units, performance shares and other stock-based
awards.
Upon approval of the 2003 Plan, the 1997 Incentive Stock
Option Plan (the 1997 Plan) was frozen, and no
further grants of stock options will be made under that plan.
However, there are stock options outstanding from the 1997 Plan,
expired plans and other plans assumed through acquisitions.
110
The following table summarizes stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
|
Under Option
|
|
|
per Share
|
|
|
Outstanding at March 31, 2006
|
|
|
21,358,670
|
|
|
$
|
15.16
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
1,139,400
|
|
|
|
21.65
|
|
Options exercised
|
|
|
(4,053,061
|
)
|
|
|
12.18
|
|
Options forfeited
|
|
|
(797,281
|
)
|
|
|
17.28
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
17,647,728
|
|
|
|
16.17
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
4,303,792
|
|
|
|
15.91
|
|
Options exercised
|
|
|
(459,836
|
)
|
|
|
13.18
|
|
Options forfeited
|
|
|
(661,148
|
)
|
|
|
17.51
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
20,830,536
|
|
|
|
16.15
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
4,180,133
|
|
|
|
11.46
|
|
Options exercised
|
|
|
(107,707
|
)
|
|
|
10.20
|
|
Options forfeited
|
|
|
(1,479,921
|
)
|
|
|
16.64
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
23,423,041
|
|
|
$
|
15.32
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2008
|
|
|
22,852,133
|
|
|
$
|
15.35
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2008
|
|
|
15,048,569
|
|
|
$
|
15.86
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, options outstanding, options
vested and expected to vest, and options exercisable had average
remaining contractual terms of 5.93 years, 5.86 years
and 4.49 years, respectively. Also at December 31,
2008, options outstanding, options vested and expected to vest
and options exercisable had aggregate intrinsic values of
$0.1 million, $0.1 million and $0.05 million,
respectively.
A summary of the status of the Companys nonvested
restricted stock and restricted stock unit awards is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Restricted
|
|
Number of Restricted
|
|
|
Grant-Date
|
|
Stock Awards
|
|
Stock Awards
|
|
|
Fair Value
|
|
|
Nonvested at December 31, 2007
|
|
|
1,295,347
|
|
|
$
|
16.95
|
|
Granted
|
|
|
1,699,856
|
|
|
|
11.30
|
|
Released
|
|
|
(367,939
|
)
|
|
|
15.57
|
|
Forfeited
|
|
|
(83,916
|
)
|
|
|
14.22
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
2,543,348
|
|
|
$
|
13.46
|
|
|
|
|
|
|
|
|
|
|
Of the 1,699,856 awards granted during the calendar year ended
December 31, 2008, 601,801 vest ratably
over 3 years, 750,246 vest in three years, 262,388
vest one-third immediately with the remaining vesting ratably
over two years, 56,421 vest in one year, and the remaining
29,000 vest ratably over four years.
As of December 31, 2008, the Company had $40.2 million
of total unrecognized compensation expense, net of estimated
forfeitures, related to all of its stock-based awards, which
will be recognized over the remaining weighted average period of
1.72 years. The total intrinsic value of stock-based awards
exercised and restricted stock units converted during the
calendar year ended December 31, 2008 and the nine months
ended December 31, 2007 was $4.7 million and
$3.3 million.
With respect to options granted under the Companys
stock-based compensation plans, the fair value of each option
grant was estimated at the date of grant using the Black-Scholes
option pricing model. Black-Scholes utilizes
111
assumptions related to volatility, the risk-free interest rate,
the dividend yield and employee exercise behavior. Expected
volatilities utilized in the model are based mainly on the
historical volatility of the Companys stock price and
other factors. The risk-free interest rate is derived from the
U.S. Treasury yield curve in effect at the time of grant.
The model incorporates exercise and post-vesting forfeiture
assumptions based on an analysis of historical data. The
expected lives of the grants are derived from historical and
other factors. The assumptions used are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
March 31, 2007
|
|
|
Volatility
|
|
|
31.0
|
%
|
|
|
30.8
|
%
|
|
|
34.0
|
%
|
Risk-free interest rate
|
|
|
2.2
|
%
|
|
|
4.6
|
%
|
|
|
4.8
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
1.1
|
%
|
Expected term of options (in years)
|
|
|
4.5
|
|
|
|
5.0
|
|
|
|
4.5
|
|
Forfeiture rate
|
|
|
5.5
|
%
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
Weighted average grant date fair value per option
|
|
$
|
3.37
|
|
|
$
|
5.60
|
|
|
$
|
6.90
|
|
In addition, Matrix has a stock option plan under which
3,288,965 options have been granted to its employees as of
March 31, 2007. These grants were made prior to the
acquisition of Matrix by Mylan. During the calendar year ended
December 31, 2008 and the nine-month period ended
December 31, 2007, no options were granted under the Matrix
plan. As of December 31, 2008, there were 1.9 million
options exercisable.
|
|
Note 16.
|
Employee
Benefits
|
Defined
Benefit Plans
The Company sponsors various defined benefit pension plans in
several countries, most of which were assumed in the acquisition
of the former Merck Generics business. Benefit formulas are
based on varying criteria on a plan by plan basis. Mylans
policy is to fund domestic pension liabilities in accordance
with the minimum and maximum limits imposed by the Employee
Retirement Income Security Act of 1974 (ERISA) and
Federal income tax laws. The Company funds non-domestic pension
liabilities in accordance with laws and regulations applicable
to those plans, which typically results in these plans being
unfunded. The amounts accrued related to these benefits were
$48.3 million and $37.5 million at December 31,
2008 and December 31, 2007.
The Company has a plan covering certain employees in the United
States and Puerto Rico to provide for limited reimbursement of
postretirement supplemental medical coverage. In addition, in
December 2001, the Supplemental Health Insurance Program for
Certain Officers of the Company was adopted to provide full
postretirement medical coverage to certain officers and their
spouses and dependents. The program was terminated in April
2006, except with respect to certain individuals. These plans
generally provide benefits to employees who meet minimum age and
service requirements. The amounts accrued related to these
benefits were not material at December 31, 2008 and
December 31, 2007.
Effective March 31, 2007, the Company adopted
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R)
(SFAS No. 158). The provisions of
SFAS No. 158 require that the funded status of the
Companys pension plans and the benefit obligations of our
post-retirement benefit plans be recognized in the balance
sheet. SFAS No. 158 did not change the measurement or
recognition of these plans, although it did require that plan
assets and benefit obligations be measured as of the balance
sheet date. The Company has historically measured the plan
assets and benefit obligations as of the balance sheet date.
Under SFAS No. 158, changes in the funded status will
be recognized in other comprehensive income until they are
amortized as a component of net periodic benefit cost. The
adjustments to adopt SFAS No. 158 were not material
and were recorded as a component of accumulated other
comprehensive income at the adoption date.
112
Defined
Contribution Plans
The Company sponsors defined contribution plans covering certain
of its employees in the United States and Puerto Rico, as well
as certain employees in a number of countries related to the
former Merck Generics business acquisition. Its domestic defined
contribution plans consist primarily of a 401(k) retirement plan
with a profit sharing component for non-union employees and a
401(k) retirement plan for union employees. Profit sharing
contributions are made at the discretion of the Board. Its
non-domestic plans vary in form depending on local legal
requirements. The Companys contributions are based upon
employee contributions, service hours, or pre-determined amounts
depending upon the plan. Obligations for contributions to
defined contribution plans are recognized as expense in the
Consolidated Statements of Operations when they are due. Total
employer contributions to defined contribution plans were
$20.4 million for the calendar year ended December 31,
2008, $12.2 million for the nine months ended
December 31, 2007 and $16.5 million for the fiscal
year ended March 31, 2007.
Additionally, Matrix has several defined contribution plans
covering certain employees and a Provident Fund which, in
accordance with Indian Law, covers all employees located in
India.
Other
Benefit Arrangements
The Company provides supplemental life insurance benefits to
certain management employees. Such benefits require annual
funding and may require accelerated funding in the event that
the Company would experience a change in control.
The production and maintenance employees at the Companys
manufacturing facilities in Morgantown, West Virginia, are
covered under a collective bargaining agreement that expires in
April 2012. In addition, there are
non-U.S. Mylan
locations, primarily concentrated in Europe and India, that have
employees who are unionized or part of works councils or trade
unions. These employees represented approximately 13% and 17% of
the Companys total permanent workforce at
December 31, 2008 and December 31, 2007.
|
|
Note 17.
|
Segment
Information
|
Mylan has three reportable segments: the Generics
Segment, the Specialty Segment, and the
Matrix Segment. The Generics Segment primarily
develops, manufactures, sells and distributes generic or branded
generic pharmaceutical products in tablet, capsule or
transdermal patch form. The Specialty Segment engages mainly in
the manufacture and sale of branded specialty nebulized and
injectable products. The Matrix Segment engages mainly in the
manufacture and sale of APIs and FDFs and the distribution of
certain branded generic products. Additionally, certain general
and administrative expenses, as well as litigation settlements,
non-cash
impairment charges and other expenses not attributable to
segments are reported in Corporate/Other.
The Companys chief operating decision maker evaluates the
performance of its reportable segments based on total revenues
and segment profitability. For the Generics, Specialty and
Matrix Segments, segment profitability represents segment gross
profit less direct research and development expenses and direct
selling, general and administrative expenses. Amortization of
intangible assets as well as other purchase accounting related
items including the write-off of in-process research and
development and the amortization of the inventory
step-up,
non-cash
impairment charges and revenue related to the sale of Bystolic
product rights are excluded from segment profitability. The
Company does not report depreciation expense, total assets and
capital expenditures by segment, as such information is not used
by the chief operating decision maker.
The accounting policies of the segments are the same as those
described in Note 2 to Consolidated Financial Statements.
Intersegment revenues are accounted for at current market values.
The table below presents segment information for the periods
identified and provides a reconciliation of segment information
to total consolidated information.
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
Generics Segment
|
|
|
Specialty Segment
|
|
|
Matrix Segment
|
|
|
Corporate/Other(1)
|
|
|
Consolidated
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
$
|
3,907,518
|
|
|
$
|
385,963
|
|
|
$
|
376,007
|
|
|
$
|
468,097
|
|
|
$
|
5,137,585
|
|
Intersegment
|
|
|
1,798
|
|
|
|
31,278
|
|
|
|
68,813
|
|
|
|
(101,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,909,316
|
|
|
|
417,241
|
|
|
|
444,820
|
|
|
|
366,208
|
|
|
$
|
5,137,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
|
$
|
969,929
|
|
|
$
|
36,649
|
|
|
$
|
25,033
|
|
|
$
|
(733,726
|
)
|
|
$
|
297,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
Generics Segment
|
|
|
Specialty Segment
|
|
|
Matrix Segment
|
|
|
Corporate/Other(1)
|
|
|
Consolidated
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
$
|
1,812,404
|
|
|
$
|
102,126
|
|
|
$
|
264,231
|
|
|
$
|
|
|
|
$
|
2,178,761
|
|
Intersegment
|
|
|
563
|
|
|
|
3,401
|
|
|
|
29,547
|
|
|
|
(33,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,812,967
|
|
|
|
105,527
|
|
|
|
293,778
|
|
|
|
(33,511
|
)
|
|
$
|
2,178,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
|
$
|
590,363
|
|
|
$
|
18,880
|
|
|
$
|
18,120
|
|
|
$
|
(1,615,628
|
)
|
|
$
|
(988,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
Generics Segment
|
|
|
Specialty Segment
|
|
|
Matrix Segment
|
|
|
Corporate/Other(1)
|
|
|
Consolidated
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
$
|
1,532,407
|
|
|
$
|
|
|
|
$
|
79,412
|
|
|
$
|
|
|
|
$
|
1,611,819
|
|
Intersegment
|
|
|
|
|
|
|
|
|
|
|
16,389
|
|
|
|
(16,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,532,407
|
|
|
|
|
|
|
|
95,801
|
|
|
|
(16,389
|
)
|
|
$
|
1,611,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profitability
|
|
$
|
712,685
|
|
|
$
|
|
|
|
$
|
8,578
|
|
|
$
|
(293,709
|
)
|
|
$
|
427,554
|
|
|
|
|
(1) |
|
Includes corporate general and administrative expenses,
litigation settlements, intercompany eliminations, revenue
related to the sale of Bystolic product rights, amortization of
intangible assets and certain purchase accounting items (such as
the write-off of in-process research and development and the
amortization of the inventory
step-up),
non-cash impairment charges, and other expenses not directly
attributable to segments. |
The Companys consolidated net revenues are generated via
the sale of products in the following therapeutic categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
March 31, 2007
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Allergy
|
|
$
|
219,308
|
|
|
$
|
28,301
|
|
|
$
|
|
|
Anti-infective Agents
|
|
|
455,513
|
|
|
|
166,383
|
|
|
|
60,768
|
|
Cardiovascular
|
|
|
889,523
|
|
|
|
587,020
|
|
|
|
463,610
|
|
Central Nervous System
|
|
|
1,235,340
|
|
|
|
584,466
|
|
|
|
579,814
|
|
Dermatology
|
|
|
72,944
|
|
|
|
44,718
|
|
|
|
58,066
|
|
Endocrine and Metabolic
|
|
|
408,384
|
|
|
|
198,875
|
|
|
|
133,967
|
|
Gastrointestinal
|
|
|
357,489
|
|
|
|
149,804
|
|
|
|
59,655
|
|
Renal and Genitourinary
|
|
|
209,374
|
|
|
|
122,484
|
|
|
|
148,494
|
|
Respiratory Agents
|
|
|
310,993
|
|
|
|
71,167
|
|
|
|
7,810
|
|
Other(1)
|
|
|
472,369
|
|
|
|
209,725
|
|
|
|
74,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,631,237
|
|
|
$
|
2,162,943
|
|
|
$
|
1,586,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
(1) |
|
Other consists of numerous therapeutic classes, none of which
individually exceeds 5% of consolidated net revenues. |
Geographic
Information
The Companys principal markets are North America, EMEA,
and Asia Pacific. Net revenues are classified based on the
geographic location of the customers and are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year Ended
|
|
|
Nine Months Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
|
March 31, 2007
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Net third-party revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,075,308
|
|
|
$
|
1,342,564
|
|
|
$
|
1,506,419
|
|
Other Americas
|
|
|
163,512
|
|
|
|
68,117
|
|
|
|
2,622
|
|
Europe(1)
|
|
|
1,755,807
|
|
|
|
508,549
|
|
|
|
50,958
|
|
Asia
|
|
|
636,610
|
|
|
|
243,713
|
|
|
|
26,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,631,237
|
|
|
$
|
2,162,943
|
|
|
$
|
1,586,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Sales in France consisted of 16% of consolidated net revenues
for the calendar year ended December 31, 2008. |
The Company leases certain property under various operating
lease arrangements that expire over the next seven years. These
leases generally provide the Company with the option to renew
the lease at the end of the lease term. For the calendar year
ended December 31, 2008, the nine months ended
December 31, 2007 and the fiscal year ended March 31,
2007, the Company made lease payments of $33.0 million,
$9.3 million and $3.9 million, respectively.
Future minimum lease payments under these commitments are as
follows:
|
|
|
|
|
|
|
Operating
|
|
December 31,
|
|
Leases
|
|
(in thousands)
|
|
|
|
|
2009
|
|
$
|
30,081
|
|
2010
|
|
|
24,178
|
|
2011
|
|
|
19,230
|
|
2012
|
|
|
12,814
|
|
2013
|
|
|
10,128
|
|
Thereafter
|
|
|
57,905
|
|
|
|
|
|
|
|
|
$
|
154,336
|
|
|
|
|
|
|
The Company has entered into various product licensing and
development agreements. In some of these arrangements, the
Company provides funding for the development of the product or
to obtain rights to the use of the patent, through milestone
payments, in exchange for marketing and distribution rights to
the product. Milestones represent the completion of specific
contractual events, and it is uncertain if and when these
milestones will be achieved, hence, we have not attempted to
predict the period in which such milestones would possibly be
incurred. In the event that all projects are successful,
milestone and development payments of approximately
$39.3 million would be paid subsequent to December 31,
2008.
The Company has also entered into employment and other
agreements with certain executives and other employees that
provide for compensation and certain other benefits. These
agreements provide for severance
115
payments under certain circumstances. Additionally, the Company
has split-dollar life insurance agreements with certain retired
executives.
In the normal course of business, Mylan periodically enters into
employment, legal settlement and other agreements which
incorporate indemnification provisions. While the maximum amount
to which Mylan may be exposed under such agreements cannot be
reasonably estimated, the Company maintains insurance coverage,
which management believes will effectively mitigate the
Companys obligations under these indemnification
provisions. No amounts have been recorded in the Consolidated
Financial Statements with respect to the Companys
obligations under such agreements.
Legal
Proceedings
While it is not possible to determine with any degree of
certainty the ultimate outcome of the following legal
proceedings, the Company believes that it has meritorious
defenses with respect to the claims asserted against it and
intends to vigorously defend its position. The Company is also
party to certain litigation matters, some of which are described
below, for which Merck KGaA has agreed to indemnify the Company,
under the terms of the Share Purchase Agreement by which Mylan
acquired the former Merck Generics business. An adverse outcome
in any of these proceedings, or the inability or denial of Merck
KGaA to pay an indemnified claim, could have a material adverse
effect on the Companys financial position and results of
operations.
Omeprazole
On May 17, 2000, Mylan Pharmaceuticals Inc.
(MPI) filed an ANDA seeking approval from the FDA to
manufacture, market and sell omeprazole delayed-release capsules
and on August 8, 2000 made Paragraph IV certifications
to several patents owned by AstraZeneca PLC
(AstraZeneca) that were listed in the FDAs
Orange Book. On September 8, 2000, AstraZeneca
filed suit against MPI and Mylan in the U.S. District Court
for the Southern District of New York alleging infringement of
several of AstraZenecas patents. On May 29, 2003, the
FDA approved MPIs ANDA for the 10 mg and 20 mg
strengths of omeprazole delayed-release capsules, and, on
August 4, 2003, Mylan announced that MPI had commenced the
sale of omeprazole 10 mg and 20 mg delayed-release
capsules. AstraZeneca then amended the pending lawsuit to assert
claims against Mylan and MPI and filed a separate lawsuit
against MPIs supplier, Esteve Quimica S.A.
(Esteve), for unspecified money damages and a
finding of willful infringement. MPI has certain indemnity
obligations to Esteve in connection with this litigation. On
May 31, 2007, the district court ruled in Mylans and
Esteves favor by finding that the asserted patents were
not infringed by Mylans/Esteves products. On
July 18, 2007, AstraZeneca appealed the decision to the
United States Court of Appeals for the Federal Circuit. On
June 10, 2008, the appellate court issued a judgment and
decision affirming the district courts finding of
noninfringement and the mandate was issued on July 1, 2008.
Lorazepam
and Clorazepate
On June 1, 2005, a jury verdict was rendered against Mylan,
MPI, and co-defendants Cambrex Corporation and Gyma Laboratories
in the U.S. District Court for the District of Columbia in
the amount of approximately $12.0 million, which has been
accrued for by the Company. The jury found that Mylan and its
co-defendants willfully violated Massachusetts, Minnesota and
Illinois state antitrust laws in connection with API supply
agreements entered into between the Company and its API supplier
(Cambrex) and broker (Gyma) for two drugs, lorazepam and
clorazepate, in 1997, and subsequent price increases on these
drugs in 1998. The case was brought by four health insurers who
opted out of earlier class action settlements agreed to by the
Company in 2001 and represents the last remaining antitrust
claims relating to Mylans 1998 price increases for
lorazepam and clorazepate. Following the verdict, the Company
filed a motion for judgment as a matter of law, a motion for a
new trial, a motion to dismiss two of the insurers and a motion
to reduce the verdict. On December 20, 2006, the
Companys motion for judgment as a matter of law and motion
for a new trial were denied and the remaining motions were
denied on January 24, 2008. In post-trial filings, the
plaintiffs requested that the verdict be trebled and that
request was granted on January 24, 2008. On
February 6, 2008, a judgment was issued against Mylan and
its co-defendants in the total amount of approximately
$69.0 million, some or all of which may be subject to
116
indemnification obligations by Mylan. Plaintiffs are also
seeking an award of attorneys fees and litigation costs in
unspecified amounts and prejudgment interest of approximately
$9.0 million. The Company and its co-defendants have
appealed to the U.S. Court of Appeals for the D.C. Circuit.
The appeals have been held in abeyance pending a ruling on the
motion for prejudgment interest. In connection with the
Companys appeal of the lorazepam Judgment, the Company
submitted a surety bond underwritten by a third-party insurance
company in the amount of $74.5 million. This surety bond is
secured by a pledge of a $40.0 million cash deposit (which
is included as restricted cash on the Companys
Consolidated Balance Sheet as of December 31,
2008) and an irrevocable letter of credit for
$34.5 million issued under the Senior Credit Agreement. On
October 27, 2008, a U.S. magistrate judge issued a
report recommending the granting of plaintiffs motion for
prejudgment interest. The report also recommends requiring the
surety bond amount to be increased to include prejudgment
interest. Mylan has submitted objections to the magistrate
judges recommendations and now pending is the district
courts determination of whether to accept or reject those
recommendations. If the magistrates recommendations on
prejudgment interest are accepted, Mylan intends to contest
these rulings as part of its pending appeal.
Pricing
and Medicaid Litigation
On June 26, 2003, MPI and UDL received requests from the
U.S. House of Representatives Energy and Commerce Committee
(the Committee) seeking information about certain
products sold by MPI and UDL Laboratories Inc. (UDL)
in connection with the Committees investigation into
pharmaceutical reimbursement and rebates under Medicaid. MPI and
UDL cooperated with this inquiry and provided information in
response to the Committees requests in 2003. Several
states attorneys general (AG) have also sent
letters to MPI, UDL and Mylan Bertek Pharmaceuticals Inc.,
demanding that those companies retain documents relating to
Medicaid reimbursement and rebate calculations pending the
outcome of unspecified investigations by those AGs into such
matters. In addition, in July 2004, Mylan received subpoenas
from the AGs of California and Florida in connection with civil
investigations purportedly related to price reporting and
marketing practices regarding various drugs. As noted below,
both California and Florida subsequently filed suits against
Mylan, and the Company believes any further requests for
information and disclosures will be made as part of that
litigation.
Beginning in September 2003, Mylan, MPI
and/or UDL,
together with many other pharmaceutical companies, have been
named in civil lawsuits filed by state AGs and municipal bodies
within the state of New York alleging generally that the
defendants defrauded the state Medicaid systems by allegedly
reporting Average Wholesale Prices
and/or
Wholesale Acquisition Costs that exceeded the actual
selling price of the defendants prescription drugs. To
date, Mylan, MPI
and/or UDL
have been named as defendants in substantially similar civil
lawsuits filed by the AGs of Alabama, Alaska, California,
Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky,
Massachusetts, Mississippi, Missouri, South Carolina, Texas,
Utah and Wisconsin and also by the city of New York and
approximately 40 counties across New York State. Several of
these cases have been transferred to the AWP multi-district
litigation proceedings pending in the U.S. District Court
for the District of Massachusetts for pretrial proceedings.
Others of these cases will likely be litigated in the state
courts in which they were filed. Each of the cases seeks an
unspecified amount in money damages, civil penalties
and/or
treble damages, counsel fees and costs, and injunctive relief.
In each of these matters Mylan, MPI
and/or UDL
either have either moved to dismiss the complaints or have
answered the complaints denying liability. Mylan and its
subsidiaries intend to defend each of these actions vigorously.
In May 2008, an amended complaint was filed in the
U.S. District Court for the District of Massachusetts by a
plaintiff on behalf of the United States of America, against
Mylan, MPI, UDL and several other generic manufacturers. The
original complaint was filed under seal in April 2000, and
Mylan, MPI and UDL were added as parties in February 2001. The
claims against Mylan, MPI, UDL and the other generic
manufacturers were severed from the April 2000 complaint (which
remains under seal) as a result of the federal governments
decision not to intervene in the action as to those defendants.
The complaint alleges violations of the False Claims Act and
sets forth allegations substantially similar to those alleged in
the state AG cases mentioned in the preceding paragraph and
purports to seek recovery of any and all alleged overpayment of
the federal share under the Medicaid program. Mylan
has moved to dismiss the complaint and intends to defend the
action vigorously.
In addition, by letter dated January 12, 2005, MPI was
notified by the U.S. Department of Justice of an
investigation concerning calculations of Medicaid drug rebates.
The investigation involves whether MPI and UDL
117
may have violated the False Claims Act or other laws by
classifying certain authorized generics launched in the
1990s and early 2000s as non-innovator rather than
innovator drugs for purposes of Medicaid and other federal
healthcare programs until 2005. MPI and UDL deny the
governments allegations and deny that they engaged in any
wrongful conduct. Based on our understanding of the
governments allegations, the alleged difference in rebates
for the MPI and UDL products currently at issue may be up to
approximately $100.0 million, which includes interest.
Remedies under the False Claims Act could include treble damages
and penalties. MPI and UDL have been cooperating fully with the
governments investigation and are currently in discussions
with the government about a possible resolution of the matter.
Additionally, the Company believes that it has contractual and
other rights to recover from the innovator a substantial portion
of any payments that MPI and UDL may remit to the government.
The Company has not recorded any amounts in the consolidated
financial statements related to this matter.
Dey, L.P. is a defendant currently in lawsuits brought by the
state AGs of Arizona, California, Florida, Illinois, Iowa,
Kansas, Kentucky, Pennsylvania, South Carolina (on behalf of the
state and the state health plan), Utah and Wisconsin and the
city of New York and approximately 40 New York counties. Dey is
also named as a defendant in several class actions brought by
consumers and third-party payors. Dey has reached a settlement
of most of these class actions, which has been preliminarily
approved by the court. Additionally, the U.S. federal
government filed a claim against Dey, L.P. in August 2006. These
cases all generally allege that Dey falsely reported certain
price information concerning certain drugs marketed by Dey. Dey
intends to defend each of these actions vigorously. In
conjunction with the former Merck Generics business acquisition
by Mylan, Mylan is entitled to indemnification by Merck KGaA for
these Dey pricing related suits.
The Company has approximately $118.6 million recorded in
other liabilities related to the price-related litigation
involving Dey. As stated above, in conjunction with the former
Merck Generics business acquisition, Mylan is entitled to
indemnification from Merck KGaA under the Share Purchase
Agreement. As a result, the Company has recorded approximately
$119.7 million in other assets.
Modafinil
Antitrust Litigation and FTC Inquiry
Beginning in April 2006, Mylan, along with four other drug
manufacturers, has been named as a defendant in civil lawsuits
filed in the Eastern District of Pennsylvania by a variety of
plaintiffs purportedly representing direct and indirect
purchasers of the drug modafinil and a third-party payor and one
action brought by Apotex, Inc., a manufacturer of generic drugs,
seeking approval to market a generic modafinil product. These
actions allege violations of federal and state laws in
connection with the defendants settlement of patent
litigation relating to modafinil. These actions are in their
preliminary stages, and motions to dismiss each action are
pending, with the exception of the third-party payor action, in
which Mylans response to the complaint is not due until
the motions filed in the other cases have been decided. Mylan
intends to defend each of these actions vigorously. In addition,
by letter dated July 11, 2006, Mylan was notified by the
U.S. Federal Trade Commission (FTC) of an
investigation relating to the settlement of the modafinil patent
litigation. In its letter, the FTC requested certain information
from Mylan, MPI and MTI pertaining to the patent litigation and
the settlement thereof. On March 29, 2007, the FTC issued a
subpoena, and on April 26, 2007, the FTC issued a civil
investigative demand to Mylan requesting additional information
from the Company relating to the investigation. Mylan is
cooperating fully with the governments investigation and
completed all requests for information. On February 13,
2008, the FTC filed a lawsuit against Cephalon in the
U.S. District Court for the District of Columbia and the
case has subsequently been transferred to the U.S. District
Court for the Eastern District of Pennsylvania. Mylan is not
named as a defendant in the FTCs lawsuit, although the
complaint includes certain allegations pertaining to the
Mylan/Cephalon settlement.
Levetiracetam
In March 2004, Mylan Inc. and MPI, along with
Dr. Reddys Laboratories, Inc., were named in a civil
lawsuit filed in the Northern District of Georgia by UCB Society
Anonyme and UCB Pharma, Inc. (UCB) alleging
infringement of U.S. Patent No. 4,943,639 relating to
levetiracetam tablets. This litigation was settled in October
2007. Under the terms of the settlement, Mylan was granted the
right to market 250 mg, 500 mg, and 750 mg
levetiracetam tablets in the United States beginning on
November 1, 2008, provided that UCB obtained pediatric
exclusivity for its product and Mylan obtained final approval
for its ANDA from the FDA. Pediatric exclusivity has
118
been granted. In addition, by letter dated November 19,
2007, Mylan was notified by the FTC of an investigation relating
to the settlement of the levetiracetam patent litigation. In its
letter, the FTC requested certain information from Mylan
pertaining to the patent litigation and the settlement thereof.
