14. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

A summary of the Company’s consolidated short-term borrowings and long-term debt as of December 31, 2012 and 2011, respectively, is outlined in the table below:

	Maturity Date	2012			2011
Short-term borrowings
Brazil Uncommitted Line of Credit(1)	February 2013	$	10,548		$	—
Long-term debt
New Revolving Credit Facility	April 2016	$	—		$	220,000
Term Loan A Facility, net of unamortized debt discount (2012 — $30,288; 2011 — $39,480)	April 2016	2,083,462			2,185,520
New Term Loan B Facility, net of unamortized debt discount of $24,833	February 2019	1,275,167			—
Incremental Term Loan B Facility, net of unamortized debt discount of $26,012	December 2019	973,988			—
Senior Notes:
6.50%	July 2016	915,500			915,500
6.75%, net of unamortized debt discount (2012 — $1,695; 2011 — $2,051)	October 2017	498,305			497,949
6.875%, net of unamortized debt discount (2012 — $5,303; 2011 — $6,204)	December 2018	939,277			938,376
7.00%, net of unamortized debt discount (2012 — $3,340; 2011 — $3,772)	October 2020	686,660			686,228
6.75%	August 2021	650,000			650,000
7.25%, net of unamortized debt discount (2012 — $8,665; 2011 — $9,573)	July 2022	541,335			540,427
6.375%, net of unamortized discount (2012 — $25,480)	October 2020	1,724,520			—
6.375%, net of unamortized discount (2012 — $7,280)	October 2020	492,720			—
Convertible Notes:
5.375% Convertible Notes, net of unamortized debt discount (2011 — $1,697)	August 2014	—			17,011
1.375% Convertible Notes(2)	June 2017	228,576			—
2.50% Convertible Notes(2)	June 2032	5,133			—
1.50% Convertible Notes(2)	June 2033	84			—
Other		