On April 9, 2008, the FTC issued a civil investigative
demand requesting additional information from Mylan relating to
the investigation. Mylan is cooperating fully with the
governments investigation and has complied with all
requests for information. Mylan launched its 250 mg,
500 mg, and 750 mg levetiracetam tablet products in
November 2008.
Digitek®
Recall
On April 25, 2008, Actavis Totowa LLC, a division of
Actavis Group, announced a voluntary, nationwide recall of all
lots and all strengths of
Digitek®
(digoxin tablets USP). Digitek is manufactured by Actavis and
distributed in the United States by MPI and UDL. The Company has
tendered its defense and indemnity in all lawsuits and claims
arising from this event to Actavis, and Actavis has accepted
that tender, subject to a reservation of rights. While the
Company is unable to estimate total potential costs with any
degree of certainty, such costs could be significant. To date,
approximately 198 lawsuits have been filed against Mylan, UDL
and Actavis pertaining to the recall. An adverse outcome in
these lawsuits or the inability or denial of Actavis to pay on
an indemnified claim could have a materially adverse effect on
our financial position and results of operations.
Pioglitazone
On February 21, 2006, a district court in the United States
District Court for the Southern District of New York held that
Mylan, MPI and UDLs pioglitazone ANDA product infringed a
patent asserted against them by Takeda Pharmaceuticals North
America, Inc. and Takeda Chemical Industries, Ltd (hereinafter,
Takeda) and that the patent was enforceable. That
same court also held that Alphapharm Pty, Ltd and Genpharm,
Inc.s pioglitazone ANDA product infringed the Takeda
patent and that the patent was valid. Subsequently, the district
court granted Takedas motion to find the cases to be
exceptional and to award attorneys fees and costs in the amounts
of $11.4 million from Mylan and $5.4 million from
Alphapharm/Genpharm, with interest. Mylan and
Alphapharm/Genpharm both separately appealed the underlying
patent validity and enforceability determinations and the
exceptional case findings to the Court of Appeals for the
Federal Circuit, but the findings were affirmed. Although the
required amounts have been paid, Mylan and Alphapharm/Genpharm
intend to continue to challenge the exceptional case findings by
filing petitions for writ of certiorari with the United States
Supreme Court.
Litigation
related to the former Merck Generics Business
Generics UK Ltd. was accused of having been involved in pricing
agreements pertaining to certain drugs during the years 1996 to
2000. Generics UK Ltd. was able to settle civil claims for
damages brought by the National Health Service in England, and
Wales, and health authorities in Scotland and Northern Ireland
out of court, without any admission of liability. In addition to
these civil claims, in 2006 criminal proceedings were filed in
Southwark Crown Court against Generics UK Ltd. and other
companies, as well as against a number of individuals who were
alleged to be responsible for decision making in the companies.
In early 2008, the House of Lords ruled that a price fixing
cartel was not at the relevant times a criminal offense. The
case was remanded back to the Crown Court for the prosecution to
make an application to amend the indictment. On July 11,
2008, the Crown Court refused to allow the prosecutions
application, quashed the indictment and denied the
prosecutions application for permission to appeal. On
July 17, 2008, the prosecution applied to the Court of
Appeal (Criminal Division) for permission to appeal. On
December 3, 2008, the Court of Appeal denied the
prosecutions application for permission to appeal.
Accordingly, all civil and criminal proceedings relating to the
above described pricing agreements have now been either
terminated or resolved.
Other
Litigation
The Company is involved in various other legal proceedings that
are considered normal to its business, including certain
proceedings assumed as a result of the former Merck Generics
business acquisition. While it is not possible to predict the
ultimate outcome of such other proceedings, the Company believes
that the ultimate outcome of such other proceedings will not
have a material adverse effect on its financial position or
results of operations.
119
Managements
Report on Internal Control over Financial Reporting
Management of Mylan Inc. (the Company) is
responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions
or that the degree of compliance with the policies or procedures
may deteriorate.
In conducting the December 31, 2008 assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal
Control Integrated Framework (COSO).
As a result of this assessment and based on the criteria in the
COSO framework, management has concluded that, as of
December 31, 2008, the Companys internal control over
financial reporting was effective.
Our independent registered public accounting firm,
Deloitte & Touche LLP, has audited ths internal
control over financial reporting. Deloitte & Touche
LLPs opinion on the Companys internal control over
financial reporting appears on page 122 of this
Form 10-K.
120
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Mylan Inc.:
We have audited the accompanying consolidated balance sheets of
Mylan Inc. and subsidiaries (the Company) as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, shareholders equity, and cash
flows for the year ended December 31, 2008, the nine months
ended December 31, 2007 and the year ended March 31,
2007. Our audits also included the consolidated financial
statement schedule included in Item 15. These financial
statements, and financial statement schedule, are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Mylan Inc. and subsidiaries as of December 31, 2008 and
2007, and the results of their operations and their cash flows
for the year ended December 31, 2008, the nine months ended
December 31, 2007, and the year ended March 31, 2007,
in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 13 to the consolidated financial
statements, effective April 1, 2007, the Company adopted
FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an Interpretation of FASB Statement
No. 109.
As discussed in Note 1 to the consolidated financial
statements, effective October 2, 2007, the Company changed
its fiscal year to begin on January 1 and end on
December 31.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2008, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 16, 2009 expressed
an unqualified opinion on the Companys internal control
over financial reporting.
Pittsburgh, Pennsylvania
February 16, 2009
121
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Mylan Inc.:
We have audited the internal control over financial reporting of
Mylan Inc. and subsidiaries (the Company) as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and consolidated financial
statement schedule as of and for the year ended
December 31, 2008 of the Company and our report dated
February 16, 2009 expressed an unqualified opinion on those
financial statements and financial statement schedule.
Pittsburgh, Pennsylvania
February 16, 2009
122
Mylan
Inc.
Supplementary Financial Information
Quarterly
Financial Data
(unaudited,
in thousands, except per share data)
Calendar Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008(3)
|
|
|
2008
|
|
|
2008(4)
|
|
|
2008
|
|
|
Total revenues
|
|
$
|
1,074,461
|
|
|
$
|
1,203,122
|
|
|
$
|
1,656,848
|
|
|
$
|
1,203,154
|
|
Gross profit
|
|
|
350,221
|
|
|
|
414,210
|
|
|
|
911,137
|
|
|
|
394,653
|
|
Net (loss) earnings available to common shareholders
|
|
|
(443,893
|
)
|
|
|
(8,366
|
)
|
|
|
171,999
|
|
|
|
(39,990
|
)
|
(Loss) earnings per
share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.46
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.56
|
|
|
$
|
(0.13
|
)
|
Diluted
|
|
$
|
(1.46
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.45
|
|
|
$
|
(0.13
|
)
|
Share
prices(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
15.40
|
|
|
$
|
13.35
|
|
|
$
|
14.02
|
|
|
$
|
11.28
|
|
Low
|
|
$
|
10.33
|
|
|
$
|
11.40
|
|
|
$
|
10.85
|
|
|
$
|
5.77
|
|
Nine Months Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007(5)
|
|
|
Total revenues
|
|
$
|
546,321
|
|
|
$
|
477,091
|
|
|
$
|
1,155,349
|
|
Gross profit
|
|
|
296,708
|
|
|
|
221,641
|
|
|
|
356,099
|
|
Net (loss) earnings available to common shareholders
|
|
|
79,727
|
|
|
|
149,827
|
|
|
|
(1,383,577
|
)
|
(Loss) earnings per
share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
0.60
|
|
|
$
|
(5.04
|
)
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
0.60
|
|
|
$
|
(5.04
|
)
|
Share
prices(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
22.64
|
|
|
$
|
18.19
|
|
|
$
|
16.87
|
|
Low
|
|
$
|
18.19
|
|
|
$
|
14.00
|
|
|
$
|
13.25
|
|
|
|
|
(1) |
|
The sum of earnings per share for the quarters may not equal
earnings per share for the total year due to changes in the
average number of common shares outstanding and the effect of
the if-converted method related to our outstanding mandatorily
redeemable preferred stock. |
|
(2) |
|
Closing prices for all dates prior to December 29, 2008 are
as reported on the New York Stock Exchange. Closing prices for
December 31, 2008 are as reported on The NASDAQ Stock
Market. |
|
(3) |
|
The results for the three months ended March 31, 2008,
include a $385.0 million non-cash goodwill impairment
charge. |
|
(4) |
|
The results for the three months ended September 30, 2008,
include $455.0 million of revenue and gross profit related
to the sale of the Bystolic product rights. |
|
(5) |
|
The results for the three months ended December 31, 2007,
include the results of the former Merck Generics business since
its acquisition on October 2, 2007, and certain purchase
accounting adjustments, including $1.27 billion related to
acquired in-process research and development. |
123
|
|
ITEM 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures
|
An evaluation was performed under the supervision and with the
participation of the Companys management, including the
Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures as of December 31, 2008.
Based upon that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective.
Management has not identified any changes in the Companys
internal control over financial reporting that occurred during
the quarter that have materially affected, or are reasonably
likely to materially affect, the Companys internal control
over financial reporting.
Managements Report on Internal Control over Financial
Reporting is on page 120. The effectiveness of the
Companys internal control over financial reporting as of
December 31, 2008, has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their report which is on pages 122.
|
|
ITEM 9B.
|
Other
Information
|
None.
PART III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
Certain information required by this item will be set forth
under the captions Item I Election of
Directors, Executive Officers and
Security Ownership of Certain Beneficial Owners and
Management Section 16(a) Beneficial Ownership
Reporting Compliance in our 2009 Proxy Statement and is
incorporated herein by reference.
Code of
Ethics
The Company has adopted a Code of Ethics that applies to our
Chief Executive Officer, Chief Financial Officer and Corporate
Controller. This Code of Ethics is posted on the Companys
Internet website at www.mylan.com. The Company intends to post
any amendments to or waivers from the Code of Ethics on that
website.
|
|
ITEM 11.
|
Executive
Compensation
|
The information required by Item 11 will be set forth under
the caption Executive Compensation in our 2009 Proxy
Statement and is incorporated herein by reference.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by Item 12 will be set forth under
the captions Security Ownership of Certain Beneficial
Owners and Management and Executive
Compensation Equity Compensation Plan
Information in our 2009 Proxy Statement and is
incorporated herein by reference.
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by Item 13 will be set forth under
the caption Certain Relationships and Related
Transactions in our 2009 Proxy Statement and is
incorporated herein by reference.
124
|
|
ITEM 14.
|
Principal
Accounting Fees and Services
|
The information required by Item 14 will be set forth under
the captions Independent Registered Public Accounting
Firms Fees and Audit Committee Pre-Approval
Policy in our 2009 Proxy Statement and is incorporated
herein by reference.
PART IV
|
|
ITEM 15.
|
Exhibits,
Financial Statement Schedules
|
|
|
1.
|
Consolidated
Financial Statements
|
The Consolidated Financial Statements listed in the Index to
Consolidated Financial Statements are filed as part of this Form.
|
|
2.
|
Financial
Statement Schedules
|
MYLAN
INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deductions)
|
|
|
(Deductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
Ending
|
|
Description
|
|
Balance
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Balance
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar year ended December 31, 2008
|
|
$
|
38,088
|
|
|
$
|
(2,355
|
)
|
|
$
|
(2,502
|
)
|
|
$
|
(6,338
|
)
|
|
$
|
26,893
|
|
Nine months ended December 31, 2007
|
|
$
|
15,149
|
|
|
$
|
9,959
|
|
|
$
|
13,255
|
*
|
|
$
|
(275
|
)
|
|
$
|
38,088
|
|
Fiscal year ended March 31, 2007
|
|
$
|
10,954
|
|
|
$
|
(500
|
)
|
|
$
|
4,778
|
**
|
|
$
|
(83
|
)
|
|
$
|
15,149
|
|
Valuation allowance for deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar year ended December 31, 2008
|
|
$
|
76,100
|
|
|
$
|
53,421
|
|
|
$
|
(16,285
|
)
|
|
$
|
(3,042
|
)
|
|
$
|
110,194
|
|
Nine months ended December 31, 2007
|
|
$
|
18,355
|
|
|
$
|
33,545
|
|
|
$
|
24,200
|
*
|
|
$
|
|
|
|
$
|
76,100
|
|
Fiscal year ended March 31, 2007
|
|
$
|
1,644
|
|
|
$
|
5,531
|
|
|
$
|
11,180
|
**
|
|
$
|
|
|
|
$
|
18,355
|
|
|
|
|
* |
|
Allowance recorded as part of the former Merck Generics business
acquisition. |
|
** |
|
Allowance recorded as part of the Matrix acquisition. |
|
|
|
3.1(a)
|
|
Amended and Restated Articles of Incorporation of the
registrant, filed as Exhibit 3.1 to the Form 10-Q for the
quarterly period ended June 30, 2003, and incorporated herein by
reference.
|
3.1(b)
|
|
Amendment to Amended and Restated Articles of Incorporation of
the registrant, filed as Exhibit 3.2 to the Report on Form 8-K
filed with the SEC on October 5, 2007, and incorporated herein
by reference.
|
3.1(c)
|
|
Amendment to Amended and Restated Articles of Incorporation of
the registrant, filed as Exhibit 3.1 to the Report on Form 8-K
filed with the SEC on November 20, 2007, and incorporated herein
by reference.
|
3.2
|
|
Bylaws of the registrant, as amended to date, filed as Exhibit
3.1 to the Report of Form 8-K filed on December 21, 2007, and
incorporated herein by reference.
|
4.1(a)
|
|
Rights Agreement dated as of August 22, 1996, between the
registrant and American Stock Transfer & Trust Company,
filed as Exhibit 4.1 to the Report on Form 8-K filed with the
SEC on September 3, 1996, and incorporated herein by reference.
|
125
|
|
|
4.1(b)
|
|
Amendment to Rights Agreement dated as of November 8, 1999,
between the registrant and American Stock Transfer & Trust
Company, filed as Exhibit 1 to Form 8-A/A filed with the SEC on
March 31, 2000, and incorporated herein by reference.
|
4.1(c)
|
|
Amendment No. 2 to Rights Agreement dated as of August 13, 2004,
between the registrant and American Stock Transfer & Trust
Company, filed as Exhibit 4.1 to the Report on Form 8-K filed
with the SEC on August 16, 2004, and incorporated herein by
reference.
|
4.1(d)
|
|
Amendment No. 3 to Rights Agreement dated as of September 8,
2004, between the registrant and American Stock Transfer &
Trust Company, filed as Exhibit 4.1 to the Report on Form 8-K
filed with the SEC on September 9, 2004, and incorporated herein
by reference.
|
4.1(e)
|
|
Amendment No. 4 to Rights Agreement dated as of December 2,
2004, between the registrant and American Stock Transfer &
Trust Company, filed as Exhibit 4.1 to the Report on Form 8-K
filed with the SEC on December 3, 2004, and incorporated herein
by reference.
|
4.1(f)
|
|
Amendment No. 5 to Rights Agreement dated as of December 19,
2005, between the registrant and American Stock Transfer &
Trust Company, filed as Exhibit 4.1 to the Report on Form 8-K
filed with the SEC on December 19, 2005, and incorporated herein
by reference.
|
4.2(a)
|
|
Indenture, dated as of July 21, 2005, between the registrant and
The Bank of New York, as trustee, filed as Exhibit 4.1 to the
Report on Form 8-K filed with the SEC on July 27, 2005, and
incorporated herein by reference.
|
4.2(b)
|
|
Second Supplemental Indenture, dated as of October 1, 2007,
among the registrant, the Subsidiaries of the registrant listed
on the signature page thereto and The Bank of New York, as
trustee, filed as Exhibit 4.1 to the Report on Form 8-K filed
with the SEC on October 5, 2007, and incorporated herein by
reference.
|
4.3
|
|
Registration Rights Agreement, dated as of July 21, 2005, among
the registrant, the Guarantors party thereto and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, BNY Capital Markets,
Inc., KeyBanc Capital Markets (a Division of McDonald
Investments Inc.), PNC Capital Markets, Inc. and SunTrust
Capital Markets, Inc., filed as Exhibit 4.2 to the Report on
Form 8-K filed with the SEC on July 27, 2005, and incorporated
herein by reference.
|
4.4
|
|
Indenture, dated as of September 15, 2008, among the registrant,
the guarantors named therein and Bank of New York Mellon as
trustee, filed as Exhibit 4.1 to the Report on Form 8-K filed
with the SEC on September 15, 2008, and incorporated herein by
reference.
|
10.1
|
|
1986 Incentive Stock Option Plan, as amended to date, filed as
Exhibit 10(b) to Form 10-K for the fiscal year ended March 31,
1993, and incorporated herein by reference.*
|
10.2
|
|
1997 Incentive Stock Option Plan, as amended to date, filed as
Exhibit 10.3 to Form 10-Q for the quarter ended September 30,
2002, and incorporated herein by reference.*
|
10.3
|
|
1992 Nonemployee Director Stock Option Plan, as amended to date,
filed as Exhibit 10(l) to Form 10-K for the fiscal year ended
March 31, 1998, and incorporated herein by reference.*
|
10.4(a)
|
|
Amended and Restated 2003 Long-Term Incentive Plan, filed as
Appendix A to Definitive Proxy Statement on Schedule 14A, filed
with the SEC on March 28, 2008, and incorporated herein by
reference.*
|
10.4(b)
|
|
Form of Stock Option Agreement under the 2003 Long-Term
Incentive Plan, filed as Exhibit 10.4(b) to Form 10-K for the
fiscal year ended March 31, 2005, and incorporated herein by
reference.*
|
10.4(c)
|
|
Form of Restricted Share Award under the 2003 Long-Term
Incentive Plan, filed as Exhibit 10.4(c) to Form 10-K for the
fiscal year ended March 31, 2005, and incorporated herein by
reference.*
|
10.4(d)
|
|
Amendment No. 1 to the Amended and Restated 2003 Long-Term
Incentive Plan, dated as of December 17, 2008.*
|
10.5
|
|
Mylan Inc. Severance Plan, amended as of December 17, 2008.*
|
10.6
|
|
3.75% Cash Convertible Notes due 2015 Purchase Agreement dated
September 9, 2008, among the registrant and the initial
purchaser named therein, filed as Exhibit 1.1 to the Report on
Form 8-K filed with the SEC on September 15, 2008, and
incorporated herein by reference.
|
10.7(a)
|
|
Confirmation of OTC Convertible Note Hedge Transaction dated
September 9, 2008, among the registrant, Merrill Lynch
International and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, filed as Exhibit 10.1 to the Report on Form 8-K
filed with the SEC on September 15, 2008, and incorporated
herein by reference.
|
126
|
|
|
10.7(b)
|
|
Confirmation of OTC Convertible Note Hedge Transaction, amended
as of November 25, 2008, among the registrant, Merrill Lynch
International and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
|
10.8
|
|
Confirmation of OTC Convertible Note Hedge Transaction dated
September 9, 2008, between the registrant and Wells Fargo Bank,
National Association, filed as Exhibit 10.2 to the Report on
Form 8-K filed with the SEC on September 15, 2008, and
incorporated herein by reference.
|
10.9
|
|
Confirmation of OTC Warrant Transaction dated September 9, 2008,
among the registrant, Merrill Lynch International and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, filed as
Exhibit 10.3 to the Report on Form 8-K filed with the SEC on
September 15, 2008, and incorporated herein by reference.
|
10.10
|
|
Confirmation of OTC Warrant Transaction dated September 9, 2008,
between the registrant and Wells Fargo Bank, National
Association, filed as Exhibit 10.4 to the Report on Form 8-K
filed with the SEC on September 15, 2008, and incorporated
herein by reference.
|
10.11
|
|
Amendment to Confirmation of OTC Warrant Transaction dated
September 15, 2008 among the registrant, Merrill Lynch
International and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, filed as Exhibit 10.5 to the Report on Form 8-K
filed with the SEC on September 15, 2008, and incorporated
herein by reference.
|
10.12
|
|
Amendment to Confirmation of OTC Warrant Transaction dated
September 15, 2008, between the registrant and Wells Fargo Bank,
National Association, filed as Exhibit 10.6 to the Report on
Form 8-K filed with the SEC on September 15, 2008, and
incorporated herein by reference.
|
10.13
|
|
Amendment to Confirmation of OTC Warrant Transaction dated as of
September 9, 2008 among Mylan Inc., Merrill Lynch International
and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
filed as Exhibit 10.7 to the Report on Form 8-K filed with the
SEC on September 15, 2008, and incorporated herein by reference.
|
10.14
|
|
Amendment to Confirmation of OTC Warrant Transaction dated as of
September 9, 2008 among Mylan Inc., Merrill Lynch International
and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
filed as Exhibit 10.8 to the Report on Form 8-K filed with the
SEC on September 15, 2008, and incorporated herein by reference.
|
10.15
|
|
Calculation Agent Agreement dated September 9, 2008, among the
registrant, Wells Fargo Bank, National Association and Goldman
Sachs International, filed as Exhibit 10.9 to the Report on Form
8-K filed with the SEC on September 15, 2008, and incorporated
herein by reference.
|
10.16(a)
|
|
Amended and Restated Executive Employment Agreement dated as of
April 3, 2006, between the registrant and Robert J. Coury filed
as Exhibit 10.5 to Form 10-K for the fiscal year ended March 31,
2006, and incorporated herein by reference.*
|
10.16(b)
|
|
Amendment No. 1 to Amended and Restated Executive Employment
Agreement, dated as of December 22, 2008, between the registrant
and Robert J. Coury.*
|
10.17(a)
|
|
Executive Employment Agreement dated as of July 1, 2004, between
the registrant and Edward J. Borkowski, filed as Exhibit 10.27
to Form 10-Q/A for the quarter ended September 30, 2004, and
incorporated herein by reference.*
|
10.17(b)
|
|
Amendment No. 1 to Executive Employment Agreement dated as of
April 3, 2006, between the registrant and Edward J. Borkowski
filed as Exhibit 10.6(b) to Form 10-K for the fiscal year ended
March 31, 2006, and incorporated herein by reference.*
|
10.17(c)
|
|
Amendment No. 2 to Executive Employment Agreement dated as of
March 12, 2008, by and between registrant and Edward J.
Borkowski filed as Exhibit 99.1 to the Report on Form 8-K filed
with the SEC on March 12, 2008, and incorporated herein by
reference.*
|
10.17(d)
|
|
Amendment No. 3 to Executive Employment Agreement dated as of
December 22, 2008, by and between registrant and Edward J.
Borkowski.*
|
10.18(a)
|
|
Executive Employment Agreement, dated as of January 31, 2007,
between the registrant and Heather Bresch filed as Exhibit 10.3
to Form 10-Q for the quarter ended March 31, 2008, and
incorporated herein by reference.*
|
10.18(b)
|
|
Amendment No. 1 to Executive Employment Agreement dated as of
October 2, 2007, by and between the registrant and Heather
Bresch filed as Exhibit 10.4 to Form 10-Q for the quarter ended
March 31, 2008, and incorporated herein by reference.*
|
10.18(c)
|
|
Amendment No. 2 to Executive Employment Agreement dated as of
December 22, 2008, by and between the registrant and Heather
Bresch.*
|
127
|
|
|
10.19(a)
|
|
Executive Employment Agreement, dated as of January 31, 2007,
between the registrant and Rajiv Malik filed as Exhibit 10.6 to
Form 10-Q for the quarter ended March 31, 2008, and incorporated
herein by reference.*
|
10.19(b)
|
|
Amendment No. 1 to Executive Employment Agreement dated as of
October 2, 2007, by and between the registrant and Rajiv Malik
filed as Exhibit 10.7 to Form 10-Q for the quarter ended March
31, 2008, and incorporated herein by reference.*
|
10.19(c)
|
|
Amendment No. 2 to Executive Employment Agreement dated as of
December 22, 2008, by and between the registrant and Rajiv
Malik.*
|
10.20(a)
|
|
Retirement Benefit Agreement dated as of December 31, 2004,
between the registrant and Robert J. Coury filed as Exhibit 10.7
to Form 10-Q for the quarter ended December 31, 2004, and
incorporated herein by reference.*
|
10.20(b)
|
|
Amendment No. 1 to Retirement Benefit Agreement dated as of
April 3, 2006, between the registrant and Robert J. Coury filed
as Exhibit 10.11(b) to Form 10-K for the fiscal year ended March
31, 2006, and incorporated herein by reference.*
|
10.20(c)
|
|
Amendment No. 2 to Retirement Benefit Agreement dated as of
December 22, 2008, between the registrant and Robert J. Coury.*
|
10.21(a)
|
|
Retirement Benefit Agreement dated as of December 31, 2004,
between the registrant and Edward J. Borkowski, filed as Exhibit
10.8 to Form 10-Q for the quarter ended December 31, 2004, and
incorporated herein by reference.*
|
10.21(b)
|
|
Amendment No. 1 to Retirement Benefit Agreement dated as of
April 3, 2006, between the registrant and Edward J. Borkowski
filed as Exhibit 10.12(b) to Form 10-K for the fiscal year ended
March 31, 2006, and incorporated herein by reference.*
|
10.21(c)
|
|
Amendment No. 2 to Retirement Benefit Agreement dated as of
December 22, 2008, between the registrant and Edward J.
Borkowski.*
|
10.22
|
|
Retirement Benefit Agreement dated January 27, 1995, between the
registrant and C.B. Todd, filed as Exhibit 10(b) to Form 10-K
for the fiscal year ended March 31, 1995, and incorporated
herein by reference.*
|
10.23(a)
|
|
Retirement Benefit Agreement dated January 27, 1995, between the
registrant and Milan Puskar, filed as Exhibit 10(b) to Form 10-K
for the fiscal year ended March 31, 1995, and incorporated
herein by reference.*
|
10.23(b)
|
|
First Amendment to Retirement Benefit Agreement dated September
27, 2001, between the registrant and Milan Puskar, filed as
Exhibit 10.1 to Form 10-Q for the quarter ended September 30,
2001, and incorporated herein by reference.*
|
10.23(c)
|
|
Amendment No. 2 to Retirement Benefit Agreement dated as of
April 25, 2008, by and between registrant and Milan Puskar,
filed as Exhibit 10.1 to Form 10-Q for the quarter ended June
30, 2008, and incorporated herein by reference.*
|
10.24
|
|
Split Dollar Life Insurance Arrangement between the registrant
and the Milan Puskar Irrevocable Trust filed as Exhibit 10(h) to
Form 10-K for the fiscal year ended March 31, 1996, and
incorporated herein by reference.*
|
10.25(a)
|
|
Transition and Succession Agreement dated as of December 15,
2003, between the registrant and Robert J. Coury, filed as
Exhibit 10.19 to Form 10-Q for the quarter ended December 31,
2003, and incorporated herein by reference.*
|
10.25(b)
|
|
Amendment No. 1 to Transition and Succession Agreement dated as
of December 2, 2004, between the registrant and Robert J. Coury,
filed as Exhibit 10.1 to Form 10-Q for the quarter ended
December 31, 2004, and incorporated herein by reference.*
|
10.25(c)
|
|
Amendment No. 2 to Transition and Succession Agreement dated as
of April 3, 2006, between the registrant and Robert J. Coury
filed as Exhibit 10.19(c) to Form 10-K for the fiscal year ended
March 31, 2006, and incorporated herein by reference.*
|
10.25(d)
|
|
Amendment No. 3 to Transition and Succession Agreement dated as
of December 22, 2008, between the registrant and Robert J.
Coury.*
|
10.26(a)
|
|
Transition and Succession Agreement dated as of December 15,
2003, between the registrant and Edward J. Borkowski, filed as
Exhibit 10.20 to Form 10-Q for the quarter ended December 31,
2003, and incorporated herein by reference.*
|
128
|
|
|
10.26(b)
|
|
Amendment No. 1 to Transition and Succession Agreement dated as
of December 2, 2004, between the registrant and Edward J.
Borkowski, filed as Exhibit 10.2 to Form 10-Q for the quarter
ended December 31, 2004, and incorporated herein by reference.*
|
10.26(c)
|
|
Amendment No. 2 to Transition and Succession Agreement dated as
of April 3, 2006, between the registrant and Edward J. Borkowski
filed as Exhibit 10.20(c) to Form 10-K for the fiscal year ended
March 31, 2006, and incorporated herein by reference.*
|
10.26(d)
|
|
Amendment No. 3 to Transition and Succession Agreement dated as
of December 22, 2008, between the registrant and Edward J.
Borkowski.*
|
10.27(a)
|
|
Amended and Restated Transition and Succession Agreement dated
as of October 2, 2007, between the registrant and Heather
Bresch, filed as Exhibit 10.2 to Form 10-Q for the quarter ended
March 31, 2008, and incorporated herein by reference.*
|
10.27(b)
|
|
Amendment No. 1 to Transition and Succession Agreement dated as
of December 22, 2008, between the registrant and Heather Bresch.*
|
10.28(a)
|
|
Transition and Succession Agreement dated as of January 31,
2007, between the registrant and Rajiv Malik, filed as Exhibit
10.5 to Form 10-Q for the quarter ended March 31, 2008, and
incorporated herein by reference.*
|
10.28(b)
|
|
Amendment No. 1 to Transition and Succession Agreement dated as
of December 22, 2008, between the registrant and Rajiv Malik.*
|
10.29
|
|
Executives Retirement Savings Plan, filed as Exhibit 10.14
to Form 10-K for the fiscal year ended March 31, 2001, and
incorporated herein by reference.*
|
10.30
|
|
Supplemental Health Insurance Program For Certain Officers of
the registrant, effective December 15, 2001, filed as Exhibit
10.1 to Form 10-Q for the quarter ended December 31, 2001, and
incorporated herein by reference.*
|
10.31
|
|
Form of Indemnification Agreement between the registrant and
each Director, filed as Exhibit 10.31 to Form 10-Q/A for the
quarter ended September 30, 2004, and incorporated herein by
reference.*
|
10.32
|
|
Description of the registrants Director Compensation
Arrangements in effect as of the date hereof.*
|
10.33
|
|
Agreement Regarding Consulting Services and Shareholders
Agreement dated as of December 31, 2007 by and among the
registrant, MP Laboratories (Mauritius) Ltd, Prasad Nimmagadda,
Globex and G2 Corporate Services Limited, filed as Exhibit 10.26
to Form 10-KT/A for the period ended December 31, 2007, and
incorporated herein by reference.
|
10.34(a)
|
|
Share Purchase Agreement dated May 12, 2007 by and among Merck
Generics Holding GmbH, Merck Internationale Beteiligung GmbH,
Merck KGaA and the registrant, filed with the Report on Form 8-K
filed with the SEC on May 17, 2007, and incorporated herein by
reference.
|
10.34(b)
|
|
Amendment No. 1 to Share Purchase Agreement by and among the
registrant and Merck Generics Holding GmbH, Merck S.A. Merck
Internationale Beteiligung GmbH and Merck KGaA, filed as Exhibit
10.1 to the Report on Form 8-K filed with the SEC on October 5,
2007, and incorporated herein by reference.
|
10.35
|
|
Amended and Restated Credit Agreement dated as of December 20,
2007 by and among the registrant, Mylan Luxembourg 5
S.à.r.l., certain lenders and JPMorgan Chase Bank, National
Association, as Administrative Agent, filed as Exhibit 10.1 to
the Report on Form 8-K filed with the SEC on December 27, 2007,
and incorporated herein by reference.
|
10.36
|
|
Separation Agreement and Release dated February 20, 2009,
by and between the registrant and Edward J. Borkowski.*
|
21
|
|
Subsidiaries of the registrant.
|
23
|
|
Consent of Independent Registered Public Accounting Firm.
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32
|
|
Certification of CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Denotes management contract or compensatory plan or arrangement. |
129
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Form to be signed on its behalf by the undersigned,
thereunto duly authorized on February 23, 2009.
Mylan Inc.
Robert J. Coury
Vice Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form has been signed below by the following persons
on behalf of the registrant and in the capacities indicated as
of February 23, 2009.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ ROBERT
J. COURY
Robert
J. Coury
|
|
Vice Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
/s/ EDWARD
J. BORKOWSKI
Edward
J. Borkowski
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
/s/ DANIEL
C. RIZZO, JR.
Daniel
C. Rizzo, Jr.
|
|
Senior Vice President and Corporate Controller
(Principal Accounting Officer)
|
|
|
|
/s/ MILAN
PUSKAR
Milan
Puskar
|
|
Chairman and Director
|
|
|
|
/s/ WENDY
CAMERON
Wendy
Cameron
|
|
Director
|
|
|
|
/s/ NEIL
DIMICK
Neil
Dimick
|
|
Director
|
|
|
|
/s/ DOUGLAS
J. LEECH
Douglas
J. Leech
|
|
Director
|
|
|
|
/s/ JOSEPH
C. MAROON, M.D.
Joseph
C. Maroon, M.D.
|
|
Director
|
|
|
|
/s/ PRASAD
NIMMAGADDA
Prasad
Nimmagadda
|
|
Director
|
|
|
|
/s/ ROD
PIATT
Rod
Piatt
|
|
Director
|
|
|
|
/s/ C.B.
TODD
C.B.
Todd
|
|
Director
|
|
|
|
/s/ R.L.
VANDERVEEN, PH.D., R.PH.
R.L.
Vanderveen, Ph.D., R.Ph.
|
|
Director
|
130
EXHIBIT INDEX
|
|
|
|
|
|
10
|
.4(d)
|
|
Amendment No. 1 to the Mylan Inc. Amended and Restated 2003
Long-Term Incentive Plan, dated as of December 17, 2008.
|
|
10
|
.5
|
|
Mylan Inc. Severance Plan as of December 17, 2008.
|
|
10
|
.7(b)
|
|
Confirmation of the Amendment to the OTC Convertible Note Hedge
Transaction dated as of November 25, 2008, among the
registrant, Merrill Lynch International and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
|
|
10
|
.16(b)
|
|
Amendment to Amended and Restated Executive Employment
Agreement, dated as of December 22, 2008, between the
registrant and Robert J. Coury.
|
|
10
|
.17(d)
|
|
Amendment No. 3 to Executive Employment Agreement dated as
of December 22, 2008, by and between registrant and Edward
J. Borkowski.
|
|
10
|
.18(c)
|
|
Amendment No. 2 to Executive Employment Agreement dated as
of December 22, 2008, by and between the registrant and
Heather Bresch.
|
|
10
|
.19(c)
|
|
Amendment No. 2 to Executive Employment Agreement dated as
of December 22, 2008, by and between the registrant and
Rajiv Malik.
|
|
10
|
.20(c)
|
|
Amendment No. 2 to Retirement Benefit Agreement dated as of
December 22, 2008, between the registrant and Robert J.
Coury.
|
|
10
|
.21(c)
|
|
Amendment No. 1 to Retirement Benefit Agreement dated as of
December 22, 2008, between the registrant and Edward J.
Borkowski.
|
|
10
|
.25(d)
|
|
Amendment No. 3 to Transition and Succession Agreement
dated as of December 22, 2008, between the registrant and
Robert J. Coury.
|
|
10
|
.26(d)
|
|
Amendment No. 3 to Transition and Succession Agreement
dated as of December 22, 2008, between the registrant and
Edward J. Borkowski.
|
|
10
|
.27(b)
|
|
Amendment No. 1 to Transition and Succession Agreement
dated as of December 22, 2008, between the registrant and
Heather Bresch.
|
|
10
|
.28(b)
|
|
Amendment No. 1 to Transition and Succession Agreement
dated as of December 22, 2008, between the registrant and
Rajiv Malik.
|
|
10
|
.32
|
|
Description of the registrants Director Compensation
Arrangements in effect as of the date hereof.*
|
|
10
|
.36
|
|
Separation Agreement and Release dated February 20, 2009,
by and between the registrant and Edward J. Borkowski.*
|
|
21
|
|
|
Subsidiaries of the registrant.
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
Certification of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
Certification of CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
131
EX-10.4(D)
Exhibit
10.4 (d)
AMENDMENT NO. 1 TO THE MYLAN INC.
AMENDED AND RESTATED 2003 LONG-TERM INCENTIVE PLAN
THIS AMENDMENT TO THE MYLAN INC. AMENDED AND RESTATED 2003 LONG-TERM INCENTIVE PLAN (this
Amendment) is made as of December 17, 2008.
WHEREAS, Section 11.18 permits Mylan Inc., a Pennsylvania corporation (the Company), to
amend the Mylan Inc. 2003 Long-Term Incentive Plan (the Plan) in order to comply with Section
409A of the Internal Revenue Code; and
WHEREAS, the Board of Directors of the Company has approved such amendments; and
WHEREAS, the Company hereby amends the Plan as set forth below to comply with Section 409A of
the Internal Revenue Code;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. |
The following sentence is hereby added to the end of Section 7.03 of the Plan: |
|
|
|
Notwithstanding anything to the contrary in this Plan or any Award Agreement, to the
extent that any Awards are payable upon a termination of employment and such payment
would result in the imposition of any individual excise tax and late interest charges
imposed under Section 409A of the Code, the settlement and payment of such Awards shall
instead be made on the first business day after the date that is six (6) months
following such termination of employment (or death, if earlier). |
|
2. |
The following sentences are hereby added to the end of Section 11.18 of the Plan: |
|
|
|
The intent of the parties is that payments and benefits under this Plan comply with
Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum
extent permitted, this Plan shall be interpreted and be administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, Participants shall not be considered to have terminated employment with the
Company for purposes of this Plan and no payment shall be due to Participants under this
Plan until such Participant would be considered to have incurred a separation from
service from the Company within the meaning of Section 409A of the Code. Any payments
described in this Plan that are due within the short term deferral period as defined
in Section 409A of the Code shall not be treated as deferred compensation unless
applicable law requires otherwise. |
|
3. |
This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
|
4. |
Except as modified by this Amendment, the Plan is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
|
|
|
|
|
|
MYLAN INC.
|
|
|
/s/ Heather Bresch
|
|
|
By: Heather Bresch |
|
|
Title: |
Chief Operating Officer |
|
2
EX-10.5
Exhibit 10.5
MYLAN INC.
SEVERANCE PLAN
The Company hereby adopts the Mylan Inc. Severance Plan for the benefit of certain employees
of the Company and its subsidiaries, on the terms and conditions hereinafter stated. All
capitalized terms used herein are defined in Section 1 hereof. The Plan, as set forth herein, is
intended to help retain qualified employees, maintain a stable work environment and provide
economic security to eligible employees in the event of certain terminations of employment. The
Plan, as a severance pay arrangement within the meaning of Section 3(2)(B)(i) of ERISA, is
intended to be excepted from the definitions of employee pension benefit plan and pension plan
set forth under section 3(2) of ERISA, and is intended to meet the descriptive requirements of a
plan constituting a severance pay plan within the meaning of regulations published by the
Secretary of Labor at Title 29, Code of Federal Regulations § 2510.3-2(b).
SECTION 1. DEFINITIONS. As hereinafter used:
1.1 Board means the Board of Directors of the Company.
1.2 Cause means (a) for purposes of a termination of employment (other than during
the Change in Control Protection Period): (i) the failure by the Eligible Employee to substantially
perform the Eligible Employees duties (other than any such failure resulting from the Eligible
Employees incapacity due to physical or mental illness), (ii) the continued failure by the
Eligible Employee to perform his duties at a satisfactory level of performance after written
notification from his or her manager or supervisor of such failure and after having been provided
with a reasonable opportunity to cure such failure, or (iii) the engaging by the Eligible Employee
in conduct which is injurious to the Company, monetarily or otherwise; and (b) for purposes of a
termination during the Change in Control Protection Period: (x) the willful and continued failure
by the Eligible Employee to substantially perform the Eligible Employees duties (other than any
such failure resulting from the Eligible Employees incapacity due to physical or mental illness)
or (y) the willful engaging by the Eligible Employee in conduct which is injurious to the Company,
monetarily or otherwise. For purposes of clause (b) above, no act, or failure to act, on the
Eligible Employees part shall be deemed willful unless done, or omitted to be done, by the
Eligible Employee not in good faith or without reasonable belief that the Eligible Employees act,
or failure to act, was in the best interests of the Company.
1.3 A Change in Control shall be deemed to have occurred if the event set forth in
any one of the following paragraphs shall have occurred:
(1) The acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) (a Person) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act or any successor
provision) of 20% or more of either (A) the then-outstanding shares of common stock of the
Company (the Outstanding Company Common Stock) or (B) the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally in the
election of directors (the Outstanding Company Voting
Securities); provided, however, that, for purposes of this Section 1.4(1), the
following acquisitions shall not constitute a Change in Control: (i) any acquisition
directly from the Company or any of its subsidiaries, (ii) any acquisition by the Company or
any of its subsidiaries, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any subsidiary, (iv) any acquisition by a
Person that is permitted to, and actually does, report its beneficial ownership on Schedule
13G (or any successor schedule); provided that, if such Person subsequently becomes required
to or does report its beneficial ownership on Schedule 13D (or any successor schedule),
then, for purposes of this paragraph, such Person shall be deemed to have first acquired, on
the first date on which such Person becomes required to or does so report, beneficial
ownership of all of the Outstanding Company Common Stock and Outstanding Company Voting
Securities beneficially owned by it on such date or (v) any acquisition pursuant to a
transaction that complies with Section 1.3 (3)(A), (3)(B) and (3)(C); or
(2)
Individuals who, as of the Effective Date, constitute the Board (the
Incumbent
Board) cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the Effective Date whose
election, or nomination for election by the Companys shareholders, was approved by a vote
of at least two-thirds of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; provided,
however, the term Incumbent Board as used in this Plan shall not include any such
individual whose initial assumption of office as a director occurs as a result of an actual
or threatened election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(3) Consummation of a reorganization, merger, statutory share exchange or consolidation
or similar corporate transaction involving the Company or any of its subsidiaries, a sale or
other disposition of all or substantially all of the assets of the Company, or the
acquisition of assets or stock of another entity by the Company or any of its subsidiaries
(each, a Business Combination), in each case unless, following such Business
Combination, (A) the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such Business Combination continue to represent (either by
remaining outstanding or being converted into voting securities of the resulting or
surviving entity or any parent thereof) more than 50% of the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without limitation, a
corporation that, as a result of such transaction, owns the Company or all or substantially
all of the Companys assets either directly or through one or more subsidiaries), (B) no
Person (excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent that such
ownership existed prior to the Business Combination, and (C) individuals who comprise the
Incumbent Board immediately prior
2
to such Business Combination constitute at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination (including, without
limitation, a corporation that, as a result of such transaction, owns the Company or all or
substantially of the Companys assets either directly or through one or more subsidiaries);
or
(4) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
1.4 Change in Control Protection Period shall mean the period commencing on the date
a Change in Control occurs and ending on the 2nd anniversary of such date.
1.5 COBRA means the Consolidated Omnibus Budget Reconciliation Act of 1985, as from
time to time amended.
1.6 Code means the Internal Revenue Code of 1986, as it may be amended from time to
time.
1.7 Company means Mylan Inc. or any successors thereto.
1.8 Disability means a physical or mental condition entitling the Eligible Employee
to benefits under the applicable long-term disability plan of the Company or any its subsidiaries,
or if no such plan exists, causing the Eligible Employee to be unable to substantially perform his
or her duties for at least 6 months in any 12-month period.
1.9 Effective Date shall mean the date on which the Board adopts this Plan.
1.10 Eligible Employee means, (i) for purposes of terminations of employment (other
than during the Change in Control Protection Period), any full-time employee of the Company or any
subsidiary thereof who has completed at least two (2) Years of Service with the Company or any
subsidiary prior to his or her Severance Date and (ii) for purposes of terminations of employment
during the Change in Control Protection Period, any full-time employee of the Company or any
subsidiary thereof; provided, however, that Eligible Employees shall not include (1) any employees
in respect of whom the Company has entered into a collective bargaining agreement, (2) any
individual who is a party to a written employment agreement or is eligible under any other plan,
policy or arrangement sponsored or maintained by the Company or any subsidiary (including but not
limited to an entity that may become a subsidiary after the Effective Date) thereof (other than a
Transition and Succession Agreement) that provides for severance payment and benefits upon
termination of employment, unless such individual elects to waive all severance payments and
benefits under such agreement, plan, policy or arrangement in connection with such individuals
termination of employment or (3) any individual who is actually entitled (i.e., not just eligible)
to receive severance payments and benefits pursuant to a Transition and Succession Agreement with
the Company.
1.11 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
1.12 Exchange Act means the Securities Exchange Act of 1934, as amended.
3
1.13 Excise Tax shall mean any excise tax imposed under section 4999 of the Code or
any successor provision thereto.
1.14 Good Reason for a Tier I Employee or a Tier II Employee means (i) a material
adverse alteration in the nature or status of the employees responsibilities with the Company or
any subsidiary thereof from those in effect immediately prior to the Change in Control, (ii) a
reduction in the employees annual salary or target bonus opportunity from those in effect
immediately prior to the Change in Control, or (iii) a relocation of the employees principal place
of employment that causes the employees commute from his or her principal residence to the new
work location to increase by 30 miles or more. Good Reason for any other Eligible
Employee means (x) a reduction in the employees annual base salary or (y) a relocation of the
employees principal place of employment that causes the employees commute from his or her
principal residence to the new work location to increase by 30 miles or more.
1.15 Plan means the Mylan Inc. Severance Plan, as set forth herein, as it may be
amended from time to time.
1.16 Plan Administrator means the person or persons appointed from time to time by
the Board which appointment may be revoked at any time by the Board.
1.17 A Potential Change in Control shall be deemed to have occurred if the event set
forth in any one of the following paragraphs shall have occurred:
(1) The Company enters into a definitive agreement, the consummation of which would
result in the occurrence of a Change in Control;
(2) Any Person (other than the Company or any of its subsidiaries) commences (within
the meaning of Regulation 14D promulgated under the Exchange Act or any successor
regulation) a tender or exchange offer which, if consummated, would result in a Change in
Control;
(3) Any Person (other than the Company or any of its subsidiaries) files with the
Securities and Exchange Commission a preliminary or definitive proxy statement relating to
an election contest with respect to the election or removal of directors of the Company
which solicitation, if successful, would result in a Change in Control;
(4) The acquisition by any Person of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act or any successor provision) of 15% or more of
either (A) the Outstanding Company Common Stock or (B) the combined voting power of the
Outstanding Company Voting Securities; provided, however, that, for purposes of this Section
1.17, the following acquisitions shall not constitute a Potential Change in Control: (i) any
acquisition directly from the Company or any of its subsidiaries, (ii) any acquisition by
the Company or any of its subsidiaries, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any subsidiary; or (iv) any
acquisition by a Person that is permitted to, and actually does, report its beneficial
ownership on Schedule 13G (or any successor schedule); provided that, if such Person
subsequently becomes required to or
4
does report its beneficial ownership on Schedule 13D (or any successor schedule), and
at the time has beneficial ownership of 15% or more of either the Outstanding Company Common
Stock or the combined voting power of the Outstanding Company Voting Securities, then a
Potential Change in Control shall be deemed to occur at such time; or
(5) The Board adopts a resolution to the effect that a Potential Change in Control has
occurred.
1.18 Severance means (1) the involuntary termination of an Eligible Employees
employment by the Company or any subsidiary thereof other than for Cause, death or Disability or
(2) a voluntary termination of an Eligible Employees employment for Good Reason during the Change
in Control Protection Period; provided, however, that a Severance shall not occur by reason of the
divestiture of a facility, sale of a business or business unit, or the outsourcing of a business
activity with which the Eligible Employee is affiliated if the Eligible Employee is offered
comparable employment by the entity which acquires such facility, business or business unit or
which succeeds to such outsourced business activity.
1.19 Severance Date means the date on which an Eligible Employee incurs a Severance.
1.20 Tier I Employee means an Eligible Employee in Pay Grade 17 or higher,
determined as of the Severance Date, or any other Eligible Employee designated by the Company as a
Tier I Employee.
1.21 Tier II Employee means an Eligible Employee in Pay Grades 13 through 16,
determined as of the Severance Date, or any other Eligible Employee designated by the Company as a
Tier II Employee.
1.22 Tier III Employee means an Eligible Employee in Pay Grade 7 through 12,
determined as of the Severance Date, or any other Eligible Employee designated by the Company as a
Tier III Employee.
1.23 Tier IV Employee means an Eligible Employee in Pay Grades 5 through 6,
determined as of the Severance Date, or any other Eligible Employee designated by the Company as a
Tier IV Employee.
1.24 Tier V Employee means an Eligible Employee who is not, as of his or her
Severance Date, a Tier I Employee, Tier II Employee, Tier III Employee, or Tier IV Employee.
1.25 Years of Service shall mean an Eligible Employees number of continuous years
of employment with the Company and/or any subsidiary thereof since the Employees most recent hire
date. In computing Years of Service, a period between six full months of employment and one year
shall be deemed to be one full year, and a period of less than six full months shall be deemed to
be zero years. For example, nine years and six months will be deemed to be ten Years of Service
while nine years and anything less than six full months will be deemed to be nine Years of Service.
During the Change in Control Protection Period,
5
any Eligible Employee who has fewer than two Years of Service since his or her most recent
hire date will be deemed to have two Years of Service for purposes of this Plan.
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SECTION 2. |
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SEVERANCE BENEFITS (OTHER THAN DURING CHANGE IN CONTROL PROTECTION PERIOD). |
2.1 Tier I Employees. Each Tier I Employee who incurs a Severance other than during a
Change in Control Protection Period shall be entitled to (i) continuation of his or her annual base
salary, as in effect on the Severance Date, for a number of months equal to his or her Years of
Service, but with a minimum of nine (9) months and a maximum of twelve (12) months, (ii) a monthly
payment for the number of months he or she receives salary continuation pursuant to this Section
2.1 (or would have received such payments if the Company had not elected to make a lump sum payment
pursuant to Section 2.7), in an amount equal to the cost of premiums for continuation of coverage
under COBRA for such employee and his eligible dependents; provided, however, that payments
otherwise due to such Eligible Employee shall cease to the extent benefits of the same type are
received by or made available to such Eligible Employee by a subsequent employer, and (iii)
outplacement services for up to twelve (12) months following the Severance Date.
2.2 Tier II Employees. Each Tier II Employee who incurs a Severance other than during
the Change in Control Protection Period shall be entitled to (i) continuation of his or her annual
base salary, as in effect on the Severance Date, for a number of months equal to his or her Years
of Service, but with a minimum of six (6) months and a maximum of nine (9) months, (ii) a monthly
payment for the number of months he or she receives salary continuation pursuant to this Section
2.2 (or would have received such payments if the Company had not elected to make a lump sum payment
pursuant to Section 2.7), in an amount equal to the cost of premiums for continuation of coverage
under COBRA for such employee and his eligible dependents; provided, however, that payments
otherwise due to such Eligible Employee shall cease to the extent benefits of the same type are
received by or made available to such Eligible Employee by a subsequent employer, and (iii)
outplacement services for up to nine (9) months following the Severance Date.
2.3 Tier III and IV Employees. Each Tier III Employee and Tier IV Employee who incurs
a Severance other than during a Change in Control Protection Period shall be entitled to (i)
continuation of his or her annual base salary, as in effect on the Severance Date, for a number of
months equal to his or her Years of Service, but with a minimum of three (3) months and a maximum
of six (6) months and (ii) a monthly payment for the number of months he or she receives salary
continuation pursuant to this Section 2.3 (or would have received such payments if the Company had
not elected to make a lump sum payment pursuant to Section 2.7), in an amount equal to the cost of
premiums for continuation of coverage under COBRA for such employee and his eligible dependents;
provided, however, that payments otherwise due to such Eligible Employee shall cease to the extent
benefits of the same type are received by or made available to such Eligible Employee by a
subsequent employer. In addition, each Tier III Employee shall be provided with outplacement
services for a number of months equal to the number of months during which he or she is receiving
salary continuation payments (or would have received such payments if the Company had not elected to make a lump sum payment pursuant
to Section 2.7).
6
2.4 Tier V Employees. Each Tier V Employee who incurs a Severance other than during a
Change in Control Protection Period shall be entitled to (i) continuation of his or her annual base
salary, as in effect on the Severance Date, for a number of months equal to his or her Years of
Service, but with a minimum of two (2) months and a maximum of four (4) months and (ii) a monthly
payment for the number of months he or she receives salary continuation pursuant to this Section
2.4 (or would have received such payments if the Company had not elected to make a lump sum payment
pursuant to Section 2.7), in an amount equal to the cost of premiums for continuation of coverage
under COBRA for such employee and his eligible dependents; provided, however, that payments
otherwise due to such Eligible Employee shall cease to the extent benefits of the same type are
received by or made available to such Eligible Employee by a subsequent employer.
2.5 Release. Notwithstanding the foregoing, as a condition to the receipt of any
payment pursuant to the applicable provision of this Section 2, each Eligible Employee shall be
required to execute and not revoke (within the seven (7) day revocation period) a Separation
Agreement provided by the Company which contains a general release of claims in favor of the
Company. Such release and waiver of claims must be signed within twenty-one (21) days (or such
longer period as mandated by applicable employment laws) following the Eligible Employees
Severance Date.
2.6 Time of Payments. Subject to Section 7.11 hereof, all payments required to be
made hereunder to an Eligible Employee shall be made or shall commence on the thirtieth
(30th) day following the Eligible Employees Severance Date, or, if later, on the eighth
(8th) day following the expiration of the release consideration period required by
applicable law; provided, however, that in each case the release contemplated by
Section 2.5 has been executed and has become non-revocable prior to any payment hereunder.
2.7 Lump Sum Payment. The Company may, in its sole discretion, elect to pay severance
benefits hereunder in a lump sum but only to the extent permissible under, and then only in
accordance with the requirements of, Section 409A of the Code.
SECTION 3. CHANGE IN CONTROL SEVERANCE BENEFITS.
3.1 Generally. Subject to Section 3.7 and Section 5 hereof, Eligible Employees shall
be entitled to severance benefits pursuant to the applicable provisions of this Section 3 if they
incur a Severance during the Change in Control Protection Period. For purposes of calculating
severance benefits pursuant to this Section 3, any reduction in an Employees annual base salary or
annual target bonus during the Change in Control Protection Period shall be disregarded.
3.2 Tier I Employees. Subject to Section 3.7 and Section 5 hereof, the Company shall
pay to each Tier I Employee who incurs a Severance during the Change in Control Protection Period a lump sum payment equal to two (2) times the sum of his or her then
annual base salary plus his or her annual target bonus for the year in which the Severance occurs.
3.3 Tier II, III, IV and V Employees. Subject to Section 3.7 and Section 5 hereof,
the Company shall pay to each Tier II Employee, Tier III Employee, Tier IV Employee
7
and Tier V
Employee who incurs a Severance during the Change in Control Protection Period a lump sum payment
equal to two times the sum of all monthly severance payments the employee would have received under
the applicable provisions of Section 2 hereof if his or her employment was terminated by the
Company other than for Cause, death or Disability prior to the Change in Control Protection Period.
For the avoidance of doubt, such payment shall not include an amount in respect of COBRA premiums.
3.4 Health & Dental Benefit Continuation. Subject to Section 3.7 and Section 5
hereof, in the case of each Eligible Employee who incurs a Severance during the Change in Control
Protection Period, commencing on the date immediately following such Eligible Employees Severance
Date and continuing for the period set forth below (the Welfare Benefit Continuation
Period), the Company shall provide to each such Eligible Employee and anyone entitled to claim
under or through such employee all Company-paid benefits under any group health plan and dental
plan of the Company (as in effect immediately prior to such employees Severance Date or, if more
favorable to such employee, immediately prior to the Change in Control) for which employees of the
Company are eligible, to the same extent as if such employee had continued to be an employee of the
Company during the Welfare Benefit Continuation Period. To the extent that such employees
participation in Company benefit plans is not practicable, the Company shall arrange to provide, at
the Companys sole expense, such employee and anyone entitled to claim under or through such
employee with equivalent health and dental benefits under an alternative arrangement during the
Welfare Benefit Continuation Period. The coverage period for purposes of the group health
continuation requirements of Section 4980B of the Code shall commence at the expiration of the
Welfare Benefit Continuation Period. The Welfare Benefit Continuation Period shall be twenty-four
(24) months for each Tier I Employee who incurs a Severance during the Change in Control Protection
Period and, for each other Eligible Employee who incurs a Severance during the Change in Control
Protection Period, shall be a number of months equal to two times the number of months he or she
would have received salary continuation pursuant to the applicable provisions of Section 2 hereof
if his or her employment was terminated by the Company prior to the Change in Control other than
for Cause, death or Disability.
3.5 Outplacement Services. Subject to Section 3.7 and Section 5 hereof, each Tier I
Employee, Tier II Employee, Tier III Employee and Tier IV Employee who incurs a Severance during
the Change in Control Protection Period shall be provided with outplacement services as if such
employee had been terminated prior to the Change in Control Protection Period and had been entitled
to receive outplacement benefits pursuant to the applicable provisions of Section 2 hereof
(determined without regard to any service requirement).
3.6 Legal Fees. The Company shall reimburse each Eligible Employee whose termination
of employment occurs during the Change in Control Protection Period for all reasonable legal fees
and expenses incurred by such Eligible Employee in seeking to obtain or enforce any right or
benefit provided under Section 3 of this Plan (other than any such fees and expenses incurred in pursuing any claim determined by an arbitrator or by a court of competent
jurisdiction to be frivolous or not to have been brought in good faith).
3.7 Release. No Eligible Employee who incurs a Severance during the Change in Control
Protection Period shall be eligible to receive any payments or other benefits
8
under the Plan unless
he or she first executes a written release substantially in the form attached hereto as Schedule A
and does not revoke such release within the time permitted therein for such revocation. Such
release and waiver of claims must be signed within twenty-one (21) days (or such longer period as
mandated by applicable employment laws) following the Eligible Employees Severance Date.
3.8 Payment of Benefits. Subject to Section 7.11 hereof, all payments required to be
made hereunder to an Eligible Employee shall be made in a cash lump sum on the thirtieth
(30th) day following the Eligible Employees Severance Date, or, if later, on the eighth
(8th) day following the expiration of the release consideration period required by
applicable law; provided, however, that in each case the release contemplated by
Section 3.7 has been executed and has become non-revocable prior to any payment hereunder.
Notwithstanding the above, to the extent the Eligible Employee incurs a Severance following a
Change in Control but prior to a change in ownership or control of the Company within the meaning
of Section 409A of the Code, amounts payable to any Eligible Employee hereunder, to the extent not
in excess of the amount that the Eligible Employee would have received under Section 2 of this Plan
or any other pre-Change-in-Control severance plan or arrangement with the Company had such plan or
arrangement been applicable, shall be paid at the time and in the manner provided by such plan or
arrangement and the remainder shall be paid to the Eligible Employee in accordance with the
provisions of this Section 3.8.
SECTION 4. PLAN ADMINISTRATION.
4.1 The Plan Administrator shall administer the Plan and may interpret the Plan, prescribe,
amend and rescind rules and regulations under the Plan and make all other determinations necessary
or advisable for the administration of the Plan, subject to all of the provisions of the Plan.
4.2 The Plan Administrator may delegate any of its duties hereunder to such person or persons
from time to time as it may designate.
4.3 The Plan Administrator is empowered, on behalf of the Plan, to engage accountants, legal
counsel and such other personnel as it deems necessary or advisable to assist it in the performance
of its duties under the Plan. The functions of any such persons engaged by the Plan Administrator
shall be limited to the specified services and duties for which they are engaged, and such persons
shall have no other duties, obligations or responsibilities under the Plan. Such persons shall
exercise no discretionary authority or discretionary control respecting the management of the Plan.
All reasonable expenses thereof shall be borne by the Company.
SECTION 5. EXCISE TAX.
If any payment or benefit received or to be received by an Eligible Employee (including any
payment or benefit received pursuant to the Plan or otherwise) would be (in whole or part) subject
to the excise tax described in Section 4999 of Code, then, to the extent necessary to make such
payments and benefits not subject to such excise tax, payments and benefits provided hereunder
shall be reduced by the Plan Administrator in consultation with the Eligible Employee.
9
SECTION 6. PLAN MODIFICATION OR TERMINATION.
The Plan may be amended or terminated by the Board at any time; provided, however, that (i) no
termination or amendment may reduce the benefits or payments under the Plan to an Eligible Employee
if the Eligible Employees Severance Date has occurred prior to such termination or amendment and
(ii) during the pendency of the Potential Change in Control (and for a period of six months
thereafter), as well as during the Change in Control Protection Period, the Plan may not be
terminated, nor may the Plan be amended if such amendment would in any manner be adverse to the
interests of any Eligible Employee (it being understood, however, that clause (ii) shall not
preclude the Plan from being amended to bring it into compliance with Section 409A of the Code).
During the periods referred to in clause (ii) of the preceding sentence, but not during any other
period, any reduction in an Eligible Employees Pay Grade or any redesignation of any such employee
to a less favorable tier shall be disregarded for purposes of the Plan.
SECTION 7. GENERAL PROVISIONS.
7.1 Except as otherwise provided herein or by law, no right or interest of any Eligible
Employee under the Plan shall be assignable or transferable, in whole or in part, either directly
or by operation of law or otherwise, including without limitation by execution, levy, garnishment,
attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be
effective; and no right or interest of any Eligible Employee under the Plan shall be liable for, or
subject to, any obligation or liability of such Eligible Employee. When a payment is due under
this Plan to a severed employee who is unable to care for his or her affairs, payment may be made
directly to his or her legal guardian or personal representative.
7.2 If the Company or any subsidiary thereof is obligated by law or by contract to pay
severance pay, a termination indemnity, notice pay, or the like, or if the Company or any
subsidiary thereof is obligated by law to provide advance notice of separation (Notice
Period), then any severance pay hereunder shall be reduced by the amount of any such severance
pay, termination indemnity, notice pay or the like, as applicable, and by the amount of any
compensation received during any Notice Period.
7.3 Neither the establishment of the Plan, nor any modification thereof, nor the creation of
any fund, trust or account, nor the payment of any benefits shall be construed as giving any
Eligible Employee, or any person whomsoever, the right to be retained in the service of the Company
or any subsidiary thereof, and all Eligible Employees shall remain subject to discharge to the same
extent as if the Plan had never been adopted.
7.4 If any provision of this Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provisions had not been included.
7.5 This Plan shall inure to the benefit of and be binding upon the heirs, executors,
administrators, successors and assigns of the parties, including each Eligible Employee, present
and future, and any successor to the Company. If a severed employee shall die while any amount
would still be payable to such severed employee hereunder if the severed
10
employee had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Plan to the executor, personal representative or administrators of the severed
employees estate.
7.6 The headings and captions herein are provided for reference and convenience only, shall
not be considered part of the Plan, and shall not be employed in the construction of the Plan.
7.7 The Plan shall not be funded. No Eligible Employee shall have any right to, or interest
in, any assets of any Company which may be applied by the Company to the payment of benefits or
other rights under this Plan.
7.8 Any notice or other communication required or permitted pursuant to the terms hereof shall
have been duly given when delivered or mailed by United States Mail, first class, postage prepaid,
addressed to the intended recipient at his, her or its last known address.
7.9 This Plan shall be construed and enforced according to the laws of the Commonwealth of
Pennsylvania to the extent not preempted by federal law, which shall otherwise control.
7.10 All benefits hereunder shall be reduced by applicable withholding and shall be subject to
applicable tax reporting, as determined by the Plan Administrator.
7.11 Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Plan comply with Section 409A of the Code to
the extent subject thereto, and, accordingly, to the maximum extent permitted, this Plan shall be
interpreted and administered to be in compliance therewith. Notwithstanding anything contained
herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax
penalties under Section 409A of the Code, the Eligible Employee shall not be considered to have
terminated employment with the Company for purposes of this Plan and no payments shall be due to
the Eligible Employee under this Plan until such Eligible Employee would be considered to have
incurred a separation from service from the Company within the meaning of Section 409A of the
Code. For purposes of this Plan, each amount to be paid or benefit to be provided shall be
construed as a separate identified payment for purposes of Section 409A of the Code, and any payments described herein that are due within the short term
deferral period as defined in Section 409A of the Code shall not be treated as deferred
compensation unless applicable law requires otherwise. To the extent required in order to avoid
accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would
otherwise be payable and benefits that would otherwise be provided pursuant to this Plan during the
six-month period immediately following the Eligible Employees termination of employment shall
instead be paid on the first business day after the date that is six months following the Eligible
Employees termination of employment (or death, if earlier). To the extent required to avoid an
accelerated or additional tax under Section 409A of the Code, amounts reimbursable to the Eligible
Employee under this Plan shall be paid to the Eligible Employee on or before the last day of the
year following the year in which the expense was incurred and the amount of expenses eligible for
reimbursement (and in-kind benefits provided to the Eligible Employee) during any one year may not
effect amounts reimbursable or provided in any subsequent year; provided,
11
however,
that with respect to any reimbursements for any taxes which the Eligible Employee would become
entitled to under the terms of the Plan, the payment of such reimbursements shall be made by the
Company no later than the end of the calendar year following the calendar year in which the
Eligible Employee remits the related taxes.
SECTION 8. CLAIMS, INQUIRIES, APPEALS.
8.1 Applications for Benefits and Inquiries. Any application for benefits, inquiries
about the Plan or inquiries about present or future rights under the Plan must be submitted to the
Plan Administrator in writing, as follows:
Plan Administrator
c/o Mylan Inc.
1500 Corporate Drive
Canonsburg, PA 15317
8.2 Denial of Claims. In the event that any application for benefits is denied in
whole or in part, the Plan Administrator must notify the applicant, in writing, of the denial of
the application, and of the applicants right to review the denial. The written notice of denial
will be set forth in a manner designed to be understood by the employee, and will include specific
reasons for the denial, specific references to the Plan provision upon which the denial is based, a
description of any information or material that the Plan Administrator needs to complete the
review, and an explanation of the Plans review procedure.
This written notice will be given to the employee within ninety (90) days after the Plan
Administrator receives the application, unless special circumstances require an extension of time,
in which case, the Plan Administrator has up to an additional ninety (90) days for processing the
application. If an extension of time for processing is required, written notice of the extension
will be furnished to the applicant before the end of the initial ninety (90)-day period.
This notice of extension will describe the special circumstances necessitating the additional
time and the date by which the Plan Administrator is to render his or her decision on the
application. If written notice of denial of the application for benefits is not furnished within
the specified time, the application shall be deemed to be denied. The applicant will then be
permitted to appeal the denial in accordance with the Review Procedure described below.
8.3 Request for a Review. Any person (or that persons authorized representative) for
whom an application for benefits is denied (or deemed denied), in whole or in part, may appeal the
denial by submitting a request for a review to the Plan Administrator within 60 days after the
application is denied (or deemed denied). The Plan Administrator will give the applicant (or his
or her representative) an opportunity to review pertinent documents in preparing a request for a
review and submit written comments, documents, records and other information relating to the claim.
A request for a review shall be in writing and shall be addressed to:
12
Plan Administrator
c/o Mylan Inc.
1500 Corporate Drive
Canonsburg, PA 15317
With a copy to:
Chief Legal Officer
Mylan Inc.
1500 Corporate Drive
Canonsburg, PA 15317
A request for review must set forth all of the grounds on which it is based, all facts in support
of the request and any other matters that the applicant feels are pertinent. The Plan
Administrator may require the applicant to submit additional facts, documents or other material as
he or she may find necessary or appropriate in making his or her review.
8.4 Decision on Review. The Plan Administrator will act on each request for review
within sixty (60) days after receipt of the request, unless special circumstances require an
extension of time (not to exceed an additional sixty (60) days), for processing the request for a
review. If an extension for review is required, written notice of the extension will be furnished
to the applicant within the initial sixty (60)-day period. The Plan Administrator will give
prompt, written notice of his or her decision to the applicant. In the event that the Plan
Administrator confirms the denial of the application for benefits in whole or in part, the notice
will outline, in a manner calculated to be understood by the applicant, the specific Plan
provisions upon which the decision is based. If written notice of the Plan Administrators
decision is not given to the applicant within the time prescribed in this Section 8.4 the
application will be deemed denied on review.
8.5 Rules and Procedures. The Plan Administrator may establish rules and procedures,
consistent with the Plan and with ERISA, as necessary and appropriate in carrying out his or her
responsibilities in reviewing benefit claims. The Plan Administrator may require an applicant who
wishes to submit additional information in connection with an appeal from the denial (or deemed
denial) of benefits to do so at the applicants own expense.
8.6 Exhaustion of Remedies. No legal action for benefits under the Plan may be
brought until the claimant (i) has submitted a written application for benefits in accordance with
the procedures described by Section 8.1 above, (ii) has been notified by the Plan Administrator
that the application is denied (or the application is deemed denied due to the Plan Administrators
failure to act on it within the established time period), (iii) has filed a written request for a
review of the application in accordance with the appeal procedure described in Section 8.3 above
and (iv) has been notified in writing that the Plan Administrator has denied the appeal (or the
appeal is deemed to be denied due to the Plan Administrators failure to take any action on the
claim within the time prescribed by Section 8.4 above).
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SCHEDULE A
WAIVER AND RELEASE OF CLAIMS AGREEMENT
YOU HAVE BEEN ADVISED TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT.
YOU HAVE [FORTY-FIVE] [TWENTY-ONE] DAYS AFTER RECEIVING THIS AGREEMENT TO CONSIDER WHETHER TO
SIGN IT.
AFTER SIGNING THIS AGREEMENT, YOU HAVE ANOTHER SEVEN DAYS IN WHICH TO REVOKE IT, AND IT DOES
NOT TAKE EFFECT UNTIL THOSE SEVEN DAYS HAVE ENDED.
In consideration of, and subject to, the payments to be made to me by Mylan Inc.
(Mylan) or any of its subsidiaries, pursuant to the Mylan Laboratories Severance Plan
(the Plan), which I acknowledge that I would not otherwise be entitled to receive, I
hereby waive any claims I may have for employment or re-employment by Mylan or any subsidiary
thereof after the date hereof, and I further agree to and do release and forever discharge Mylan or
any subsidiary of Mylan and their respective past and present officers, directors, shareholders,
employees and agents from any and all claims and causes of action, known or unknown, arising out of
or relating to my employment with Mylan or any subsidiary of Mylan or the termination thereof,
including, but not limited to, wrongful discharge, breach of contract, tort, fraud, any States
Human Relations Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, Sections 1981-1988 of Title 42 of the U. S. Code, Older
Workers Benefit Protection Act, Family and Medical Leave Act, the Fair Labor Standards Act, any
States Wage Payment and Collection laws, the Age Discrimination in Employment Act of 1967, the
Pregnancy Discrimination Act, the Employee Retirement Income Security Act of 1974, all as amended.
Should you decide to file any charge or legal claim against the Company, you agree to waive your
right to recover any damages or other relief awarded to you which arises out of any such charge or
legal claim made by you against the Company.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and
Release of Claims Agreement shall adversely affect (i) my rights under the Plan; (ii) my rights to
benefits other than severance benefits under plans, programs and arrangements of Mylan or any
subsidiary or parent of Mylan; or (iii) my rights to indemnification under any indemnification
agreement, applicable law and the certificates of incorporation and bylaws of Mylan and any
subsidiary of Mylan, and my rights under any directors and officers liability insurance policy
covering me.
I acknowledge that I have signed this Waiver and Release of Claims Agreement voluntarily,
knowingly, of my own free will and without reservation or duress, and that no promises or
representations, written or oral, have been made to me by any person to induce me to do so other
than the promise of payment set forth in the first paragraph above and Mylans acknowledgment of my
rights reserved under the preceding paragraph above.
14
I understand that this release will be deemed to be an application for benefits under the
Plan, and that my entitlement thereto shall be governed by the terms and conditions of the Plan,
and I expressly hereby consent to such terms and conditions.
I acknowledge that I have been given not less than [forty-five (45)] [twenty-one (21)] days to
review and consider this Waiver and Release of Claims Agreement, and that I have had the
opportunity to consult with an attorney or other advisor of my choice and have been advised by
Mylan to do so if I choose. I may revoke this Waiver and Release of Claims Agreement seven days or
less after its execution by providing written notice to the Vice-President of Human Resources at
Mylans corporate headquarters (or some other designee).
Finally, I acknowledge that I have carefully read this Waiver and Release of Claims Agreement
and understand all of its terms. This is the entire Agreement between the parties and is legally
binding and enforceable.
This Waiver and Release of Claims Agreement shall be governed and interpreted under federal
law and the laws of Pennsylvania.
I knowingly and voluntarily sign this Waiver and Release of Claims Agreement and agree to be
bound by its terms.
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Title: |
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Seven-Day Revocation Period Ends: |
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Signed:
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Date: |
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(Print Employees Name)
15
EX-10.7(B)
Exhibit
10.7 (b)
EXECUTION COPY
THIS CONFIRMATION AMENDS, REPLACES, SUPERSEDES AND RESTATES IN ITS ENTIRETY ALL PREVIOUS
CONFIRMATIONS PERTAINING TO THIS TRANSACTION.
Confirmation of OTC Convertible Note Hedge
Amendment Date: November 25, 2008
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To: |
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Mylan Inc. (Counterparty) |
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From: |
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Merrill Lynch International (Dealer) |
Dealer Reference: 088593440
Dear Sir / Madam:
The purpose of this letter agreement (this Confirmation) is to confirm the terms and
conditions of the above-referenced transaction entered into among Counterparty, Dealer and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the Agent), on the Trade Date specified below
(the Transaction). This Confirmation constitutes a Confirmation as referred to in the
Agreement specified below.
The definitions and provisions contained in the 2000 ISDA Definitions (the Swap
Definitions) and the 2002 ISDA Equity Derivatives Definitions (the Equity
Definitions and, together with the Swap Definitions, the Definitions), in each case
as published by the International Swaps and Derivatives Association, Inc. are incorporated into
this Confirmation. In the event of any inconsistency between the Swap Definitions and the Equity
Definitions, the Equity Definitions will govern, and in the event of any inconsistency between the
Definitions and this Confirmation, this Confirmation will govern. References herein to a
Transaction shall be deemed to be references to a Share Option Transaction for purposes of the
Equity Definitions and a Swap Transaction for the purposes of the Swap Definitions.
This Confirmation evidences a complete binding agreement between you and us as to the terms of
the Transaction to which this Confirmation relates. This Confirmation (notwithstanding anything to
the contrary herein), shall be subject to, and form part of, an agreement in the 1992 form of the
ISDA Master Agreement (the Master Agreement or Agreement), as if we had
executed an agreement in such form, including a Credit Support Annex (Bilateral Form New York
law version), (but without any Schedule and with the elections specified in the ISDA Master
Agreement Section of this Confirmation) on the Trade Date. In the event of any inconsistency
between the provisions of that Agreement and this Confirmation, this Confirmation will prevail for
the purpose of this Transaction. The parties hereby agree that the Transaction evidenced by this
Confirmation shall be the only Transaction subject to and governed by the Agreement.
The parties acknowledge that this Confirmation is entered into on the date hereof with the
understanding that the provisions of the Note Indenture (as defined below) that are referred to
herein will conform to the descriptions thereof in the Offering Memorandum dated September 9, 2008
(the Offering Memorandum) relating to the Reference Notes (as defined below). The
parties agree that in the event of any inconsistency between the Note Indenture and the Offering
Memorandum, the parties will amend this Confirmation in good faith to preserve the intent of the
parties.
The terms of the particular Transaction to which this Confirmation relates
are as follows:
OTC Convertible Note Hedge (2015)
General Terms:
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Trade Date:
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September 9, 2008 |
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Effective Date:
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The date of issuance of the Reference Notes. |
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Option Style:
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Modified American, as described under Settlement Terms
below. |
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Option Type:
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Call |
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Seller:
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Dealer |
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Buyer:
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Counterparty |
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Shares:
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The shares of Common Stock, $0.50 par value, of Counterparty
(Security Symbol: MYL). |
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Number of Options:
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The number of Reference Notes in denominations of USD1,000
principal amount issued by Counterparty on the closing date
for the initial issuance of the Reference Notes; provided
that the Number of Options shall be automatically increased
as of the date of exercise by Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Goldman, Sachs & Co. of the Initial
Purchasers (as such term is defined in the Purchase
Agreement) option to purchase additional Reference Notes
pursuant to Section 2(b) of the Purchase Agreement related
to the purchase and sale of the Reference Notes dated as of
September 9, 2008 among Counterparty and the Initial
Purchasers (the Purchase Agreement) by the number of
Reference Notes in denominations of USD1,000 principal
amount issued pursuant to such exercise (such Reference
Notes, the Additional Reference Notes). |
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Number of Shares:
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The product of the Number of Options and the Conversion
Reference Rate (as defined in the Note Indenture), but
without regard to any adjustment to the Conversion Reference
Rate as a result of the Excluded Provisions of the Note
Indenture. |
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Applicable Percentage:
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70% |
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Premium:
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$98,105,000; provided that if the Number of Options is
increased pursuant to the proviso to the definition of
Number of Options above, an additional Premium equal to
the product of the number of Options by which the Number of
Options is so increased and $3.73359 shall be paid on the
Additional Premium Payment Date. |
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Premium Payment Date:
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The date of issuance of the Reference Notes. |
OTC Convertible Note Hedge (2015)
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Additional Premium Payment Date:
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The closing date for the purchase and sale of the Additional
Reference Notes. |
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Exchange:
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New York Stock Exchange |
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Related Exchange(s):
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All Exchanges |
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Reference Notes:
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3.75% Cash Convertible Senior Notes due 2015 of Counterparty |
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Note Indenture:
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The indenture, dated as of closing of the issuance of the
Reference Notes, between Counterparty, and the guarantors
named therein and The Bank of New York, as trustee relating
to the Reference Notes, as in effect on the date of its
execution. For the avoidance of doubt, references in this
Confirmation to the Note Indenture and to terms defined
therein shall be deemed to exclude any amendments to the
Note Indenture that would have the effect of altering the
obligations of the parties hereunder unless the parties
agree otherwise in writing. Certain capitalized terms used
but not defined herein have the meanings assigned to them in
the Note Indenture. As used herein, the term Description
of Notes refers to the section of the Offering Memorandum
bearing that designation. |
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Procedures for Exercise: |
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Potential Exercise Dates:
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Each Cash Conversion Trigger Date. |
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Conversion Date:
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Each cash conversion trigger date for any Reference Note
pursuant to the terms of the Note Indenture occurring before
the Expiration Date. |
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Exercise on Conversion Dates:
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On each Conversion Date, a number of Options equal to the
number of Reference Notes in denominations of USD1,000
principal amount validly submitted for conversion on such
Conversion Date in accordance with the terms of the Note
Indenture shall be automatically exercised. |
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Exercise Period:
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The period from and excluding the Effective Date to and
including the Expiration Date. |
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Expiration Date:
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The earliest of (i) the stated maturity of the Reference
Notes and (ii) the first day on which none of such Reference
Notes remain outstanding, whether by virtue of conversion,
issuer repurchase or otherwise. |
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Multiple Exercise:
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Applicable, as provided above under Exercise on Conversion
Dates. |
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Minimum Number of Options:
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Zero |
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Maximum Number of Options:
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Number of Options |
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Automatic Exercise:
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As provided above under Exercise on Conversion Dates. |
OTC Convertible Note Hedge (2015)
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Exercise Notice:
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Notwithstanding the exercise of any Options hereunder, Buyer
shall be entitled to receive the deliveries provided under
Settlement Terms below only if Buyer shall have delivered
to Seller a written notice (Exercise Notice) prior to 5:00
PM, New York City time, on the Business Day, as defined in
the Note Indenture, prior to the first Scheduled Trading Day
of the Conversion Reference Period relating to the Reference
Notes converted on the Conversion Date occurring on the
relevant Exercise Date (such time, the Notice Deadline) of
(i) the number of Options being exercised, (ii) the first
Scheduled Trading Day of the Conversion Reference Period and
(iii) the scheduled settlement date under the Note Indenture
for the Reference Notes converted on the Conversion Date
occurring on the Exercise Date for such exercise; provided
that with respect to Reference Notes converted during the
period beginning on the 45th Scheduled Trading Day: (as
defined in the Note Indenture) prior to the Stated
Maturity (as defined in the Note Indenture) of the
Reference Notes and ending on the final date on which
Reference Notes may be surrendered for cash conversion, the
related Exercise Notice need not contain the information
specified in clause (i) of this sentence and, in order to
exercise any Options hereunder, Buyer shall deliver to
Seller prior to 5:00 p.m. New York City time on the Business
Day prior to such Stated Maturity a written notice
(Supplemental Exercise Notice) setting forth the number of
Reference Notes converted during such period; provided
further that, notwithstanding the foregoing, any Exercise
Notice (and the related automatic exercise of Options) shall
be effective if given after the relevant Notice Deadline but
prior to 5:00 PM New York City time, on the fifth Scheduled
Trading Day following the Notice Deadline, in which event
the Calculation Agent shall adjust the Delivery Obligation
(as defined below) as appropriate to reflect the additional
costs (including, but not limited to, hedging mismatches and
market losses) and reasonable expenses incurred by Seller in
connection with its hedging activities (including the
unwinding of any hedge position) as a result of its not
having received such notice prior to the applicable Notice
Deadline. |
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Sellers Telephone Number and
Telex and/or Facsimile Number
and Contact Details for purpose
of Giving Notice:
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Address:
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Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
Merrill Lynch Financial Centre
London EC1A 1HQ |
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Attention:
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Manager of Equity Documentation |
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Facsimile No.:
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+44 207 995 2004 |
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Telephone No.:
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+44 207 995 3769 |
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Settlement Terms: |
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Settlement Date:
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The settlement date specified in the Note Indenture for the
payment of the Conversion Reference Value upon the
conversion of Reference Notes. |
OTC Convertible Note Hedge (2015)
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Delivery Obligation:
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In lieu of the obligations set forth in Sections 8.1 and 9.1
of the Equity Definitions, and subject to Exercise Notice
above and Condition to Delivery Obligation below, in
respect of an Exercise Date occurring on a Conversion Date,
Seller will pay to Buyer on the related Settlement Date an
amount in cash equal to the product of (w) the Applicable
Percentage, (x) the number of Options exercised on such
Exercise Date and (y) the sum, for each Trading Day during
the Conversion Reference Period for such Exercise Date, of
the excess, if any, of (i) the Daily Conversion Reference
Value on such Trading Day over (ii) the quotient of $1,000
divided by the number of Trading Days in such Conversion
Reference Period (such amount, the Convertible
Obligation); provided that the Delivery Obligation shall be
determined by excluding any amount that Buyer is obligated
to pay to holders of the Reference Notes as a direct or
indirect result of any adjustments to the Conversion
Reference Rate pursuant to the Excluded Provisions of the
Note Indenture and, for the avoidance of doubt, any interest
payment or distribution that Buyer is obligated to deliver
in respect of References Notes converted on such Conversion
Date. |
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Condition to Delivery
Obligation:
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Notwithstanding anything to the contrary in this
Confirmation or the Agreement, Dealers obligation to pay
Counterparty the Delivery Obligation in respect of any
Exercise Date shall be conditioned upon Counterpartys
payment of the Conversion Reference Value (as defined in the
Note Indenture) in respect of all the Reference Notes
converted on the Conversion Date occurring on such Exercise
Date. |
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Excluded Provisions:
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Those provisions of the Note Indenture that provide for
discretionary or voluntary adjustments of the conversion
reference rate by the Issuer. Notwithstanding anything to
the contrary herein or in the Equity Definitions, in no
event shall any adjustments in respect of any Potential
Adjustment Event or Extraordinary Event be made hereunder as
a result of any adjustments to the Conversion Reference Rate
pursuant to the Excluded Provisions of the Note Indenture. |
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Conversion Reference Period:
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For any Exercise Date, the conversion reference period as
defined in the Note Indenture with respect to the Conversion
Date occurring on such Exercise Date. |
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Other Applicable Provisions:
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To the extent Seller is obligated to deliver Shares
hereunder, the provisions of Sections 9.1(c), 9.8, 9.9,
9.10, 9.11 (except that the Representation and Agreement
contained in Section 9.11 of the Equity Definitions shall be
modified by excluding any representations therein relating
to restrictions, obligations, limitations or requirements
under applicable securities laws as a result of the fact
that Buyer is the issuer of the Shares) and 9.12 of the
Equity Definitions will be applicable as if Physical
Settlement applied to the Transaction. |
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Adjustments: |
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Method of Adjustment:
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Calculation Agent Adjustment; provided that the terms of
this Transaction shall be adjusted in a manner consistent
with adjustments of the Conversion Reference Rate of the
Reference Notes as provided in the Note Indenture; provided
that no adjustment in respect of any Potential Adjustment
Event or Extraordinary Event shall be made hereunder as a
result of any adjustments to the Conversion Reference Rate
pursuant to the Excluded Provisions of the Note Indenture. |
OTC Convertible Note Hedge (2015)
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Potential Adjustment Event:
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Notwithstanding Section 11.2(e) of the Equity Definitions, a
Potential Adjustment Event means, subject to the preceding
paragraph, the occurrence of an event or condition that
would result in an adjustment of the Conversion Reference
Rate of the Reference Notes pursuant to the Note Indenture. |
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Extraordinary Events: |
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Merger Events:
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Notwithstanding Section 12.1(b) of the Equity Definitions, a
Merger Event means the occurrence of any event or
condition to which the sections of the Note Indenture
corresponding to Rights of Holders to Require Cash
Conversion of Notes Business Combinations in the
Description of Notes apply. |
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Consequences for Merger Events: |
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Share-for-Share:
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The Transaction will be adjusted in a manner corresponding
to the adjustments to the Reference Notes as provided in the
Note Indenture. |
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Share-for-Other:
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The Transaction will be adjusted in a manner corresponding
to the adjustments to the Reference Notes as provided in the
Note Indenture. |
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Share-for-Combined:
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The Transaction will be adjusted in a manner corresponding
to the adjustments to the Reference Notes as provided in the
Note Indenture. |
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Notice of Merger Consideration:
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Upon the occurrence of a Merger Event that causes the Shares
to be converted into the right to receive more than a single
type of consideration (determined based in part upon any
form of stockholder election), Buyer shall reasonably
promptly (but in any event on or prior to the effective date
of such Merger Event) notify the Calculation Agent of the
weighted average of the types and amounts of consideration
received by the holders of Shares entitled to receive cash,
securities or other property or assets with respect to or in
exchange for such Shares in any Merger Event who
affirmatively make such an election. |
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Tender Offer:
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Applicable, subject to Consequences of Tender Offers below.
Notwithstanding Section 12.1(d) of the Equity Definitions,
Tender Offer means the occurrence of any event or
condition to which the provisions of the Note Indenture
governing adjustments to the Conversion Reference Rate in
connection with a tender offer or exchange offer apply. |
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Consequences of Tender Offers:
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The Transaction will be adjusted in a manner corresponding
to the adjustments to the Reference Notes as provided in the
Note Indenture. |
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Nationalization, Insolvency and
Delisting:
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Cancellation and Payment (Calculation Agent Determination).
In addition to the provisions of Section 12.6(a)(iii) of the
Equity Definitions, it will also constitute a Delisting if
the Exchange is located in the United States and the Shares
are not immediately re-listed, re-traded or re-quoted on any
of the New York Stock Exchange, the American Stock Exchange,
the NASDAQ Global Market or the NASDAQ Global Select Market
(or their respective successors); if the Shares are
immediately re-listed, re-traded or re-quoted on any such
exchange or quotation system, such exchange or quotation
system shall thereafter be deemed to be the Exchange. |
OTC Convertible Note Hedge (2015)
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Additional Disruption Events: |
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Change in Law:
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Applicable , provided that clause (Y) of Section 12.9(a)(ii)
of the Equity Definitions shall not be applicable insofar as
any event described therein results in an increased cost to
Dealer of hedging the Transaction which increased cost would
have been included under Increased Cost of Hedging if such
provision were applicable. |
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Insolvency Filing:
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Applicable |
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Hedging Disruption Event:
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Not Applicable |
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Increased Cost of
Hedging:
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Not Applicable |
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Loss of Stock
Borrow:
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Not Applicable |
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Increased Cost of
Stock Borrow:
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Not Applicable |
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Hedging Party:
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Seller |
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Determining Party:
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Seller |
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Non-Reliance:
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Applicable |
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Agreements and Acknowledgments
Regarding Hedging Activities:
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Applicable |
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Additional Acknowledgments:
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Applicable |
Additional Agreements, Representations and Covenants of Buyer, Etc.:
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Buyer hereby represents and warrants to Seller, on each day from the Trade Date to and
including the earlier of (i) October 7, 2008 and (ii) the date by which Seller is able to
initially complete a hedge of its position relating to this Transaction (including of any
increase in the Number of Options resulting from exercise of the over-allotment option
pursuant to Section 2(b) of the Purchase Agreement), that: |
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it will effect (and cause any affiliated purchaser (as defined in Rule 10b-18
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act)) to effect) any purchases, direct or indirect (including by means of any
cash-settled or other derivative instrument), of Shares or any security convertible
into or exchangeable or exercisable for Shares on any single day solely through either
Merrill Lynch, Pierce, Fenner & Smith Incorporated or Goldman, Sachs & Co. in a manner
that would not cause any purchases by Seller of its hedge in connection with this
Transaction not to comply with applicable securities laws; provided that this clause
(a) shall not apply to any transactions in Shares effected directly between Buyer and
its employees pursuant to |
OTC Convertible Note Hedge (2015)
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an employee share incentive or benefit plan; |
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b. |
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it will not engage in, or be engaged in, any distribution, as such term is
defined in Regulation M promulgated under the Exchange Act, other than a distribution
meeting the requirements of the exceptions set forth in sections 101(b)(10) and
102(b)(7) of Regulation M (it being understood that Buyer makes no representation
pursuant to this clause in respect of any action or inaction taken by Seller or any
initial purchaser of the Reference Notes); and |
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c. |
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Buyer has publicly disclosed all material information necessary for Buyer to be
able to purchase or sell Shares in compliance with applicable federal securities laws. |
2. |
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Counterparty is not, and after giving effect to the Transaction contemplated hereby, will not
be, an investment company as such term is defined in the Investment Company Act of 1940, as
amended. |
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As of the Trade Date and each date on which a payment or delivery is made by Counterparty
hereunder, (i) the assets of Counterparty at their fair valuation exceed the liabilities of
Counterparty, including contingent liabilities; (ii) the capital of Counterparty is adequate
to conduct its business; and (iii) Counterparty has the ability to pay its debts and other
obligations as such obligations mature and does not intend to, or believe that it will, incur
debt or other obligations beyond its ability to pay as such obligations mature. |
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The representations and warranties set forth in Section 1 of the Purchase Agreement (as
defined herein) are hereby deemed to be repeated to Dealer as if set forth herein. |
Additional Termination Events:
The occurrence of an Amendment Event or a Repayment Event shall be an Additional Termination Event
with respect to which the Transaction is the sole Affected Transaction, Counterparty is the sole
Affected Party and Dealer is the sole party entitled to designate an Early Termination Date;
provided that in the case of a Repayment Event, the Transaction shall be subject to termination
only in respect of the number of Reference Notes that cease to be outstanding in connection with or
as a result of such Repayment Event and, notwithstanding anything to the contrary in this Agreement, no payments shall be required under this Agreement with
respect to such number of Reference Notes:
1. |
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Amendment Event means that the Counterparty, without Dealers consent, amends,
modifies, supplements or obtains a waiver of (a) any term of the Note Indenture (as in effect
prior to such amendment, modification, supplement or waiver) or the Reference Notes relating
to the principal amount, coupon, maturity, repurchase obligation of the Counterparty or
redemption right of the Counterparty, (b) any material term relating to conversion of the
Reference Notes, including, without limitation, any changes to the conversion price,
conversion settlement dates or conversion conditions or (c) any term that would require
consent of the holders of 100% of the principal amount of the Reference Notes to amend. |
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Repayment Event means that (a) any Reference Notes are repurchased (whether in
connection with or as a result of a fundamental change or change of control, howsoever
defined, or for any other reason) by the Counterparty, (b) any Reference Notes are delivered
to the Counterparty in exchange for delivery of any property or assets of the Counterparty or
any of its subsidiaries (howsoever described), other than as a result of and in connection
with a Conversion Date, (c) any principal of any of the Reference Notes is repaid prior to the
Stated Maturity (as defined in the Note Indenture) (whether following acceleration of the
Reference Notes or otherwise), provided that no payments of cash made in respect of the
conversion of a Reference Note shall be deemed a payment of principal under this clause (c),
(d) any Reference |
OTC Convertible Note Hedge (2015)
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Notes are exchanged by or for the benefit of the holders thereof for any
other securities of the Counterparty or any of its Affiliates (or any other property, or any
combination thereof) pursuant to any exchange offer or similar transaction (other than an
exchange of the Reference Notes for a new series of notes of the Counterparty that are
substantially identical to the Reference Notes other than in respect of restrictions on
transfer) or (e) any of the Reference Notes is surrendered by Counterparty to the trustee for
cancellation, other than registration of a transfer of such Reference Notes or as a result of
and in connection with a Conversion Date. |
Initial Purchase Event:
If an Initial Purchase Event (as defined below) occurs, all of the respective rights and
obligations of Dealer and Counterparty hereunder shall be cancelled and terminated, except that
Counterparty shall pay to Dealer an amount in cash equal to the aggregate amount of costs and
expenses relating to the unwinding of Dealers hedging activities in respect of the Transaction
(including market losses incurred in reselling any Shares purchased by Dealer or its affiliates in
connection with such hedging activities). Following such payment, each party agrees that all
obligations with respect to the Transaction shall be deemed fully and finally discharged.
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Initial Purchase Event means that the transactions contemplated by the Purchase
Agreement shall fail to close for any reason other than in cases involving a breach of the
Purchase Agreement by the Initial Purchasers by the closing date for the offering of the
Reference Notes as specified in the Purchase Agreement. |
Disposition of Hedge Shares:
Counterparty hereby agrees that if, in the reasonable judgment of Seller based on advice of
counsel, the Shares acquired by Seller for the purpose of hedging its obligations pursuant to the
Transaction (the Hedge Shares) cannot be sold in the U.S. public market by Seller without
registration under the Securities Act, Counterparty shall, at its election: (i) in order to allow
Seller to sell the Hedge Shares in a registered offering, use commercially reasonable efforts to
make available to Seller an effective registration statement under the Securities Act to cover the
resale of such Hedge Shares and (a) enter into an agreement, in form and substance satisfactory to
Seller, substantially in the form of an underwriting agreement for a registered offering, (b)
provide accountants comfort letters in customary form for registered offerings of equity
securities, (c) provide disclosure opinions of nationally recognized outside counsel to
Counterparty reasonably acceptable to Seller, (d) provide other customary opinions, certificates
and closing documents customary in form for registered offerings of equity securities and (e)
afford Seller a reasonable opportunity to conduct a due diligence investigation with respect to
Counterparty customary in scope for underwritten offerings of equity securities; provided, however,
that if Seller, in its sole reasonable discretion, is not satisfied with access to due diligence
materials, the results of its due diligence investigation, or the procedures and documentation for
the registered offering referred to above, then clause (ii) or clause (iii) of this Section shall
apply at the election of Counterparty; (ii) in order to allow Seller to sell the Hedge Shares in a
private placement, enter into a private placement agreement substantially similar to private
placement purchase agreements customary for private placements of equity securities by a publicly
reporting company (if Counterparty is a publicly reporting company at such time) to institutional
purchasers, in form and substance satisfactory to Seller, including reasonable and customary
representations, covenants, blue sky and other governmental filings and/or registrations,
indemnities to Seller, due diligence rights (for Seller or any designated buyer of the Hedge Shares
from Seller), opinions and certificates and such other documentation as is customary for private
placements agreements, all reasonably acceptable to Seller (in which case, the Calculation Agent
shall make any adjustments to the terms of the Transaction that are necessary to compensate Seller
for any discount from the public market price of the Shares (other than any discount in respect of
commissions or fees payable to any third party) incurred on the sale of Hedge Shares in a private
placement); or (iii) purchase the Hedge Shares from Seller at the VWAP Price on such Exchange
Business Days, and in such amounts, as requested by Seller. VWAP Price means, on any
Exchange Business Day, the per Share volume-weighted average price as displayed under the heading
Bloomberg VWAP on Bloomberg page MYL.N <equity> VAP (or any successor thereto) in respect
of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on such Exchange Business Day (or if
such volume-weighted average
OTC Convertible Note Hedge (2015)
9
price is unavailable, the market value of one Share on such Exchange
Business Day, as determined by the Calculation Agent using a volume-weighted method).
Repurchase Notices:
Counterparty shall, on any day on which Counterparty effects any repurchase of Shares, promptly
give Seller a written notice of such repurchase (a Repurchase Notice) on such day if
following such repurchase, the Notice Percentage as determined on such day is (i) greater than 6%
and (ii) greater by 0.5% than the Notice Percentage included in the immediately preceding
Repurchase Notice (or, in the case of the first such Repurchase Notice, greater than the Notice
Percentage as of the date hereof). In the event that Counterparty fails to provide Seller with a
Repurchase Notice on the day and in the manner specified in this section, then Counterparty agrees
to indemnify and hold harmless Seller, its affiliates and their respective directors, officers,
employees, agents and controlling persons (Seller and each such person being an Indemnified
Party) from and against any and all losses, claims, damages and liabilities (or actions in
respect thereof), joint or several, to which such Indemnified Party may become subject under
applicable securities laws, including without limitation, Section 16 of the Exchange Act, relating
to or arising out of such failure. If for any reason the foregoing indemnification is unavailable
to any Indemnified Party or insufficient to hold harmless any Indemnified Party, then Counterparty
shall contribute, to the maximum extent permitted by law, to the amount paid or payable by the
Indemnified Party as a result of such loss, claim, damage or liability. In addition, Counterparty
will reimburse any Indemnified Party for all reasonable and documented expenses (including
reasonable counsel fees and expenses) as they are incurred (after notice to Counterparty) in
connection with the investigation of, preparation for or defense or settlement of any pending or
threatened claim or any action, suit or proceeding arising therefrom, whether or not such
Indemnified Party is a party thereto and whether or not such claim, action, suit or proceeding is
initiated or brought by or on behalf of Counterparty. This indemnity shall survive the completion
of the Transaction contemplated by this Confirmation and any assignment and delegation of the
Transaction made pursuant to this Confirmation or the Agreement shall inure to the benefit of any
permitted assignee of Seller. Counterparty will not be liable under this Indemnity provision to
the extent that any loss, claim, damage, liability or expense is found in a final judgment by a
court to have resulted from Dealers gross negligence or willful misconduct. The Notice
Percentage as of any day is the fraction, expressed as a percentage, (i) the numerator of which is
the product of (a) the Applicable Percentage, (b) the number of outstanding Reference Notes and (c)
a number of Shares per Reference Note equal to the Conversion Reference Rate (as defined in the
Note Indenture) and (ii) the denominator of which is the number of Shares outstanding on such day).
Conversion Reference Rate Adjustment Notices
Counterparty shall provide to Dealer written notice (such notice, a Conversion Reference Rate
Adjustment Notice) prior to the proposed effective date of any transaction or event (a
Conversion Reference Rate Adjustment Event) that would lead to an increase in the
Conversion Reference Rate (as such term is defined in the Note Indenture). Each Conversion
Reference Rate Adjustment Notice shall be delivered to Dealer at or prior to the deadline for
delivery of the related notices to the trustee under the Note Indenture. In connection with the
delivery of any Conversion Reference Rate Adjustment Notice to Dealer, (x) Counterparty shall,
concurrently with or prior to such delivery, publicly announce and disclose the Conversion
Reference Rate Adjustment Event or (y) Counterparty shall, concurrently with such delivery,
represent and warrant that the information set forth in such Conversion Reference Rate Adjustment
Notice does not constitute material non-public information with respect to Counterparty or the
Shares. The Conversion Reference Rate Adjustment Notice shall set forth the new, adjusted
Conversion Reference Rate after giving effect to such Conversion Reference Rate Adjustment Event
(the New Conversion Reference Rate); provided that if the New Conversion Reference Rate
cannot be determined at the time of delivery of the Conversion Reference Rate Adjustment Notice,
Counterparty shall provide to Dealer written notice of the New Conversion Reference Rate as
promptly as practicable following the availability of information required for its determination.
OTC Convertible Note Hedge (2015)
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Compliance with
Securities Laws:
|
|
Counterparty represents and warrants that it has received, read and
understands the OTC Options Risk Disclosure Statement and a copy of
the most recent disclosure pamphlet prepared by The Options
Clearing Corporation entitled Characteristics and Risks of
Standardized Options. |
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Each party acknowledges and agrees to be bound by the Conduct Rules
of the National Association of Securities Dealers, Inc. applicable
to transactions in options, and further agrees not to violate the
position and exercise limits set forth therein |
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Each party acknowledges that the offer and sale of the Transaction
to it is intended to be exempt from registration under the
Securities Act by virtue of Section 4(2) thereof. Accordingly,
Buyer represents and warrants to Seller that (i) it has the
financial ability to bear the economic risk of its investment in
the Transaction and is able to bear a total loss of its investment,
(ii) it is an accredited investor as that term is defined in
Regulation D as promulgated under the Securities Act and (iii) the
disposition of the Transaction is restricted under this
Confirmation, the Securities Act and state securities laws. |
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Buyer further represents: |
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(a) Buyer is not entering into this Transaction to create actual or
apparent trading activity in the Shares (or any security
convertible into or exchangeable for Shares) or to raise or depress
or otherwise manipulate the price of the Shares (or any security
convertible into or exchangeable for Shares); |
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(b) Buyer acknowledges that as of the date hereof and without
limiting the generality of Section 13.1 of the Equity Definitions,
Seller is not making any representations or warranties with respect
to the treatment of the Transaction under FASB Statements 149, 150
or 157, EITF Issue No. 00-19 (or any successor issue statements),
under FASBs Liabilities & Equity Project, or any other accounting
standard or guidance. |
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Account Details:
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Account for payments to Buyer: To be advised |
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Account for payment to Seller: To be advised |
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Bankruptcy Rights:
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In the event of Buyers bankruptcy, Sellers rights in connection
with this Transaction shall not exceed those rights held by common
shareholders. For the avoidance of doubt, the parties acknowledge
and agree that Sellers rights with respect to any other claim
arising from this Transaction prior to Buyers bankruptcy shall
remain in full force and effect and shall not be otherwise abridged
or modified in connection herewith. |
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Set-Off:
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Each party waives any and all rights it may have to set-off,
whether arising under any agreement, applicable law or otherwise. |
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Collateral:
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Counterparty shall not be required to post collateral to Dealer. |
OTC Convertible Note Hedge (2015)
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Transfer:
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Buyer shall have the right to assign its rights and delegate its
obligations hereunder with respect to any portion of this
Transaction, subject to Sellers consent, such consent not to be
unreasonably withheld or delayed; provided that such assignment or
transfer shall be subject to receipt by Seller of opinions and
documents reasonably satisfactory to Seller and effected on terms
reasonably satisfactory to the Seller with respect to any legal and
regulatory requirements relevant to the Seller; provided further
that Buyer shall not be released from its obligation to deliver any
Exercise Notice or its obligations pursuant to Disposition of
Hedge Shares, Repurchase Notices or Conversion Reference Rate
Adjustment Notices above, and Buyer shall be responsible for all
reasonable costs and expenses, including reasonable counsel fees,
incurred by Seller in connection with any such transfer or
assignment. Seller may transfer any of its rights or delegate its
obligations under this Transaction with the prior written consent
of Buyer, which consent shall not be unreasonably withheld or
delayed. Buyer and Seller agree that it shall not be unreasonable
for Buyer to withhold consent to any delegation of Sellers
obligations under this Transaction to an entity the long-term U.S.
dollar-denominated debt obligations of which are rated below A by
Standard & Poors and below A2 by Moodys. |
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If as determined in Dealers sole discretion, at any time Dealers
Ownership Percentage (as defined below) exceeds 8.5% (an Excess
Ownership Position) and Dealer, in its discretion, is unable to
effect a transfer or assignment to a third party after its
commercially reasonable efforts on pricing terms reasonably
acceptable to Dealer and within a time period reasonably acceptable
to Dealer (including without limitation where such inability of
Seller is due to Buyers withholding or delaying of consent to such
transfer or assignment) such that an Excess Ownership Position no
longer exists, Dealer may designate any Scheduled Trading Day as an
Early Termination Date with respect to a portion (the Terminated
Portion) of the Transaction, such that an Excess Ownership
Position no longer exists following such partial termination. In
the event that Dealer so designates an Early Termination Date with
respect to a portion of the Transaction, a payment or delivery
shall be made pursuant to Section 6 of the Agreement as if (i) an
Early Termination Date had been designated in respect of a
Transaction having terms identical to the Terminated Portion of the
Transaction, (ii) Counterparty were the sole Affected Party with
respect to such partial termination, (iii) such portion of the
Transaction were the only Terminated Transaction and (iv) Dealer
were the party entitled to designate an Early Termination Date
pursuant to Section 6(b) of the Agreement and to determine the
amount payable pursuant to Section 6(e) of the Agreement. The
Ownership Percentage as of any day is the fraction, expressed as
a percentage, (A) the numerator of which is the greater of (1) the
number of Shares that Dealer and any of its affiliates subject to
aggregation with Dealer for purposes of the beneficial ownership
test under Section 13 of the Exchange Act and all persons who may
form a group (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act but excluding any group formed for the affirmative
purpose of changing or influencing control of the Issuer) with
Dealer (collectively, Dealer Group) beneficially own (within
the meaning of Section 13 of the Exchange Act) without duplication
on such day and (2) the number of shares that Dealer and all
persons comprising part of the same acquiring person as Dealer
beneficially own, as each such term is used in Counterpartys
Rights Agreement between the Counterparty and American Stock
Transfer & Trust Company dated as of August 22, 1996, as amended as
of November 8, 1999, August 13, 2004, September 8, 2004, December
2, 2004 and December 19, 2005 (as so amended and as may be
subsequently amended, supplemented or replaced from time to time,
the Rights Agreement), on such day and (B) the denominator of
which is the number of Shares outstanding on such day. |
OTC Convertible Note Hedge (2015)
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Dealer may assign and delegate its rights and obligations under
this Transaction without the consent of the Buyer to any subsidiary
of ML & Co. (the Assignee) by notice specifying the effective
date of such transfer (Transfer Effective Date) and including an
(i) executed acceptance and assumption by the Assignee of such
rights and obligations and (ii) evidence reasonably satisfactory to
Counterparty that such obligations of the Assignee are guaranteed
by ML & Co. to substantially the same extent as Dealers
obligations under this Transaction; provided that (i) Counterparty
will not, as a result of such transfer, be required to pay to the
Assignee an amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) of the Agreement (except in respect of interest under
Section 2(e), 6(d)(ii), or 6(e)) greater than the amount in respect
of which Counterparty would have been required to pay to Dealer in
the absence of such transfer; and (ii) the Assignee will not, as a
result of such transfer, be required to withhold or deduct on
account of a Tax under Section 2(d)(i) of the Agreement (except in
respect of interest under Section 2(e), 6(d)(ii), or 6(e)) an
amount in excess of that which Dealer would have been required to
withhold or deduct in the absence of such transfer, unless the
Assignee would be required to make additional payments pursuant to
Section 2(d)(i)(4) of the Agreement corresponding to such excess. |
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On the Transfer Effective Date, (a) Dealer shall be released from
all obligations and liabilities arising under this Transaction; and
(b) the assigned and delegated rights and obligations under this
Transaction shall cease to be a Transaction under the Agreement and
shall be deemed to be a Transaction under an ISDA form of Master
Agreement (Multicurrency-Cross Border) and Schedule substantially
in the form of the Agreement but amended to reflect the name of the
Assignee and the address for notices and any amended
representations under Part 2 of the Agreement as may be specified
in the notice of transfer. |
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Right to Extend:
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Dealer may postpone any Exercise Date or Settlement Date or any
other date of valuation or delivery by Dealer, with respect to some
or all of the relevant Options (in which event the Calculation
Agent shall make appropriate adjustments to the Delivery
Obligation), if Dealer determines, in its reasonable discretion,
that such extension is reasonably necessary or appropriate to
preserve Dealers hedging or hedge unwind activity hereunder in
light of existing liquidity conditions in the cash market, the
stock borrow market or other relevant market or to enable Dealer to
effect purchases of Shares in connection with its hedging, hedge
unwind or settlement activity hereunder in a manner that would, if
Dealer were Counterparty or an affiliated purchaser of
Counterparty, be in compliance with applicable legal, regulatory or
self-regulatory requirements, or with related policies and
procedures applicable to Dealer. |
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Regulation:
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Seller is regulated by The Securities and Futures Authority Limited. |
Matters Relating to Agent:
1. |
|
Agent will be responsible for the operational aspects of the Transactions effected through
it, such as record keeping, reporting, and confirming Transactions to Buyer and Seller; |
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2. |
|
Unless Buyer is a major U.S. institutional investor, as defined in Rule 15a-6 of the
Exchange Act, neither Buyer nor Seller will contact the other without the direct involvement
of Agent; |
|
3. |
|
Agents sole role under this Agreement and with respect to any Transaction is as an agent of
Buyer and |
OTC Convertible Note Hedge (2015)
13
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Seller on a disclosed basis and Agent shall have no responsibility or liability to
Buyer or Seller hereunder except for gross negligence or willful misconduct in the performance
of its duties as agent. Agent is authorized to act as agent for Buyer, but only to the extent
expressly required to satisfy the requirements of Rule 15a-6 under the Exchange Act in respect
of the Options described hereunder. Agent shall have no authority to act as agent for Buyer
generally or with respect to transactions or other matters governed by this Agreement, except
to the extent expressly required to satisfy the requirements of Rule 15a-6 or in accordance
with express instructions from Buyer. |
ISDA Master Agreement:
With respect to the Agreement, Seller and Counterparty each agree as follows:
Specified Entity means in relation to Seller and in relation to Counterparty for purposes
of this Transaction: Not applicable.
The provisions of Default under Specified Transaction as set forth in Section 5(a)(v) of the
Agreement shall not apply to Dealer or Counterparty.
Specified Transaction has the meaning assigned to such term in Section 14 of the
Agreement.
The Cross Default provisions of Section 5(a)(vi) of the Agreement will apply to
Counterparty; provided that the text of Section 5(a)(vi) following the words occurrence or
existence of in the second line thereof through the end of such Section 5(a)(vi) shall be replaced
in its entirety by the following:
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one or more defaults under any of the agreements, indentures or instruments under which
Issuer or any significant subsidiary (as such term is defined in Regulation S-X
promulgated under the Securities Act of 1933) of Issuer then has outstanding indebtedness in
excess of $50 million, individually or in the aggregate, and either (a) such default results
from the failure to pay such indebtedness at its stated final maturity and such default has
not been cured or the indebtedness repaid in full within ten days of the default or (b) such
default or defaults have resulted in the acceleration of the maturity of such indebtedness
and such acceleration has not been rescinded or such indebtedness repaid in full within ten
days of the acceleration; |
The Credit Event Upon Merger provisions of Section 5(b)(v) of the Agreement will
not apply to Seller and will not apply to Counterparty.
The Automatic Early Termination provision of Section 6(a) of the Agreement will
not apply to Seller or to Counterparty.
Termination Currency means USD.
Payments on Early Termination. For the purpose of Section 6(e) of the Agreement: (i) Loss
shall apply; and (ii) the Second Method shall apply.
Tax Representations.
(a) |
|
Payer Representations. For the purpose of Section 3(e) of the Agreement, each party
represents to the other party that it is not required by any applicable law, as modified by
the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to
make any deduction or withholding for or on account of any Tax from any payment (other than
interest under Section 2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by it to the other
party under the Agreement. In making this representation, each party may rely on (i) the
accuracy of any representations made by the other party pursuant to Section 3(f) of the
Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of
the |
OTC Convertible Note Hedge (2015)
14
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Agreement, and the accuracy and effectiveness of any document provided by the other party
pursuant to Section 4(a)(i) or 4(a)(iii) of the Agreement, and (iii) the satisfaction of the
agreement of the other party contained in Section 4(d) of the Agreement; provided that it will
not be a breach of this representation where reliance is placed on clause (ii) above and the
other party does not deliver a form or document under Section 4(a)(iii) of the Agreement by
reason of material prejudice to its legal or commercial position. |
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(b) |
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Payee Representations. For the purpose of Section 3(f) of the Agreement, each party makes
the following representations to the other party: |
(i) Dealer represents that it is a company organized under the laws of England and Wales.
(ii) Dealer represents that it is a non-withholding foreign partnership for United States
Federal income tax purposes and each partner of Dealer is a non-U.S. branch of a foreign
person for purposes of section 1.1441-4(a)(3)(ii) of the United States Treasury Regulations
and a foreign person for purposes of section 1.6041-4(a)(4) of the United States Treasury
Regulations.
(iii) Dealer represents that no partner of Dealer is (i) a bank that has entered into this
Agreement in the ordinary course of its trade or business of making loans, as described in
section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended
(the Code), (ii) a 10% shareholder of
Counterparty within the meaning of Code section 871(h)(3)(B), or (iii) a
controlled foreign corporation with respect to Counterparty within the meaning of
Code section 881(c)(3)(C).
(iv) Counterparty represents that it is a corporation incorporated in Pennsylvania.
Delivery Requirements. For the purpose of Sections 4(a)(i) and (ii) of the
Agreement, each party agrees to deliver the following documents:
(a) |
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Tax forms, documents or certificates to be delivered are: |
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Dealer agrees to complete (accurately and in a manner reasonably satisfactory to
Counterparty), execute, and deliver to Counterparty, United States Internal Revenue Service
Form W-8IMY and all required attachments, or any successor of such form(s): (i) before the
first payment date under this agreement; (ii) promptly upon reasonable demand by Counterparty; and (iii) promptly upon learning that any such Form previously provided by
Dealer has become obsolete or incorrect. |
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Counterparty agrees to complete (accurately and in a manner reasonably satisfactory to
Dealer), execute, and deliver to Dealer, United States Internal Revenue Service Form W-9 or
W-8 BEN, or any successor of such form(s): (i) before the first payment date under this
agreement; (ii) promptly upon reasonable demand by Dealer; and (iii) promptly upon learning
that any such form(s) previously provided by Counterparty has become obsolete or incorrect. |
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(b) |
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Other documents to be delivered: |
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Covered by |
Party Required to |
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Section 3(d) |
Deliver Document |
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Document Required to be Delivered |
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When Required |
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Representation |
Counterparty and
Dealer
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Evidence of the
authority and true
signatures of each
official or
representative signing
this Confirmation
|
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Upon or before
execution and
delivery of this
Confirmation
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Yes |
OTC Convertible Note Hedge (2015)
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Covered by |
Party Required to |
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Section 3(d) |
Deliver Document |
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Document Required to be Delivered |
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When Required |
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Representation |
Counterparty
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Certified copy of the
resolution of the
Board of Directors or
equivalent document
authorizing the
execution and delivery
of this Confirmation
and such other
certificates as Seller
shall reasonably
request
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Upon or before
execution and
delivery of this
Confirmation
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Yes |
Counterparty
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An opinion of counsel,
dated as of the
Effective Date and
reasonably acceptable
to Dealer in form and
substance, with
respect to the matters
set forth in Section
3(a) of the Agreement.
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Upon or before the
Effective Date
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No |
Dealer
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Guarantee of its
Credit Support
Provider,
substantially in the
form of Exhibit A
attached hereto,
together with evidence
of the authority and
true signatures of the
signatories, if
applicable
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Upon or before
execution and
delivery of this
Confirmation
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No |
Additional Notice Requirements. Counterparty hereby agrees to promptly deliver to Seller a copy of
all notices and other communications required or permitted to be given to the holders of any
Reference Notes pursuant to the terms of the Note Indenture on the dates so required or permitted
in the Note Indenture and all other notices given and other communications made by Counterparty in
respect of the Reference Notes to holders of any Reference Notes. Counterparty further covenants
to Seller that it shall promptly notify Seller of each Conversion Date, Amendment Event (including
in such notice a detailed description of any such amendment) and Repayment Event (identifying in such notice the nature of such Repayment Event and the
principal amount at maturity of Reference Notes being paid).
Addresses for Notices. For the purpose of Section 12(a) of the Agreement:
Address for notices or communications to Seller for all purposes:
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Address:
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Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ |
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Attention:
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Manager, Fixed Income Settlements |
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Facsimile No.:
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44 207 995 2004 |
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Telephone No.:
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44 207 995 3769 |
Additionally, a copy of all notices pursuant to Sections 5, 6, and 7 as
well as any changes to Counterpartys address, telephone number or facsimile number should be sent
to:
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Address:
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GMI Counsel
Merrill Lynch World Headquarters
4 World Financial Center
New York, New York 10080 |
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Attention:
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Global Equity Derivatives |
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Facsimile No.:
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212-449-6576 |
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Telephone No.:
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212-449-6309 |
Address for notices or communications to Counterparty for all purposes:
OTC Convertible Note Hedge (2015)
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Address:
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Mylan Inc.
1500 Corporate Drive
Canonsburg, PA 15317 |
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Attention:
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Edward J. Borkowski, Chief Financial Officer |
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Facsimile No.:
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(724) 514 1871 |
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Telephone No.:
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(724) 514 1870 |
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Multibranch Party.
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For the purpose of
Section 10(c) of the Agreement: Neither Seller nor Counterparty is a Multibranch Party. |
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Calculation Agent.
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The Calculation Agent is Seller. Upon the request of
either party, the Calculation Agent (or, in the case of
a determination made by a party (including a party
acting as Hedging Party or Determining Party), such
party) shall, no later than the 5th Business Day
following such request, provide the parties with a
statement showing, in reasonable detail, the computations (including any relevant
quotations) by which it has determined
any amount payable or deliverable under, or any adjustment to the terms of,
this Transaction; provided that in no event shall Calculation Agent be
required to disclose its proprietary models or other proprietary
information. All judgments, determinations and calculations hereunder by
the Calculation Agent or by a party hereto shall be performed in good faith
and in a commercially reasonable manner. |
Credit Support Document.
Seller: Guarantee of Merrill Lynch & Co., Inc. in the form attached hereto as
Exhibit A and a collateral account control agreement to be entered into between
Counterparty, Dealer and MLFP&S, as custodian, (Collateral Account Control
Agreement) prior to any required delivery of collateral hereunder. The
Collateral Account Control Agreement shall be in customary form and reasonably
acceptable to Counterparty.
Counterparty: Not Applicable
Credit Support Provider.
With respect to Seller: Merrill Lynch & Co., Inc.
With respect to Counterparty: Not Applicable.
Collateral Provisions
The following provisions set forth the terms and conditions of the collateral delivery
obligations of Dealer applicable to the Transaction pursuant to the Credit Support Annex.
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Pledgor:
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Dealer |
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Secured Party:
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Counterparty |
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Collateral:
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Dealer will pledge Eligible Collateral in an amount and subject to the terms as defined below. |
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Credit Support Amount:
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As specified in Paragraph 3 of the Credit Support Annex. |
OTC Convertible Note Hedge (2015)
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Valuation Date (for purposes
of the CSA):
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Every Monday during the term of the Transaction |
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Valuation Time:
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5:00 PM EST |
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Notification Time:
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10 a.m. on the next Local Business Day after the relevant Valuation Date |
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Valuation Agent:
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Dealer |
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Independent Amount:
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$0 |
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Threshold:
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Infinity; provided that the Threshold shall be $50,000,000 if, and for so long as, the long-term U.S.
dollar-denominated debt obligations of Dealers Credit Support Provider are rated below A- by
Standard & Poors and below A3 by Moodys. |
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Minimum Transfer Amount:
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$500,000 |
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Custodian:
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Merrill Lynch, Pierce, Fenner & Smith Incorporated pursuant to a Collateral Account Control Agreement. |
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Use of Posted Collateral:
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The provisions of Paragraph 6(c) of the Credit Support Annex will not apply. |
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Specified Condition:
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For purposes of Paragraph 4(a) of the Credit Support Annex, the following Termination Events will be
a Specified Condition with respect to the party that is the Affected Party for such Termination
Event: Illegality, Tax Event, Tax Event Upon Merger, Credit Event Upon Merger, Additional Termination
Events. For purposes of Paragraphs 8(a) and 8(b) of the Credit Support Annex, the following
Termination Events will be a Specified Condition with respect to the party that is the Affected Party
for such Termination Event: Credit Event Upon Merger, Additional Termination Events. |
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Eligible Collateral:
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The following Items will qualify as Eligible Collateral: |
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Valuation |
Item: |
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Percentage: |
(A) Cash
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100 |
% |
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(B) Negotiable debt obligations issued by the U.S. Treasury
Department having a remaining maturity of not more than one
year
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100 |
% |
OTC Convertible Note Hedge (2015)
18
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Valuation |
Item: |
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Percentage: |
(C) Securities with maturities of 90 days or less from the
date of acquisition issued by the U.S., Switzerland, Canada,
England or a member state of the European Union (excluding
Greece, Italy and any Countries with sovereign debt ratings
below Aa1/AA+) or by an instrumentality or agency of the U.S.
government, Switzerland, Canada, England or a member state of
the European Union (excluding Greece, Italy and any Countries
with sovereign debt ratings below Aa1/AA+) having the same
credit rating as its government 100% $50 million maximum per
non-U.S. country
|
|
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100 |
% |
|
(D) Certificates of deposit and eurodollar time deposits with
maturities of 90 days or less from the date of acquisition and
overnight bank deposits of any commercial bank having stable
ratings of at least A/A-1 by S&P and A2/P-1 by Moodys
|
|
|
100 |
% |
|
(E) Repurchase obligations of any commercial bank satisfying
the requirements of clause (D) of this definition, having a
term of not more than seven days with respect to securities
issued by the U.S. Government
|
|
|
100 |
% |
|
(F) Commercial paper of a corporate issuer having stable
ratings of at least A/A- 1 by S&P and A2/P-1 by Moodys and
maturing within 90 days after the day of acquisition
|
|
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100 |
% |
|
(G) Securities with maturities of 90 days or less from the
date of acquisition issued by any state, commonwealth or
territory of the U.S., by any political subdivision or taxing
authority of any such state, commonwealth or territory, the
securities of which state, commonwealth, territory, political
subdivision or taxing authority (as the case may be) having
stable ratings of at least A by S&P and A2 by Moodys
|
|
|
100 |
% |
|
(H) Securities with maturities of 90 days or less from the
date of acquisition backed by standby letters of credit issued
by any Lender or any commercial bank satisfying the
requirements of clause (D) of this definition
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|
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100 |
% |
|
(I) Shares of money market mutual or similar funds that
conform with Rule 2a-7 of the Investment Companies Act of 1940
and having a minimum asset size of $3 billion which invest
exclusively in assets satisfying the requirements of clauses
(C) through (H) of this definition
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|
|
100 |
% |
OTC Convertible Note Hedge (2015)
19
|
|
|
|
|
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Valuation |
Item: |
|
Percentage: |
(J) Non-Callable Agency Debt having a remaining maturity of
not more than one year. For purposes hereof, Non-Callable
Agency Debt means fixed rate, non-callable, non-amortizing
U.S. Dollar-denominated senior debt securities of fixed
maturity in book entry form issued by the Federal Home Loan
Banks (including their consolidated obligations issued through
the Office of Finance of the Federal Home Loan Bank System)
(FHLB), Fannie Mae, the Federal Home Loan Mortgage
Corporation (Freddie Mac) or the Federal Farm Credit Banks
(FFCB)
|
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99 |
% |
|
(K) Non-Callable Agency Discount Notes having a remaining
maturity of not more than twelve months. For purposes hereof,
Non-Callable Agency Discount Notes means non-callable U.S.
Dollar denominated discount notes sold at a discount from
their principal amount payable at maturity with an original
maturity of 360 days or less in book entry form and issued by
Fannie Mae, Freddie Mac, FHLB or FFCB
|
|
|
99 |
% |
|
(L) Callable Agency Debt having a remaining maturity of not
more than one year. For purposes hereof, Callable Agency
Debt means fixed-rate, callable non-amortizing U.S.
Dollar-denominated senior debt securities in book entry form
issued by FHLB, Fannie Mae or Freddie Mac
|
|
|
99 |
% |
|
(M) Negotiable debt obligations issued by the U.S. Treasury
Department having a remaining maturity of more than one year
but not more than ten years
|
|
|
99 |
% |
|
(N) Non-Callable Agency Debt and Callable Agency Debt having a
remaining maturity of more than one year but not more than ten
years
|
|
|
98 |
% |
|
(O) Negotiable debt obligations issued by the U.S. Treasury
Department having a remaining maturity of more than ten years
|
|
|
98 |
% |
|
(P) Non-Callable Agency Debt and Callable Agency Debt having a
remaining maturity of more than ten years
|
|
|
97 |
% |
|
(Q) Corporate Debt having stable ratings of AA or better by
Standard & Poors and Aa2 or better by Moodys having a
remaining maturity of less than 1 year or as otherwise
mutually agreed by the Parties and listed in Attachment Q1
having a remaining maturity of less than one year
|
|
|
97 |
% |
OTC Convertible Note Hedge (2015)
20
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Valuation |
Item: |
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Percentage: |
(R) Securities or other financial obligations of the Issuer of
the Shares, including without limitation, equity securities,
debt securities, convertible bonds, derivatives contracts and
any other financial instruments.
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|
|
100 |
% |
|
(S) Securities or other financial obligations of corporations
(other than the Issuer of the Shares), including without
limitation, equity securities, debt securities, convertible
bonds and any other financial instruments.
|
|
|
70 |
% |
Governing Law. This Confirmation will be governed by, and construed in accordance with, the laws
of the State of New York.
Submission to Jurisdiction. Each party hereby irrevocably and unconditionally submits for itself
and its property in any legal action or proceeding by the other party against it relating to the
Transaction to which it is a party, or for recognition and enforcement of any judgment in respect
thereof, to the exclusive jurisdiction of the Supreme Court of the State of New York, sitting in
New York County, the courts of the United States of America for the Southern District of New York,
and appellate courts from any of the foregoing.
Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any
right it may have to a trial by jury in respect of any suit, action or proceeding relating to this
Transaction. Each party (i) certifies that no representative, agent or attorney of the other party
has represented, expressly or otherwise, that such other party would not, in the event of such a
suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and
the other party have been induced to enter into this Transaction, as applicable, by, among other
things, the mutual waivers and certifications provided herein.
Netting of Payments. The provisions of Section 2(c) of the Agreement shall not be
applicable to this Transaction.
Basic Representations. Section 3(a) of the Agreement is hereby amended by the deletion of
and at the end of Section 3(a)(iv); the substitution of a semicolon for the period at the
end of Section 3(a)(v) and the addition of Sections 3(a)(vi), as follows:
Eligible Contract Participant; Line of Business. Each party agrees and represents that it is an
eligible contract participant as defined in Section 1a(12) of the U.S. Commodity Exchange Act, as
amended (CEA), this Agreement and the Transaction thereunder are subject to individual
negotiation by the parties and have not been executed or traded on a trading facility as defined
in Section 1a(33) of the CEA, and it has entered into this Confirmation and this Transaction in
connection with its business or a line of business (including financial intermediation), or the
financing of its business.
Acknowledgements:
(a) |
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The parties acknowledge and agree that there are no other representations, agreements or
other undertakings of the parties in relation to this Transaction, except as set forth in this
Confirmation and the Agreement. |
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(b) |
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The parties hereto intend for: |
OTC Convertible Note Hedge (2015)
21
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(i) |
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Seller to be a financial institution as defined in Section 101(22) of Title
11 of the United States Code (the Bankruptcy Code) and this Transaction to be
a securities contract as defined in Section 741(7) of the Bankruptcy Code and a swap
agreement as defined in Section 101(53C) of the Bankruptcy Code, qualifying for the
protections of, among other sections, Sections 362(b)(6), 362 (b)(17), 546(e), 546(g),
555 and 560 of the Bankruptcy Code; |
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(ii) |
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a partys right to liquidate this Transaction and to exercise any other
remedies upon the occurrence of any Event of Default under the Agreement with respect
to the other party to constitute a contractual right as defined in the Bankruptcy
Code; |
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(iii) |
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all payments for, under or in connection with this Transaction, all payments
for the Shares and the transfer of such Shares to constitute settlement payments as defined in the
Bankruptcy Code. |
Amendment of Section 6(d)(ii). Section 6(d)(ii) of the Agreement is modified by deleting
the words on the day in the second line thereof and substituting therefore on the day that is
three Local Business Days after the day. Section 6(d)(ii) is further modified by deleting
the words two Local Business Days in the fourth line thereof and substituting therefore three
Local Business Days.
Consent to Recording. Each party consents to the recording of the telephone conversations of
trading and marketing personnel of the parties and their Affiliates in connection with this
Confirmation. To the extent that one party records telephone conversations (the Recording Party)
and the other party does not (the Non-Recording Party), the Recording Party shall in the
event of any dispute, make a complete and unedited copy of such partys tape of the entire days
conversations with the Non-Recording Partys personnel available to the Non-Recording Party. The
Recording Partys tapes may be used by either party in any forum in which a dispute is sought to be
resolved and the Recording Party will retain tapes for a consistent period of time in accordance
with the Recording Partys policy unless one party notifies the other that a particular transaction
is under review and warrants further retention.
Disclosure. Each party hereby acknowledges and agrees that Seller has authorized Counterparty to
disclose this Transaction and any related hedging transaction between the parties if and to the
extent that Counterparty reasonably determines (after consultation with Seller) that such
disclosure is required by law or by the rules of the New York Stock Exchange or any securities
exchange. Notwithstanding the foregoing, effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees, representatives, or other
agents may disclose to any and all persons, without limitation of any kind, the tax treatment and
tax structure of the Transaction and all materials of any kind (including opinions or other tax
analyses) that are provided to Counterparty relating to such tax treatment and tax structure.
Severability. If any term, provision, covenant or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid or unenforceable in
whole or in part for any reason, the remaining terms, provisions, covenants, and conditions hereof
shall continue in full force and effect as if this Confirmation had been executed with the invalid
or unenforceable provision eliminated, so long as this Confirmation as so modified continues to
express, without material change, the original intentions of the parties as to the subject matter
of this Confirmation and the deletion of such portion of this Confirmation will not substantially
impair the respective benefits or expectations of parties to this Agreement; provided, however,
that this severability provision shall not be applicable if any provision of Section 2,
5, 6 or 13 of the Agreement (or any definition or provision in Section
14 to the extent that it relates to, or is used in or in connection with any such Section)
shall be so held to be invalid or unenforceable.
Affected Parties. For purposes of Section 6(e) of the Agreement, each party shall be
deemed to be an Affected Party in connection with Illegality and any Tax Event.
OTC Convertible Note Hedge (2015)
22
[Signatures follow on separate page]
OTC Convertible Note Hedge (2015)
23
Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the
copy of this Confirmation enclosed for that purpose and returning it to us.
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Very truly yours, |
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MERRILL LYNCH INTERNATIONAL |
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By:
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/s/ David Royce
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Name:
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David Royce |
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Title:
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Authorized Signatory |
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Confirmed as of the date first above written: |
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MYLAN INC. |
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By:
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/s/ Edward J. Borkowski
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Name:
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Edward J. Borkowski |
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Title:
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Executive Vice President and
Chief Financial Officer |
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Acknowledged and agreed as to matters to the Agent:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Solely in its capacity as Agent hereunder
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By:
Name:
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/s/ Fran Jacobson
Fran Jacobson
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Title:
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Authorized Signatory |
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EXHIBIT A
GUARANTEE OF MERRILL LYNCH & CO., INC.
FOR VALUE RECEIVED, receipt of which is hereby acknowledged, MERRILL LYNCH & CO., INC., a
corporation duly organized and existing under the laws of the State of Delaware (ML & Co.),
hereby unconditionally guarantees to Mylan Inc. (the Company), the due and punctual payment of
any and all amounts payable by Merrill Lynch International, a company organized under the laws of
England and Wales (ML), under the terms of the Confirmation of OTC Convertible Note Hedge between
the Company and ML (ML as Seller), dated as of September 9, 2008, with respect to the Reference
Notes (as defined therein) of Company due 2015 (the Confirmation), including, in case of default,
interest on any amount due, when and as the same shall become due and payable, whether on the
scheduled payment dates, at maturity, upon declaration of termination or otherwise, according to
the terms thereof. In case of the failure of ML punctually to make any such payment, ML & Co.
hereby agrees to make such payment, or cause such payment to be made, promptly upon demand made by
the Company to ML & Co.; provided, however that delay by the Company in giving such demand shall in
no event affect ML & Co.s obligations under this Guarantee. This Guarantee shall remain in full
force and effect or shall be reinstated (as the case may be) if at any time any payment guaranteed
hereunder, in whole or in part, is rescinded or must otherwise be returned by the Company upon the
insolvency, bankruptcy or reorganization of ML or otherwise, all as though such payment had not
been made.
ML & Co. hereby agrees that its obligations hereunder constitute a guarantee of payment when
due and not of collection and that its obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the Confirmation; the absence of any action to
enforce the same; any waiver or consent by the Company concerning any provisions thereof; the
rendering of any judgment against ML or any action to enforce the same; or any other circumstances
that might otherwise constitute a legal or equitable discharge of a guarantor or a defense of a
guarantor. ML covenants that this guarantee will not be discharged except by complete payment of
the amounts payable under the Confirmation. This Guarantee shall continue to be effective if ML
merges or consolidates with or into another entity, loses its separate legal identity or ceases to
exist.
ML & Co. shall not exercise any rights that it may acquire by way of subrogation as a result
of a payment by it under this Guarantee at any time when any of the obligations of ML shall have
become due and remain unpaid. Any amount paid to ML & Co. in violation of the preceding sentence
shall be held for the benefit of the Company and shall forthwith be paid to the Company to be
credited and applied to such obligations of ML then due and unpaid. Subject to the foregoing, upon
payment of all such obligations of ML, ML & Co. shall be subrogated to the rights of the Company
against ML, and the Company agrees to take at ML & Co.s expense such steps as ML &Co. may
reasonably request to implement such subrogation.
ML & Co. hereby waives diligence; presentment; protest; notice of protest, acceleration, and
dishonor; filing of claims with a court in the event of insolvency or bankruptcy of ML; all demands
whatsoever, except as noted in the first paragraph hereof; and any right to require a proceeding
first against ML.
ML & Co. hereby certifies and warrants that this Guarantee constitutes the valid obligation of
ML & Co. and complies with all applicable laws.
This Guarantee shall be governed by, and construed in accordance with, the laws of the State
of New York.
This Guarantee becomes effective concurrent with the effectiveness of the Confirmation,
according to its terms.
IN WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its corporate name by its
duly authorized representative.
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MERRILL LYNCH & CO., INC.
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By: |
/s/ Patricia Kroplewnicki
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Name: |
Patricia Kroplenicki |
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Title: |
Designated Signatory |
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Date: |
September 9, 2008 |
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EX-10.16(B)
Exhibit 10.16
(b)
AMENDMENT TO
THE AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT TO THE AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this Amendment)
by and between Mylan Inc. (the Company) and Robert J. Coury (the Executive), is made as of
December 22, 2008.
WHEREAS, the Company and the Executive are parties to that certain Amended and Restated
Executive Employment Agreement dated as of April 3, 2006 (the Agreement); and
WHEREAS, the Company and the Executive wish to amend the Agreement as set forth below to
comply with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
The following sentence is hereby added to the end of Section 3(b) of the Agreement: |
Such bonus shall be paid no later than March 15th of the year following the year in
which the annual award is no longer subject to a substantial risk of forfeiture.
2. |
|
In the first sentence of Section 8(c)(ii) of the Agreement, the phrase for the remainder of
the calendar year in which the Termination of Employment occurs and during the two succeeding
calendar years, is hereby deleted in its entirety and replaced with the following phrase: |
for three years following Termination of Employment,
3. |
|
The last sentence (set forth below) of Section 8(c)(ii) of the Agreement is hereby deleted in
its entirety: |
Upon publication of final treasury regulations under Section 409A of the Code, the
Company and the Executive shall consider in good faith amendments to this Section
8(c)(ii) which are consistent with such final regulations and, if permitted, extend the
period of coverage for all Employee Benefit Continuation Payments to a period of three
years following Termination of Employment.
4. |
|
The last sentence of Section 8(e) is hereby deleted in its entirety and replaced with the
following: |
Disability shall mean the Executives inability to perform the normal functions of a
member of the Board or as Chief Executive Officer due to any medically determinable
mental, physical or emotional impairment which can be expected to last for at least
twelve (12) consecutive months.
5. |
|
The following shall be added as a new Section 20 of the Agreement: |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, the Executive shall not be considered to have terminated employment with
the Company for purposes of this Agreement and no payments shall be due to the Executive
under this Agreement until the Executive would be considered to have incurred a
separation from service from the Company within the meaning of Section 409A of the
Code. For purposes of this Agreement, each amount to be paid or benefit to be provided
shall be construed as a separate identified payment for purposes of Section 409A of the
Code, and any payments described in this Agreement that are due within the short term
deferral period as defined in Section 409A of the Code shall not be treated as deferred
compensation unless applicable law requires otherwise. To the extent required in order
to avoid accelerated taxation and/or tax penalties under Section 409A of the Code,
amounts that would otherwise be payable and benefits that would otherwise be provided
pursuant to this Agreement during the six-month period immediately following the
Executives termination of employment shall instead be paid on the first business day
after the date that is six months following the Executives termination of employment
(or death, if earlier). To the extent required to avoid an accelerated or additional
tax under Section 409A of the Code, amounts reimbursable to the Executive under this
Agreement shall be paid to the Executive on or before the last day of the year following
the year in which the expense was incurred and the amount of expenses eligible for
reimbursement (and in-kind benefits provided to the Executive) during any one year may
not effect amounts reimbursable or provided in any subsequent year; provided,
however, that with respect to any reimbursements for any taxes which the
Executive would become entitled to under the terms of the Agreement, the payment of such
reimbursements shall be made by the Company no later than the end of the calendar year
following the calendar year in which the Executive remits the related taxes.
6. |
|
This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
7. |
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Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
[SIGNATURES FOLLOW]
2
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC.
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: |
Chairman, Compensation Committee |
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/s/ Robert J. Coury
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Robert J. Coury |
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3
EX-10.17(D)
Exhibit 10.17
(d)
AMENDMENT NO. 3 TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT TO THE EXECUTIVE EMPLOYMENT AGREEMENT (this Amendment) by and between Mylan
Inc. (the Company) and Edward J. Borkowski (Executive), is made as of December 22, 2008.
WHEREAS, the Company and Executive are parties to that certain Executive Employment Agreement
dated as of July 1, 2004, and amended as of April 3, 2006 and March 12, 2008 (the Agreement); and
WHEREAS, the Company and Executive wish to further amend the Agreement as set forth below to
comply with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
The following sentence is hereby added to the end of Section 4(b) of the Agreement: |
Such bonus shall be paid no later than March 15th of the year following the year in
which the annual award is no longer subject to a substantial risk of forfeiture.
2. |
|
The second and third sentences of Section 9(a)(ii) of the Agreement are hereby deleted in
their entirety and replaced with the following sentences: |
Executive, however, will continue to be bound by all provisions of this Agreement that
survive termination of employment. Good Reason shall mean (a) a reduction of
Executives Base Salary below the Base Salary stipulated in this Agreement, unless all
other Chief officers of the Company (other than the CEO) are required to accept a
similar reduction, or (b) the removal of Executive from the position of Chief Financial
Officer.
3. |
|
Section 9(e) is hereby deleted in its entirety and replaced with the following: |
Extension or Renewal. The term of employment may be extended or renewed upon mutual
agreement of Executive and the Company. In the event that the Company elects not to
make an offer to Executive for continued employment with the Company beyond March 12,
2010, on terms and conditions that are at least as favorable as those provided under
this Agreement, Executives employment shall terminate as of March 12, 2010, and
Executive shall be paid severance in an amount equal to one and one-half (1.5) times the
sum of his then-current Base Salary plus his Prior Bonus, and Executives health
insurance benefits shall be continued for 18 months at the Companys cost;
provided, however, that in the case of health insurance continuation,
the Companys obligation to provide health insurance benefits shall end at such time as
Executive, at his option, voluntarily obtains health insurance benefits. If the Company
makes an offer to Executive for continued employment beyond March 12,
2010, on terms and
conditions that are at least as favorable as those provided under this Agreement and
Executive is willing and able to execute a new Agreement, but the term of employment is
not extended or renewed on terms mutually acceptable to Executive and the Company beyond
March 12, 2010, then, provided that this Agreement has not been sooner terminated for
any of the reasons stated in Sections 9(a), (b), (c) or (d) of this Agreement, Executive
may terminate his employment as of March 12, 2010, and upon such termination shall be
paid severance in an amount equal to his then-current Base Salary plus the Prior Bonus,
and Executives health insurance benefits shall be continued for 12 months at the
Companys cost; provided, however, that in the case of health insurance
continuation, the Companys obligation to provide health insurance benefits shall end at
such time as Executive, at his option, voluntarily obtains health insurance benefits.
4. |
|
Section 9(h) of the Agreement is hereby deleted in its entirety and replaced with the
following: |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, Executive shall not be considered to have terminated employment with the
Company for purposes of this Agreement and no payments shall be due to Executive under
this Agreement until Executive would be considered to have incurred a separation from
service from the Company within the meaning of Section 409A of the Code. For purposes
of this Agreement, each amount to be paid or benefit to be provided shall be construed
as a separate identified payment for purposes of Section 409A of the Code, and any
payments described in this Agreement that are due within the short term deferral
period as defined in Section 409A of the Code shall not be treated as deferred
compensation unless applicable law requires otherwise. To the extent required in order
to avoid accelerated taxation and/or tax penalties under Section 409A of the Code,
amounts that would otherwise be payable and benefits that would otherwise be provided
pursuant to this Agreement during the six-month period immediately following Executives
termination of employment shall instead be paid on the first business day after the date
that is six months following Executives termination of employment (or death, if
earlier). To the extent required to avoid an accelerated or additional tax under
Section 409A of the Code, amounts reimbursable to Executive under this Agreement shall
be paid to Executive on or before the last day of the year following the year in which
the expense was incurred and the amount of expenses eligible for reimbursement (and
in-kind benefits provided to Executive) during any one year may not effect amounts
reimbursable or provided in any subsequent year; provided, however, that
with respect to any reimbursements for any taxes which Executive would become entitled
to under the terms of the Agreement, the payment of such reimbursements shall be made by
the Company no later than the end of the calendar year following the calendar year in
which Executive remits the related taxes.
2
5. |
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This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
6. |
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Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC. |
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: Chairman, Compensation Committee |
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/s/ Edward J. Borkowski
Edward J. Borkowski
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3
EX-10.18(C)
Exhibit 10.18
(c)
AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT TO THE EXECUTIVE EMPLOYMENT AGREEMENT (this Amendment) by and between Mylan
Inc. (the Company) and Heather Bresch (Executive), is made as of December 22, 2008.
WHEREAS, the Company and Executive are parties to that certain Executive Employment Agreement
dated as of January 31, 2007 (the Agreement); and
WHEREAS, the Company and Executive wish to further amend the Agreement as set forth below to
comply with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
The following sentence is hereby added to the end of Section 4(b) of the Agreement: |
Such bonus shall be paid no later than March 15th of the year following the
year in which the annual award is no longer subject to a substantial risk of forfeiture.
2. |
|
The first sentence of Section 9(a)(iii) is hereby deleted and replaced with the following two
sentences: |
If Executive resigns with Good Reason and complies in all respects with her obligations
hereunder, Mylan will pay Executive a lump sum amount equal to her then-current annual
Base Salary, plus an amount equal to the bonus that Executive would have been entitled
to receive for the fiscal year in which the termination occurs, pro-rated based on the
portion of such year during which Executive was employed by the Company. Subject to
Section 9(h), such payment will be made within thirty (30) days following Executives
termination of employment.
3. |
|
The first sentence of Section 9(c) is hereby deleted and replaced with the following two
sentences: |
If Mylan discharges Executive without Cause, Mylan will pay Executive a lump sum amount
equal to her then-current annual Base Salary, plus a pro rata bonus equal to the bonus
that Executive would have been entitled to receive for the fiscal year in which the
termination occurs. Subject to Section 9(h), such payment will be made within thirty
(30) days following Executives termination of employment.
4. |
|
Section 9(e) is hereby deleted in its entirety and replaced with the following: |
Extension or Renewal. If this Agreement has not been sooner terminated for any of the
reasons stated in Section 9(a), (b), (c) or (d) of this Agreement, the Term of
Employment may be extended or renewed upon mutual agreement of Executive and the
Company. If the Term of Employment is not extended or renewed on terms
mutually
acceptable to Executive and the Company, Executive may terminate her employment at the
expiration of the contract, and the Company shall pay Executive a lump sum amount equal
to her then-current annual Base Salary, which amount shall be paid within thirty days
following Executives separation from the Company, and Executives health insurance
benefits shall be continued for 12 months at the Companys cost; provided,
however, that in the case of health insurance continuation, the Companys
obligation to provide health insurance benefits shall end at such time as Executive, at
her option, voluntarily obtains health insurance benefits.
5. |
|
Section 9(h) of the Agreement is hereby deleted in its entirety and replaced with the
following: |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, Executive shall not be considered to have terminated employment with the
Company for purposes of this Agreement and no payments shall be due to Executive under
Section 9 of this Agreement until Executive would be considered to have incurred a
separation from service from the Company within the meaning of Section 409A of the
Code. For purposes of this Agreement, each amount to be paid or benefit to be provided
shall be construed as a separate identified payment for purposes of Section 409A of the
Code, and any payments described in Section 9 that are due within the short term
deferral period as defined in Section 409A of the Code shall not be treated as deferred
compensation unless applicable law requires otherwise. To the extent required in order
to avoid accelerated taxation and/or tax penalties under Section 409A of the Code,
amounts that would otherwise be payable and benefits that would otherwise be provided
pursuant to this Agreement during the six-month period immediately following Executives
termination of employment shall instead be paid on the first business day after the date
that is six months following Executives termination of employment (or death, if
earlier). To the extent required to avoid an accelerated or additional tax under
Section 409A of the Code, amounts reimbursable to Executive under this Agreement shall
be paid to Executive on or before the last day of the year following the year in which
the expense was incurred and the amount of expenses eligible for reimbursement (and
in-kind benefits provided to Executive) during any one year may not effect amounts
reimbursable or provided in any subsequent year; provided, however, that
with respect to any reimbursements for any taxes which Executive would become entitled
to under the terms of the Agreement, the payment of such reimbursements shall be made by
the Company no later than the end of the calendar year following the calendar year in
which Executive remits the related taxes.
6. |
|
This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania.
|
2
7. |
|
Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC. |
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/s/ Rodney L. Piatt
By: Rodney L. Piatt
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Title: Chairman, Compensation Committee |
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/s/ Heather Bresch
Heather Bresch
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3
EX-10.19(C)
Exhibit 10.19
(c)
AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT TO THE EXECUTIVE EMPLOYMENT AGREEMENT (this Amendment) by and between Mylan
Inc. (the Company) and Rajiv Malik (Executive), is made as of December 22, 2008.
WHEREAS, the Company and Executive are parties to that certain Executive Employment Agreement
dated as of January 31, 2007 (the Agreement); and
WHEREAS, the Company and Executive wish to further amend the Agreement as set forth below to
comply with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
The following sentence is hereby added to the end of Section 4(b) of the Agreement: |
|
|
|
Such bonus shall be paid no later than March 15th of the year following the year in
which the annual award is no longer subject to a substantial risk of forfeiture. |
|
2. |
|
The first sentence of Section 9(a)(iii) is hereby deleted and replaced with the following two
sentences: |
If Executive resigns with Good Reason and complies in all respects with his obligations
hereunder, Mylan will pay Executive a lump sum amount equal to his then-current annual
Base Salary (or, to the extent not subject to accelerated taxation and/or tax penalties
under Section 409A, at the Companys discretion, salary continuation payments for 12
months following his separation from the Company, payable in accordance with the
Companys normal payroll practices), plus an amount equal to the bonus that Executive
would have been entitled to receive for the fiscal year in which the termination occurs,
pro-rated based on the portion of such year during which Executive was employed by the
Company. Subject to Section 9(h), such payment will be made within thirty (30) days
following Executives termination of employment.
3. |
|
The first sentence of Section 9(c) is hereby deleted and replaced with the following two
sentences: |
If Mylan discharges Executive without Cause, Mylan will pay Executive a lump sum amount
equal to his then-current annual Base Salary (or, to the extent not subject to
accelerated taxation and/or tax penalties under Section 409A, at the Companys
discretion, salary continuation payments for 12 months following his separation from the
Company, payable in accordance with the Companys normal payroll practices), plus a pro
rata bonus equal to the bonus that Executive would have been entitled to receive for the
fiscal year in which the termination occurs. Subject to Section 9(h),
such payment will be made within thirty (30) days following Executives termination of
employment.
4. |
|
Section 9(e) is hereby deleted in its entirety and replaced with the following: |
Extension or Renewal. If this Agreement has not been sooner terminated for any of the
reasons stated in Sections 9(a), (b), (c) or (d) of this Agreement, the Term of
Employment may be extended or renewed upon mutual agreement of Executive and the
Company. If the Term of Employment is not extended or renewed on terms mutually
acceptable to Executive and the Company, Executive may terminate his employment at the
expiration of the contract, and the Company shall pay Executive a lump sum amount equal
to his then-current annual Base Salary (or, to the extent not subject to accelerated
taxation and/or tax penalties under Section 409A, at the Companys discretion, salary
continuation payments for 12 months following his separation from the Company, payable
in accordance with the Companys normal payroll practices), which amount shall be paid
within thirty (30) days following Executives separation from the Company, and
Executives health insurance benefits shall be continued for 12 months at the Companys
cost; provided, however, that in the case of health insurance
continuation, the Companys obligation to provide health insurance benefits shall end at
such time as Executive, at his option, voluntarily obtains health insurance benefits.
5. |
|
Section 9(h) of the Agreement is hereby deleted in its entirety and replaced with the
following: |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, Executive shall not be considered to have terminated employment with the
Company for purposes of this Agreement and no payments shall be due to Executive under
Section 9 of this Agreement until Executive would be considered to have incurred a
separation from service from the Company within the meaning of Section 409A of the
Code. For purposes of this Agreement, each amount to be paid or benefit to be provided
shall be construed as a separate identified payment for purposes of Section 409A of the
Code, and any payments described in Section 9 that are due within the short term
deferral period as defined in Section 409A of the Code shall not be treated as deferred
compensation unless applicable law requires otherwise. To the extent required in order
to avoid accelerated taxation and/or tax penalties under Section 409A of the Code,
amounts that would otherwise be payable and benefits that would otherwise be provided
pursuant to this Agreement during the six-month period immediately following Executives
termination of employment shall instead be paid on the first business day after the date
that is six months following Executives termination of employment (or death, if
earlier). To the extent required to avoid an accelerated or additional tax under
Section 409A of
2
the Code, amounts reimbursable to Executive under this Agreement shall be paid to
Executive on or before the last day of the year following the year in which the expense
was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits
provided to Executive) during any one year may not effect amounts reimbursable or
provided in any subsequent year; provided, however, that with respect to
any reimbursements for any taxes which Executive would become entitled to under the
terms of the Agreement, the payment of such reimbursements shall be made by the Company
no later than the end of the calendar year following the calendar year in which
Executive remits the related taxes.
6. |
|
This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
|
7. |
|
Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC.
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: |
Chairman, Compensation Committee |
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/s/ Rajiv Malik
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Rajiv Malik |
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3
EX-10.20.C
Exhibit 10.20
(c)
AMENDMENT NO. 2 TO
RETIREMENT BENEFIT AGREEMENT
THIS AMENDMENT TO THE RETIREMENT BENEFIT AGREEMENT (this Amendment) by and between Mylan
Inc. (the Company) and Robert J. Coury (Executive), is made as of December 22, 2008.
WHEREAS, the Company and Executive are parties to that certain Retirement Benefit Agreement
dated as of December 31, 2004 and amended on April 3, 2006 (the Agreement); and
WHEREAS, the Company and Executive wish to further amend the Agreement as set forth below to
comply with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
Sections 3.2 and 4.2 of the Agreement are hereby deleted in their entirety and Section 4.3 is
hereby renumbered as Section 4.2. |
2. |
|
The last sentence of Section 7.1 of the Agreement is hereby deleted and replaced with the
following: |
In no case shall Executive be required to devote in excess of twenty (20) hours a month
to the provision of consulting services hereunder; provided, further,
that the level of consulting services provided by Executive to the Company shall be not
more than 20% of the average level of services provided by Executive to the Company over
the thirty-six month period preceding Executives Retirement.
3. |
|
Section X of the Agreement is hereby deleted in its entirety and replaced with the following: |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, Executive shall not be considered to have terminated employment with the
Company for purposes of this Agreement and no payments shall be due to Executive under
this Agreement until Executive would be considered to have incurred a separation from
service from the Company within the meaning of Section 409A of the Code. For purposes
of this Agreement, each amount to be paid or benefit to be provided shall be construed
as a separate identified payment for purposes of Section 409A of the Code, and any
payments described in this Agreement that are due within the short term deferral
period within the meaning of Section 409A of the Code shall not be treated as deferred
compensation unless applicable law requires otherwise. To the extent required in order
to avoid accelerated taxation
and/or tax penalties under Section 409A of the Code, amounts that would otherwise be
payable and benefits that would otherwise be provided pursuant to this Agreement during
the six-month period immediately following Executives termination of employment shall
instead be paid on the first business day after the date that is six months following
Executives termination of employment (or death, if earlier). To the extent required to
avoid an accelerated or additional tax under Section 409A of the Code, amounts
reimbursable to Executive under this Agreement shall be paid to Executive on or before
the last day of the year following the year in which the expense was incurred and the
amount of expenses eligible for reimbursement (and in-kind benefits provided to
Executive) during any one year may not effect amounts reimbursable or provided in any
subsequent year; provided, however, that with respect to any
reimbursements for any taxes which Executive would become entitled to under the terms of
the Agreement, the payment of such reimbursements shall be made by the Company no later
than the end of the calendar year following the calendar year in which Executive remits
the related taxes.
4. |
|
This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
5. |
|
Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC. |
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: Chairman, Compensation Committee |
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/s/ Robert J. Coury |
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Robert J. Coury |
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2
EX-10.21(C)
Exhibit 10.21
(c)
AMENDMENT NO. 2 TO
RETIREMENT BENEFIT AGREEMENT
THIS AMENDMENT TO THE RETIREMENT BENEFIT AGREEMENT (this Amendment) by and between Mylan
Inc. (the Company) and Edward J. Borkowski (Executive), is made as of December 22, 2008.
WHEREAS, the Company and Executive are parties to that certain Retirement Benefit Agreement
dated as of December 31, 2004 and amended on April 3, 2006 (the Agreement); and
WHEREAS, the Company and Executive wish to further amend the Agreement as set forth below to
comply with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
Sections 3.2 and 4.2 of the Agreement are hereby deleted in their entirety and Section 4.3 is
hereby renumbered as Section 4.2. |
2. |
|
The last sentence of Section 7.1 of the Agreement is hereby deleted and replaced with the
following: |
In no case shall Executive be required to devote in excess of twenty (20) hours a month
to the provision of consulting services hereunder; provided, further,
that the level of consulting services provided by Executive to the Company shall be not
more than 20% of the average level of services provided by Executive to the Company over
the thirty-six month period preceding Executives Retirement.
3. |
|
Section X of the Agreement is hereby deleted in its entirety and replaced with the following: |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, Executive shall not be considered to have terminated employment with the
Company for purposes of this Agreement and no payments shall be due to Executive under
this Agreement until Executive would be considered to have incurred a separation from
service from the Company within the meaning of Section 409A of the Code. For purposes
of this Agreement, each amount to be paid or benefit to be provided shall be construed
as a separate identified payment for purposes of Section 409A of the Code, and any
payments described in this Agreement that are due within the short term deferral
period within the meaning of Section 409A of the Code shall not be treated as deferred
compensation unless applicable law requires otherwise. To the extent required in order
to avoid accelerated taxation and/or tax penalties under Section 409A of the Code,
amounts that would otherwise
be payable and benefits that would otherwise be provided pursuant to this Agreement
during the six-month period immediately following Executives termination of employment
shall instead be paid on the first business day after the date that is six months
following Executives termination of employment (or death, if earlier). To the extent
required to avoid an accelerated or additional tax under Section 409A of the Code,
amounts reimbursable to Executive under this Agreement shall be paid to Executive on or
before the last day of the year following the year in which the expense was incurred and
the amount of expenses eligible for reimbursement (and in-kind benefits provided to
Executive) during any one year may not effect amounts reimbursable or provided in any
subsequent year; provided, however, that with respect to any
reimbursements for any taxes which Executive would become entitled to under the terms of
the Agreement, the payment of such reimbursements shall be made by the Company no later
than the end of the calendar year following the calendar year in which Executive remits
the related taxes.
4. |
|
This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
5. |
|
Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC. |
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: Chairman, Compensation Committee |
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/s/ Edward J. Borkowski
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Edward J. Borkowski |
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2
EX-10.25(D)
Exhibit 10.25
(d)
AMENDMENT NO. 3 TO
TRANSITION AND SUCCESSION AGREEMENT
THIS AMENDMENT TO THE TRANSITION AND SUCCESSION AGREEMENT (this Amendment) by and between
Mylan Inc. (the Company) and Robert J. Coury (the Executive), is made as of December 22, 2008.
WHEREAS, the Company and the Executive are parties to that certain Transition and Succession
Agreement dated as of December 15, 2003 and amended on December 2, 2004 and April 3, 2006 (the
Agreement); and
WHEREAS, the Company and Executive wish to further amend the Agreement as set forth below to
comply with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
The following sentence is hereby added to the end of Section 3(a) of the Agreement: |
Notwithstanding the above, to the extent the Executive is terminated (i) prior to the
date on which a Change of Control occurs, (ii) following a Change of Control but prior
to a change in ownership or control of the Company within the meaning of Section 409A of
the Internal Revenue Code of 1986, as amended (the Code), or (iii) more than two years
following a Change in Control but prior to a change in ownership or control of the
Company within the meaning of Section 409A of the Code, amounts payable to the Executive
hereunder, to the extent not in excess of the amount that the Executive would have
received under any other pre-Change-of-Control severance plan or arrangement with the
Company had such plan or arrangement been applicable, shall be paid at the time and in
the manner provided by such plan or arrangement and the remainder shall be paid to the
Executive in accordance with the provisions of this Section 3(a).
2. |
|
In the first sentence of Section 3(a)(ii) of the Agreement, the phrase In addition, for the
remainder of the calendar year in which the Executive ceases to be employed by the Company and
the Affiliated Companies, and during the two succeeding calendar years, is hereby deleted in
its entirety and replaced with the following phrase: |
In addition, for a period of three years after the date on which the Executive ceases
to be employed by the Company and the Affiliated Companies,
3. |
|
The last sentence (set forth below) of Section 3(a)(ii) of the Plan is hereby deleted in its
entirety. |
Upon publication of final treasury regulations under Section 409A of the Code, the
Company and the Executive shall consider in good faith amendments to Section 3(a)(ii)
which (i) are consistent with such final regulations and (ii) cause this Section
3(a)(ii) to be as consistent as practicable with the last sentence of Section 3(a) of
the Agreement as in effect prior to this Amendment No. 2 to the Agreement.
4. |
|
The following shall be added as a new Section 9(f): |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, the Executive shall not be considered to have terminated employment with
the Company for purposes of this Agreement and no payments shall be due to the Executive
under this Agreement until the Executive would be considered to have incurred a
separation from service from the Company within the meaning of Section 409A of the
Code. For purposes of this Agreement, each amount to be paid or benefit to be provided
shall be construed as a separate identified payment for purposes of Section 409A of the
Code, and any payments described in this Agreement that are due within the short term
deferral period within the meaning of Section 409A of the Code shall not be treated as
deferred compensation unless applicable law requires otherwise. To the extent required
in order to avoid accelerated taxation and/or tax penalties under Section 409A of the
Code, amounts that would otherwise be payable and benefits that would otherwise be
provided pursuant to this Agreement during the six-month period immediately following
the Executives termination of employment shall instead be paid on the first business
day after the date that is six months following the Executives termination of
employment (or death, if earlier). To the extent required to avoid an accelerated or
additional tax under Section 409A of the Code, amounts reimbursable to the Executive
under this Agreement shall be paid to the Executive on or before the last day of the
year following the year in which the expense was incurred and the amount of expenses
eligible for reimbursement (and in-kind benefits provided to the Executive) during any
one year may not effect amounts reimbursable or provided in any subsequent year;
provided, however, that with respect to any reimbursements for any taxes
which the Executive would become entitled to under the terms of the Agreement, the
payment of such reimbursements shall be made by the Company no later than the end of the
calendar year following the calendar year in which the Executive remits the related
taxes.
5. |
|
This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
6. |
|
Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
[SIGNATURES FOLLOW]
2
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC. |
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: Chairman, Compensation Committee |
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/s/ Robert J. Coury
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Robert J. Coury |
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3
EX-10.26(D)
Exhibit
10.26 (d)
AMENDMENT NO. 3 TO
TRANSITION AND SUCCESSION AGREEMENT
THIS AMENDMENT TO THE TRANSITION AND SUCCESSION AGREEMENT (this Amendment) by and between
Mylan Inc. (the Company) and Edward J. Borkowski (the Executive), is made as of December 22,
2008.
WHEREAS, the Company and the Executive are parties to that certain Transition and Succession
Agreement dated as of December 15, 2003 and amended on December 2, 2004 and April 3, 2006 (the
Agreement); and
WHEREAS, the Company and Executive wish to further amend the Agreement as set forth below to
comply with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
The following sentence is hereby added to the end of Section 5(a) of the Agreement: |
Notwithstanding the above, to the extent the Executive is terminated (i) prior to the
date on which a Change of Control occurs or (ii) following a Change of Control but prior
to a change in ownership or control of the Company within the meaning of Section 409A of
the Internal Revenue Code of 1986, as amended (the Code), amounts payable to the
Executive hereunder, to the extent not in excess of the amount that the Executive would
have received under any other pre-Change-of-Control severance plan or arrangement with
the Company had such plan or arrangement been applicable, shall be paid at the time and
in the manner provided by such plan or arrangement and the remainder shall be paid to
the Executive in accordance with the provisions of this Section 5(a).
2. |
|
The following shall be added as a new Section 13(g): |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, the Executive shall not be considered to have terminated employment with
the Company for purposes of this Agreement and no payments shall be due to the Executive
under Section 5 of this Agreement until the Executive would be considered to have
incurred a separation from service from the Company within the meaning of Section 409A
of the Code. For purposes of this Agreement, each amount to be paid or benefit to be
provided shall be construed as a separate identified payment for purposes of Section
409A of the Code, and any payments described in Section 5 that are due within the short
term deferral period within the meaning of Section 409A of the Code shall not be
treated as deferred compensation unless
applicable law requires otherwise. To the extent required in order to avoid accelerated
taxation and/or tax penalties under Section 409A of the Code, amounts that would
otherwise be payable and benefits that would otherwise be provided pursuant to this
Agreement during the six-month period immediately following the Executives termination
of employment shall instead be paid on the first business day after the date that is six
months following the Executives termination of employment (or death, if earlier). To
the extent required to avoid an accelerated or additional tax under Section 409A of the
Code, amounts reimbursable to the Executive under this Agreement shall be paid to the
Executive on or before the last day of the year following the year in which the expense
was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits
provided to the Executive) during any one year may not effect amounts reimbursable or
provided in any subsequent year; provided, however, that with respect to
any reimbursements for any taxes which the Executive would become entitled to under the
terms of the Agreement, the payment of such reimbursements shall be made by the Company
no later than the end of the calendar year following the calendar year in which the
Executive remits the related taxes.
3. |
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This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
4. |
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Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC. |
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: Chairman, Compensation Committee |
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/s/ Edward J. Borkowski
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Edward J. Borkowski |
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2
EX-10.27(B)
Exhibit
10.27 (b)
AMENDMENT NO. 1 TO
TRANSITION AND SUCCESSION AGREEMENT
THIS AMENDMENT TO THE TRANSITION AND SUCCESSION AGREEMENT (this Amendment) by and between
Mylan Inc. (the Company) and Heather Bresch (the Executive), is made as of December 22, 2008.
WHEREAS, the Company and the Executive are parties to that certain Transition and Succession
Agreement (the Agreement); and
WHEREAS, the Company and Executive wish to amend the Agreement as set forth below to comply
with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
The following sentence is hereby added to the end of Section 5(a) of the Agreement: |
Notwithstanding the above, to the extent the Executive is terminated (i) prior to the
date on which a Change of Control occurs or (ii) following a Change of Control but prior
to a change in ownership or control of the Company within the meaning of Section 409A of
the Internal Revenue Code of 1986, as amended (the Code), amounts payable to the
Executive hereunder, to the extent not in excess of the amount that the Executive would
have received under any other pre-Change-of-Control severance plan or arrangement with
the Company had such plan or arrangement been applicable, shall be paid at the time and
in the manner provided by such plan or arrangement and the remainder shall be paid to
the Executive in accordance with the provisions of this Section 5(a).
2. |
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The following shall be added as a new Section 5(c): |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, the Executive shall not be considered to have terminated employment with
the Company for purposes of this Agreement and no payments shall be due to the Executive
under Section 5 of this Agreement until the Executive would be considered to have
incurred a separation from service from the Company within the meaning of Section 409A
of the Code. For purposes of this Agreement, each amount to be paid or benefit to be
provided shall be construed as a separate identified payment for purposes of Section
409A of the Code, and any payments described in Section 5 that are due within the short
term deferral period as defined in Section 409A of the Code shall not be treated as
deferred compensation unless applicable law requires otherwise. To the extent required
in order to avoid accelerated taxation
and/or tax penalties under Section 409A of the Code, amounts that would otherwise be
payable and benefits that would otherwise be provided pursuant to this Agreement during
the six-month period immediately following the Executives termination of employment
shall instead be paid on the first business day after the date that is six months
following the Executives termination of employment (or death, if earlier). To the
extent required to avoid an accelerated or additional tax under Section 409A of the
Code, amounts reimbursable to the Executive under this Agreement shall be paid to the
Executive on or before the last day of the year following the year in which the expense
was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits
provided to the Executive) during any one year may not affect amounts reimbursable or
provided in any subsequent year; provided, however, that with respect to
any reimbursements for any taxes which the Executive would become entitled to under the
terms of the Agreement, the payment of such reimbursements shall be made by the Company
no later than the end of the calendar year following the calendar year in which the
Executive remits the related taxes.
3. |
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The last sentence of Section 7 is hereby amended by deleting the words of the Internal
Revenue Code of 1986, as amended (the Code) and replacing them with of the Code. |
4. |
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This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
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5. |
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Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC.
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: |
Chairman, Compensation Committee |
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/s/ Heather Bresch
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Heather Bresch |
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2
EX-10.28(B)
Exhibit
10.28 (b)
AMENDMENT NO. 1 TO
TRANSITION AND SUCCESSION AGREEMENT
THIS AMENDMENT TO THE TRANSITION AND SUCCESSION AGREEMENT (this Amendment) by and between
Mylan Inc. (the Company) and Rajiv Malik (the Executive), is made as of December 22, 2008.
WHEREAS, the Company and the Executive are parties to that certain Transition and Succession
Agreement (the Agreement); and
WHEREAS, the Company and Executive wish to amend the Agreement as set forth below to comply
with Section 409A of the Internal Revenue Code;
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. |
|
The following sentence is hereby added to the end of Section 5(a) of the Agreement: |
Notwithstanding the above, to the extent the Executive is terminated (i) prior to the
date on which a Change of Control occurs or (ii) following a Change of Control but prior
to a change in ownership or control of the Company within the meaning of Section 409A of
the Internal Revenue Code of 1986, as amended (the Code), amounts payable to the
Executive hereunder, to the extent not in excess of the amount that the Executive would
have received under any other pre-Change-of-Control severance plan or arrangement with
the Company had such plan or arrangement been applicable, shall be paid at the time and
in the manner provided by such plan or arrangement and the remainder shall be paid to
the Executive in accordance with the provisions of this Section 5(a).
2. |
|
The following shall be added as a new Section 5(c): |
Conditions to Payment and Acceleration; Section 409A of the Code. The intent of
the parties is that payments and benefits under this Agreement comply with Section 409A
of the Code to the extent subject thereto, and, accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance
therewith. Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under Section 409A
of the Code, the Executive shall not be considered to have terminated employment with
the Company for purposes of this Agreement and no payments shall be due to the Executive
under Section 5 of this Agreement until the Executive would be considered to have
incurred a separation from service from the Company within the meaning of Section 409A
of the Code. For purposes of this Agreement, each amount to be paid or benefit to be
provided shall be construed as a separate identified payment for purposes of Section
409A of the Code, and any payments described in Section 5 that are due within the short
term deferral period as defined in Section 409A of the Code shall not be treated as
deferred compensation unless applicable law requires otherwise. To the extent required
in order to avoid accelerated taxation
and/or tax penalties under Section 409A of the Code, amounts that would otherwise be
payable and benefits that would otherwise be provided pursuant to this Agreement during
the six-month period immediately following the Executives termination of employment
shall instead be paid on the first business day after the date that is six months
following the Executives termination of employment (or death, if earlier). To the
extent required to avoid an accelerated or additional tax under Section 409A of the
Code, amounts reimbursable to the Executive under this Agreement shall be paid to the
Executive on or before the last day of the year following the year in which the expense
was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits
provided to the Executive) during any one year may not affect amounts reimbursable or
provided in any subsequent year; provided, however, that with respect to
any reimbursements for any taxes which the Executive would become entitled to under the
terms of the Agreement, the payment of such reimbursements shall be made by the Company
no later than the end of the calendar year following the calendar year in which the
Executive remits the related taxes.
3. |
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The last sentence of Section 7 is hereby amended by deleting the words of the Internal
Revenue Code of 1986, as amended (the Code) and replacing them with of the Code. |
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4. |
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This Amendment shall be governed by, interpreted under and construed in accordance with the
laws of the Commonwealth of Pennsylvania. |
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5. |
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Except as modified by this Amendment, the Agreement is hereby confirmed in all respects. |
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date and the
year first written above.
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MYLAN INC.
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/s/ Rodney L. Piatt
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By: Rodney L. Piatt |
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Title: |
Chairman, Compensation Committee |
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/s/ Rajiv Malik
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Rajiv Malik |
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2
EX-10.32
Exhibit 10.32
Director Compensation as of February 2009
Non-employee directors of Mylan Inc. receive $75,000 per year in cash compensation for their
service on the Board. In addition, Milan Puskar receives an additional $200,000 per year for his
service as Chairman. Non-employee directors are also reimbursed for actual expenses relating to
meeting attendance.
In addition:
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The Chairperson of the Audit Committee receives an additional fee of $15,000 per year; |
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The Chairperson of the Compensation Committee receives an additional fee of $10,000 per
year; |
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The Chairpersons of the Finance Committee, the Governance and Nominating Committee, and
the Compliance Committee each receive an additional fee of $5,000 per year; and |
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Each Committee member receives an additional fee of $2,500 per year, for each Committee
on which they serve. |
Non-employee directors, at the discretion of the full Board, are eligible to receive stock
options or other awards under Mylans 2003 Long-Term Incentive Plan.
EX-10.36
Exhibit 10.36
SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release (Agreement) is made by and between Edward J. Borkowski
(Executive) and Mylan Inc. (the Company) (collectively referred to as the Parties or
individually referred to as a Party).
RECITALS
WHEREAS, the Parties agree that Executive will separate from employment with the Company on
such date as Executive and the Company shall mutually agree (the Separation Date). This
Agreement shall become effective on the Separation Date and no payments shall be due hereunder
unless Executive separates employment under this Agreement.
NOW, THEREFORE, in consideration of the mutual promises made herein and intending to be
legally bound hereby, the Company and Executive hereby agree as follows:
COVENANTS
1. Payments.
a. Severance Payments.
(i) Employment Agreement. The Company will pay Executive an amount equal to 1.5 times
the sum of Executives current base salary and his Prior Bonus, as defined in Executives Executive
Employment Agreement dated as of July 1, 2004, as amended to date (the Employment Agreement),
less applicable withholdings.
(ii) Retirement Benefit Agreement. The Company will pay Executive an amount
representing payment in full of the vested portion of the Retirement Benefit under and as defined
in Executives Retirement Benefit Agreement dated December 15, 2003, as amended to date (the
Retirement Benefit Agreement).
(iii) The amounts set forth in items (i) and (ii) above shall be paid to Executive on the date
which is six months following the Separation Date (Payment Date); provided, however, that payment
of such amounts shall be made if and only if this Agreement becomes effective and shall also be
subject to Executive executing a Release (as defined in this Agreement) within twenty-one days
following the Separation Date (and failing to revoke the Release) and compliance with the covenants
set forth in Section 10 below.
b. Additional Consideration. In consideration for the restrictive covenants and the
Release and subject to the execution within twenty-one days following the Separation Date of the
Release (and failing to revoke the Release) and compliance with the covenants set forth in Section
10 below, the Company will pay Executive an amount currently estimated at $237,811.34 as additional
consideration hereunder (which amount may adjust based on the long-term applicable federal rate
applicable for the month in which the Separation Date occurs). This
payment will be paid to Executive within seven days of signing the Release (but in no event
later than March 15, 2010).
Page 1 of 11
c. COBRA Payments. Executive and his eligible dependents shall have the right to
continue, at the Companys expense, as participant(s) under the Companys health benefits programs
for up to 18 months after the Separation Date under Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (COBRA). Executive agrees to notify the Companys Global
Human Resources Department, in writing, immediately upon Executives and/or a covered dependents
first date of receipt of health benefits from another source, or as otherwise required by COBRA, at
which time the COBRA benefits provided to Executive and/or his covered dependents under this
Agreement shall cease.
d. Vacation Pay. The Company will pay Executive for all unused vacation time as of
the Separation Date. This payment will be included in Executives final regular pay.
e. Search Firms. Executive shall be entitled to retain any of the executive search
firms retained by the Company, and the Company, as applicable, shall provide such search firms with
written waivers or consents to permit Executive to do so.
2. Benefits. Executives group health insurance benefits shall cease on the
Separation Date, subject to Executives right to continue his and/or a covered dependents group
health insurance under the health benefit provisions of COBRA as described in Section 1(c) of this
Agreement. Executives participation in all benefits and incidents of employment, including, but
not limited to, vesting in stock options or restricted stock units, and the accrual of bonuses,
vacation, and paid time off, and any additional 401(k) plan contributions, cease as of the
Separation Date. Any equity awards (including stock option and restricted stock unit grants that
are unvested as of the Separation Date shall be cancelled as of the Separation Date and shall not
be exercisable following the Separation Date.
Provided that this Agreement becomes effective, Executive may exercise the vested options
listed below according the following schedule. If Executive does not exercise such options before
the stock market closes on the expiration date(s) indicated below, such options will expire and
will not be exercisable in the future.
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Number of Options |
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Exercise Price per share |
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Expiration Date |
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257,500 |
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$ |
13.68 |
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December 31, 2010 |
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37,900 |
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$ |
23.27 |
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April 5, 2016 |
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50,000 |
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$ |
15.80 |
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December 31, 2010 |
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65,768 |
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$ |
11.18 |
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December 31, 2010 |
Provided that this Agreement becomes effective, on the Separation Date, Executive shall vest
in the RSUs set forth below:
Page 2 of 11
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Grant Date |
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Number of RSUs |
4/5/06
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19,600 |
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7/27/07
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36,076 |
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3/18/08
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16,887 |
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In addition, any portion of Executives 401(k) account contributions that vested before the
Separation Date remains vested, subject to the provisions of the governing 401(k) plan documents.
3. Payment of Salary and Receipt of All Benefits. Executive acknowledges and
represents that, other than the consideration set forth in this Agreement, the Company has paid or
provided all salary, wages, bonuses, accrued vacation/paid time off, premiums, leaves, reimbursable
expenses, stock, stock options, vesting, shares pursuant to vested restricted stock units, and any
and all other benefits and compensation due to Executive by the Company and its affiliates,
including any payment under the Employment Agreement or the Retirement Benefit Agreement. To
receive reimbursement for any final Company-related travel expenses, Executive must submit a final
report of all such outstanding expenses within thirty (30) days after the Separation Date,
accompanied by receipts and otherwise subject to the Companys expense reimbursement policies.
4. Release of Claims. In exchange for the consideration contained in this Agreement,
Executive, on behalf of himself and his heirs, executors, administrators, successors and assigns,
hereby agrees to execute (and not revoke) the release of claims attached to this Agreement as
Schedule A (the Release) within twenty-one days following the Separation Date.
5. Application for Employment. Executive understands and agrees that, as a condition
of this Agreement, Executive shall not be entitled to any employment with the Company, and
Executive hereby waives any right, or alleged right, of employment or re-employment with the
Company. The Company acknowledges that it may in the future seek to engage Executive as a
consultant on an independent-contractor basis; nevertheless the Company makes no commitment to
doing so. Notwithstanding any other provision in this Agreement, this Paragraph shall be deemed to
be inapplicable in the event that Executive is employed by an entity that is acquired by Company.
6. Cooperation. Prior to the Separation Date, Executive will cooperate in full with
the Company to effect a smooth and effective transition to whoever will replace Executive. In
addition, Executive hereby agrees that, for five years following the Separation Date, Executive
will cooperate reasonably, at such times as do not interfere materially with Executives business
or personal obligations, with any Releasees (as defined in the Release) and/or their advisors in
connection with any matter that could give rise to any liability to a Releasee or their respective
directors, officers or employees, including without limitation the conduct of any inquiry,
examination, audit, investigation, correspondence, negotiation, dispute, appeal or litigation.
Such cooperation shall include without limitation providing reasonable assistance to the directors,
officers, employees and representatives of the relevant Releasees during usual business hours,
subject to provision of reasonable notice. The Company shall reimburse Executive for all
Page 3 of 11
reasonable expenses and costs related to providing such assistance, subject to appropriate
documentation thereof. Nothing in this provision is intended to prohibit Executive from providing
complete and truthful testimony pursuant to any lawfully issued subpoena, court order, discovery
demand or similar legal process.
7. Trade Secrets and Confidential Information/Company Property. Prior to the
Separation Date, Executive will return all documents and other items provided to Executive by the
Company, developed or obtained by Executive in connection with his employment with the Company, or
otherwise belonging to the Company, including but not limited to the personal computer(s),
Blackberry, and any and all documents or electronic files. Executive further represents that he
has not misused or disclosed and will not misuse or disclose any of the Companys confidential,
proprietary, or trade secret information to any unauthorized party.
8. No Cooperation. Executive agrees that he will not knowingly encourage, counsel, or
assist any attorneys or their clients in the presentation or prosecution of any disputes,
differences, grievances, claims, charges, or complaints by any third party against any of the
Releasees, unless under a subpoena or other court order to do so or as related directly to the ADEA
waiver in this Agreement or as otherwise required by law. Executive agrees both to immediately
notify the Company upon receipt of any such subpoena or court order, and to furnish, within three
(3) business days of its receipt, a copy of such subpoena or other court order. If approached by
anyone for counsel or assistance in the presentation or prosecution of any disputes, differences,
grievances, claims, charges, or complaints against any of the Releasees, Executive shall state no
more than that he cannot provide counsel or assistance.
9. Non-disparagement. Unless compelled to testify as a matter of law, Executive
agrees to refrain from any disparaging statements, including but not limited to statements that
amount to libel or slander, about the Company, its subsidiaries and affiliated companies, and/or
any of its or their employees, officers, or directors, and/or any of the other Releasees including,
without limitation, the business, products, intellectual property, financial standing, future, or
other employment, compensation, benefit, or personnel practices of the Company. Executive further
agrees to refrain from any disparaging statements, including libel or slander, about any of the
Releasees that pertain to any personal or confidential matters that may cause embarrassment to any
of the Releasees, or may result in any adverse effect on the professional or personal reputation of
any of the Releasees.
Unless compelled to testify as a matter of law, the Company agrees not to permit its employees
to make any disparaging statements about Executive; provided, however, that Executive acknowledges
and agrees that the Companys obligations under this Paragraph extend only to the Companys current
senior executive officers and only for so long as each of them is an employee of the Company.
10. Breach.
a. Material Breach of Agreement. In addition to the rights provided in the
Attorneys Fees section below, Executive acknowledges and agrees that if prior to the Payment
Date the Company, after due inquiry, determines in good faith that there is factual
Page 4 of 11
evidence
that Executive has materially breached Sections 4, 7, 8, and/or 9 of this Agreement (unless such
breach constitutes a legal action by Executive challenging or seeking a determination in good faith
of the validity of the waiver herein under the ADEA), or Section 6 (Non-Competition and
Non-Solicitation) of the Employment Agreement, Executive shall not be entitled to receive payments
hereunder. Furthermore, if any such payments have been made and a court or arbitrator determines
that Executive has materially breached this Agreement (unless such breach constitutes a legal
action by Executive challenging or seeking a determination in good faith of the validity of the
waiver herein under the ADEA), then the Company shall be entitled immediately to recover the
consideration provided to Executive under this Agreement and to obtain damages, except as provided
by law.
b. Executive also acknowledges and agrees that his compliance with Sections 4, 7, 8, 9, and
10 of this Agreement and Section 6 of the Employment Agreement is of the essence. The
Parties agree that if the Company proves in a court of law or in arbitration that Executive
breached or will breach any of these provisions (Sections 4, 7, 8, 9, and 10 of this Agreement or
Section 6 of the Employment Agreement), without limiting any other remedies available to the
Company, the Company shall be entitled to an injunction restraining Executive from any future or
further breaches and an award of its costs spent enforcing the applicable provision(s), including
all reasonable attorneys fees associated with the enforcement action, without regard to whether
the Company can establish actual damages from Executives breach, except to the extent that such
breach constitutes a legal action by Executive that directly pertains to the ADEA or such remedy is
unavailable under law. Any such individual breach or disclosure shall not excuse Executive from
his obligations hereunder, nor permit him to make additional disclosures. Executive warrants that
he: (a) has not encouraged or assisted any attorneys or their clients in the presentation or
prosecution of any disputes against the Company; and (b) has not disparaged any of the Releasees.
11. No Admission of Liability/Compromise. Executive and the Company understand and
acknowledge that this Agreement constitutes a compromise and settlement of the Companys position
on the one hand, and any and all actual or potential disputed claims by the Executive on the other.
No action taken by the Company or Executive hereto, either previously or in connection with this
Agreement, shall be deemed or construed to be (a) an admission of the truth or falsity of any
actual or potential claims or (b) an acknowledgment or admission by the Company or Executive of any
fault or liability.
12. Costs. The Parties shall each bear their own costs, attorneys fees, and other
fees incurred in connection with the preparation of this Agreement.
13. Choice of Law and Forum. This Agreement shall be construed and enforced according
to, and the rights and obligations of the parties shall be governed in all respects by, the laws of
the Commonwealth of Pennsylvania without reference to the principles of conflicts of law thereof.
Any controversy, dispute or claim arising out of or relating to this Agreement, or the breach
hereof, including a claim for injunctive relief, or any claim which, in any way arises out of or
relates to, Executives employment with the Company or the termination of said employment
(whether such dispute arises under any federal, state or local statute or regulation, or at
common law), including but not limited to statutory claims for discrimination, shall be
Page 5 of 11
resolved by
arbitration in accordance with the then current rules of the American Arbitration Association
respecting employment disputes pertaining at the time the dispute arises, however, that either
party may seek an injunction in aid of arbitration with respect to enforcement of Sections 7, 8, 9,
or 10 of this Agreement or Section 6 (Non-Competition and Non-Solicitation) of the Employment
Agreement from any court of competent jurisdiction. The Parties agree that the hearing of any such
dispute will be held in Pittsburgh, Pennsylvania, and the parties shall bear their own costs,
expenses and counsel fees to the extent permitted by law. The decision of the arbitrator(s) will be
final and binding on all parties and any award rendered shall be enforceable upon confirmation by a
court of competent jurisdiction. Any arbitration proceedings, decision or award rendered
hereunder, and the validity, effect and interpretation of this arbitration provision shall be
governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. Executive and the Company expressly
consent to the jurisdiction of any such arbitrator over them.
14. Tax Consequences. The Company makes no representations or warranties with respect
to the tax consequences of the payments and any other consideration provided to Executive or made
on his behalf under the terms of this Agreement. Executive agrees and understands that he is
responsible for payment, if any, of local, state, and/or federal taxes on the payments and any
other consideration provided hereunder by the Company and any penalties or assessments thereon.
Executive further agrees to indemnify and hold the Company harmless from any claims, demands,
deficiencies, penalties, interest, assessments, executions, judgments, or recoveries by any
government agency against the Company for any amounts claimed due on account of (a) Executives
failure to pay or delayed payment of federal or state taxes, or (b) damages sustained by the
Company by reason of any such claims, including attorneys fees and costs.
15. Authority. The Company represents and warrants that the undersigned has the
authority to act on behalf of the Company and to bind the Company and all who may claim through it
to the terms and conditions of this Agreement. Executive represents and warrants that he has the
capacity to act on his own behalf and on behalf of all who might claim through him to bind them to
the terms and conditions of this Agreement. Each Party warrants and represents that there are no
liens or claims of lien or assignments in law or equity or otherwise of or against any of the
claims or causes of action released herein.
16. No Representations. Executive represents that he has had an opportunity to
consult with an attorney, and has carefully read and understands the scope and effect of the
provisions of this Agreement. Executive has not relied upon any representations or statements made
by the Company that are not specifically set forth in this Agreement.
17. Severability. In the event that any provision or any portion of any provision
hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent
jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in
full force and effect without said provision or portion of provision.
18. Attorneys Fees. Except with regard to a legal action challenging or seeking a
determination in good faith of the validity of the waiver herein under the ADEA or otherwise
prohibited by law, in the event that either Party brings an action to enforce or effect its rights
Page 6 of 11
under this Agreement, the prevailing Party shall be entitled to recover its costs and expenses,
including the costs of mediation, arbitration, litigation, court fees, and reasonable attorneys
fees incurred in connection with such an action. Such costs and expenses shall be paid to the
prevailing party no later than March 15 of the year following the year in which the legal action is
resolved.
19. Entire Agreement. This Agreement and the provisions of each of the Employment
Agreement and the Retirement Benefit Agreement that expressly survive termination thereof
(including without limitation non-competition, non-solicitation, confidentiality and consulting
commitment but not the severance pay or benefits provisions), represent the entire agreement and
understanding between the Company and Executive concerning the subject matter of this Agreement and
Executives employment with and separation from the Company and the events leading thereto and
associated therewith, and supersede and replace any and all prior negotiations, representations,
agreements and understandings concerning the subject matter of such Agreements and Executives
relationship with the Company. The Transition and Succession Agreement by and between Executive
and the Company terminates effective as of the Separation Date.
20. No Oral Modification. This Agreement may only be amended in a writing signed by
Executive and the Companys Chief Executive Officer.
21. Counterparts. This Agreement may be executed in counterparts and by facsimile,
and each counterpart and facsimile shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the undersigned.
22. Voluntary Execution of Agreement. Executive understands and agrees that he
executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of
the Company or any third party, with the full intent of releasing all of his claims against the
Company and any of the other Releasees. Executive acknowledges that: (a) he has read this
Agreement; (b) he has been represented in the preparation, negotiation, and execution of this
Agreement by legal counsel of his own choice or has elected not to retain legal counsel; (c) he
understands the terms and consequences of this Agreement and of the releases it contains; and (d)
he is fully aware of the legal and binding effect of this Agreement.
Page 7 of 11
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth
below.
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Dated: February 20, 2009 |
By |
/s/ Edward J. Borkowski
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Edward J. Borkowski, an individual |
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MYLAN INC.
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Dated: February 20, 2009 |
By |
/s/ Robert J. Coury
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Name: |
Robert J. Coury |
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Title: |
Vice Chairman and Chief Executive Officer |
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Page 8 of 11
SCHEDULE A
RELEASE
1. In exchange for the consideration contained in the Separation Agreement entered into between
Mylan Inc. (the Company) and Edward J. Borkowski (Executive), dated as of February 20, 2009
(the Separation Agreement), Executive, on behalf or himself and his heirs, executors,
administrators, successors and assigns, hereby knowingly and voluntarily releases the Company, its
affiliates and each of their current and former officers, directors, employees, agents, investors,
attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers,
trustees, divisions, and subsidiaries, and predecessor and successor corporations and assigns
(collectively, the Releasees) from any and all claims, complaints, charges, duties, obligations,
demands, or causes of action relating to any matters of any kind, whether presently known or
unknown, suspected or unsuspected, that Executive may possess against any of the Releasees arising
from any omissions, acts, facts, or damages that have occurred up until and including the date
Executive executes this release (the Release), including, without limitation:
a. any and all claims relating to or arising from Executives employment relationship with the
Company and the termination of that relationship;
b. any and all claims relating to, or arising from, Executives right to purchase, or actual
purchase of shares of stock of the Company, including, without limitation, any claims for fraud,
misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law,
and securities fraud under any state or federal law;
c. any and all claims for wrongful discharge of employment; termination in violation of public
policy; discrimination; harassment; retaliation; breach of contract, both express and implied;
breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel;
negligent or intentional infliction of emotional distress; fraud; negligent or intentional
misrepresentation; negligent or intentional interference with contract or prospective economic
advantage; unfair business practices; defamation; libel; slander; negligence; personal injury;
assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
d. any and all claims under any policy, agreement, understanding or promise, written or oral,
formal or informal, between any Releasee and Executive, including but not limited to the Employment
Agreement or the Retirement Benefit Agreement (whether arising before, on or after the date
Executive executes this Release);
e. any and all claims for violation of any federal, state, or municipal statute, including,
but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the
Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the
Fair Labor Standards Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act
of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of
1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; the
Sarbanes-Oxley Act of 2002; the laws and Constitution of
Page 9 of 11
the Commonwealth of Pennsylvania; the
Pennsylvania Wage and Collection Law; the Pennsylvania
Human Relations Act; the Pennsylvania Equal Pay Law; and the Pennsylvania Worker Community
Right to Know Act, each as amended, or any other federal, state or local law, regulation ordinance
or common law;
f. any and all claims for violation of the federal or any state constitution;
g. any and all claims arising out of any other laws and regulations relating to employment or
employment discrimination;
h. any claim for any loss, cost, damage, or expense arising out of any dispute over the
nonwithholding or other tax treatment of any of the proceeds received by Executive as a result of
the Separation Agreement; and
i. any and all claims for attorneys fees and costs.
Executive agrees that the release set forth in this section shall be and remain in effect in all
respects as a complete general release as to the matters released. Notwithstanding the foregoing,
this Release does not extend to any obligations incurred under the Separation Agreement, any rights
Executive may have under any D&O insurance policy maintained by the Company or any obligations for
indemnification or contribution under the Employment Agreement or otherwise. This release does not
release claims that cannot be released as a matter of law, including, but not limited to,
Executives right to file a charge with or participate in a charge by the Equal Employment
Opportunity Commission, or any other local, state, or federal administrative body or government
agency that is authorized to enforce or administer laws related to employment, against the Company
(with the understanding that any such filing or participation does not give Executive the right to
recover any monetary damages against the Company; Executives release of claims waives any personal
recovery from the Company relating to this Release or the Separation Agreement). Executive
represents that he has made no assignment or transfer of any right, claim, complaint, charge, duty,
obligation, demand, cause of action, or other matter waived or released by this Section.
2. Acknowledgment of Waiver of Claims under ADEA. Executive acknowledges that he is
waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967
(ADEA), and that this waiver and release is knowing and voluntary. Executive agrees that this
waiver and release does not apply to any rights or claims that may arise under the ADEA after the
date Executive executes this Release. Executive acknowledges that the consideration given for this
waiver and release is in addition to anything of value to which Executive was already entitled.
Executive further acknowledges that he has been advised by this writing that: (a) he should consult
with an attorney prior to executing this Release; (b) he has twenty-one (21) days within
which to consider this Release; (c) he has seven (7) days following his execution of this Release
to revoke this Release and may do so by writing to the Companys Global General Counsel; (d) this
Release shall not be effective until after the revocation period has expired; and (e) nothing in
this Release prevents or precludes Executive from challenging or seeking a determination in good
faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent,
penalties, or costs for doing so, unless specifically authorized
Page 10 of 11
by federal law.
In the event Executive signs this Release and returns it to the Company in less than the
21-day period identified above, Executive hereby acknowledges that he has freely and voluntarily
chosen to waive the time period allotted for considering this Release.
3. Unknown Claims. Executive acknowledges that he has been advised to consult with legal
counsel and that he is familiar with the principle that a general release does not extend to claims
that the releaser does not know or suspect to exist in his favor at the time of executing the
release, which, if known by him, must have materially affected his settlement with the releasee.
Executive, being aware of said principle, agrees to expressly waive any rights he may have to
unknown claims, as well as under any other statute or common law principles of similar effect.
4. Effective Date. Executive has seven (7) days after he signs this Release to revoke it.
This Release will become effective on the eighth (8th) day after Executive signs this Release, so
long as it has not been revoked by Executive before that date.
5. Voluntary Execution of Release. Executive understands and agrees that he executed this
Release voluntarily, without any duress or undue influence on the part or behalf of the Company or
any third party, with the full intent of releasing all of his claims against the Company and any of
the other Releasees. Executive acknowledges that: (a) he has read this Release; (b) he has been
represented in the preparation, negotiation, and execution of this Release by legal counsel of his
own choice or has elected not to retain legal counsel; (c) he understands the terms and
consequences of this Release and of the releases it contains; and (d) he is fully aware of the
legal and binding effect of this Release.
6. No Pending or Future Lawsuits. Executive represents that he has no lawsuits, claims, or
actions pending in his name, or on behalf of any other person or entity, against the Company or any
of the other Releasees. Executive also represents that he does not intend to bring any claims on
his own behalf or on behalf of any other person or entity against the Company or any of the other
Releasees.
IN WITNESS WHEREOF, Executive has executed this Release on the date set forth below.
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Dated: |
By |
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Edward J. Borkowski, an individual |
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Page 11 of 11
EX-21
EXHIBIT 21
Subsidiaries
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Name
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State or Country of
Organization
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Mylan Pharmaceuticals Inc.
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West Virginia
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Mylan Technologies Inc.
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West Virginia
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UDL Laboratories, Inc.
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Illinois
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Mylan Inc.
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Delaware
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Mylan Caribe, Inc.
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Vermont
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Mylan International Holdings, Inc.
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Vermont
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MLRE LLC
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Pennsylvania
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MP Air, Inc.
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West Virginia
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Bertek International, Inc.
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Vermont
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American Triumvirate Insurance Company
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Vermont
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Somerset Pharmaceuticals, Inc.
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Delaware
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Mayapple Acquisition, LLC
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West Virginia
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Bertek Pharmaceuticals International Limited
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United Kingdom
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Mylan Bertek Pharmaceuticals Inc.
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Texas
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Euro Mylan B.V.
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Netherlands
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MP Laboratories (Mauritius) Ltd.
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Mauritius
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Mylan Singapore Pte. Ltd.
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Singapore
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Mylan Canada, ULC
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Canada
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Genpharm ULC
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Canada
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Mylan Australia Pty. Ltd.
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Australia
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Mylan Australia Holding Pty. Ltd.
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Australia
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Mylan Delaware Inc.
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Delaware
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Mylan Europe B.V.B.A.
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Belgium
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Mylan LHC Inc.
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Delaware
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Mylan Luxembourg 3 S.a.r.l.
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Luxembourg
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Mylan Luxembourg L3 S.C.S.
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Luxembourg
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Mylan Luxembourg 2 S.a.r.l.
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Luxembourg
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Mylan Bermuda Ltd.
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Bermuda
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Mylan Luxembourg L1 S.C.S.
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Luxembourg
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Mylan Luxembourg 1 S.a.r.l.
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Luxembourg
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Mylan (Gibraltar) 3 Ltd.
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Gibraltar
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Mylan Luxembourg L2 S.C.S.
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Luxembourg
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Mylan Luxembourg 4 S.a.r.l.
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Luxembourg
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Mylan Luxembourg 5 S.a.r.l.
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Luxembourg
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Mylan (Gibraltar) 1 Ltd.
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Gibraltar
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Mylan (Gibraltar) 2 Ltd.
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Gibraltar
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Mylan (Gibraltar) 4 Ltd.
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Gibraltar
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Mylan dura GmbH
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Germany
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Mylan S.A.S
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France
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Allgemeine Beteiligungsgesellschaft Genius Deutschland mbH
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Germany
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Mylan Generics France Holding S.A.S.
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France
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Mylan France S.A.S.
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France
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Mylan, Lda
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Portugal
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Societe de Participation Pharmaceutique S.A.S.
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France
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Mylan Generics Limited
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United Kingdom
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Generics [U.K.] Ltd.
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United Kingdom
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Name
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State or Country of
Organization
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McDermott Laboratories Ltd.
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Ireland
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Mylan B.V.
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Netherlands
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Arcana Arzneimittel GmbH
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Austria
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Mylan S.p.A.
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Italy
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Qualimed S.A.S.
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France
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Mylan S.A.
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Morocco
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Generics Pharma Hellas Ltd.
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Greece
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Mylan GmbH
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Switzerland
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Mylan Switzerland GmbH
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Switzerland
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Mylan B.V.B.A.
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Belgium
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Mylan Group B.V.
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Netherlands
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Mylan Netherlands BV
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Netherlands
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Xixia Pharmaceuticals (Pty) Ltd.
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South Africa
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Acepharm Ltd.
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South Africa
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SCP Pharmaceuticals (Pty) Ltd.
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South Africa
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Mylan (Proprietary) Limited
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South Africa
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Mylan Pharmaceuticals S.L.
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Spain
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Prasfarma Oncologicos S.L.
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Spain
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Scandinavian Pharmaceuticals-Generics AB
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Sweden
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Scandpharm Marketing AB
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Sweden
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Mylan OY
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Finland
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Mylan AB
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Sweden
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Mylan ApS
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Denmark
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Mylan AS
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Norway
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Genpharm General Partner, Inc.
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New York
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Genpharm Limited Partner, Inc.
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New York
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Genpharm, L.P.
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New York
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Mygoldex Pharma Ltd.
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Canada
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Prempharm Inc.
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Canada
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Mylan India Private Limited
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India
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Mylan Laboratories India Private Limited
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India
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Mylan Seiyaku Ltd.
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Japan
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Alphapharm Pty. Ltd.
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Australia
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Mylan Australia 1 Pty. Ltd.
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Australia
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Mylan Australia 2 Pty. Ltd.
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Australia
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Pacific Pharmaceuticals Ltd.
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New Zealand
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EMD, Inc.
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Delaware
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Dey, Inc.
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Delaware
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Dey Limited Partner, Inc.
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Delaware
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Dey, L.P.
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Delaware
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Mylan Sp. Z.o.o.
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Poland
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Mylan s.r.o.
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Slovakia
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Mylan d.o.o.
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Slovenia
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Mylan Pharmaceuticals spol s.r.o.
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Czech Republic
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Mylan kft
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Hungary
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Name
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State or Country of
Organization
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Brand & Company
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Congo
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Mylan LLC
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Russian Federation
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Matrix Laboratories Limited
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India
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Matrix Laboratories B.V.
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Netherlands
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Matrix Laboratories N.V.
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Belgium
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Matrix Laboratories (Singapore) Pte. Ltd.
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Singapore
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Matrix Laboratories Inc.
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Delaware
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Docpharma N.V.
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Belgium
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Concord Biotech Limited
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India
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Matrix Pharma Group (Xiamen) Limited
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Peoples Republic of China
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Shanghai Fine Source Co. Ltd.
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Peoples Republic of China
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Mchem Research & Development Co. Ltd.
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Peoples Republic of China
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Dafeng Mchem Pharmaceutical Chemical Co. Ltd.
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Peoples Republic of China
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Xiamen Mchem Laboratories Limited
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Peoples Republic of China
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AB Medical PRS B.V.
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Netherlands
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Aktuapharma N.V.
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Belgium
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Apharma B.V.
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Netherlands
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Apothecon B.V.
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Netherlands
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Aprime N.V.
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Belgium
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Xiamen Beacon Pharmaceutical Manufacturing Co. Ltd.
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Peoples Republic of China
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DAA Pharma N.V.
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Luxembourg
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DCI Pharma S.a.r.l.
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France
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Docpharma Luxembourg S.a.r.l.
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Luxembourg
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Farma 1 S.R.L.
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Italy
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Hospithera N.V.
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Belgium
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Nutripharm N.A
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Belgium
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Servipharma N.V.
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|
Luxembourg
|
Vascucare N.V.
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Belgium
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Vascumed N.V.
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Belgium
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Value Pharma International N.V.
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Belgium
|
EX-23
EXHIBIT 23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration
Statement Nos.
333-35887,
333-42182,
333-43081,
333-65327,
333-65329,
333-98811,
333-111076,
and
333-111077
on
Form S-8
and Registration Statement
No. 333-140778
on
Form S-3
of our reports dated February 16, 2009, relating to the
consolidated financial statements and consolidated financial
statement schedule of Mylan Inc. and subsidiaries (the
Company)(which report expresses an unqualified
opinion and includes explanatory paragraphs relating to the
Companys adoption of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109 and the
Companys change in its fiscal year), and the effectiveness
of the Companys internal control over financial reporting,
appearing in this Annual Report on
Form 10-K
of Mylan Inc. for the year ended December 31, 2008.
Pittsburgh, Pennsylvania
February 16, 2009
EX-31.1
EXHIBIT 31.1
Certification
of CEO Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert J. Coury, certify that:
1. I have reviewed this
Form 10-K
of Mylan Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the period[s] presented in this report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b) designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting.
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
Robert J. Coury
Chief Executive Officer
Date: February 23, 2009
EX-31.2
EXHIBIT 31.2
Certification
of CFO Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Edward J. Borkowski, certify that:
1. I have reviewed this
Form 10-K
of Mylan Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the period[s] presented in this report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b) designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting.
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
Edward J. Borkowski
Chief Financial Officer
Date: February 23, 2009
EX-32
EXHIBIT 32
CERTIFICATIONS
of CEO and CFO PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the
Form 10-K
of Mylan Inc. (the Company) for the calendar year
ended December 31, 2008 as filed with the Securities and
Exchange Commission on the date hereof (the Report),
each of the undersigned, in the capacities and on the date
indicated below, hereby certifies pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
Date: February 23, 2009
Robert J. Coury
Chief Executive Officer
Edward J. Borkowski
Chief Financial Officer
A signed original of this written statement required by
Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
The foregoing certification is being furnished in accordance
with Securities and Exchange Commission Release
No. 34-47551
and shall not be considered filed as part of the
Form 10-K.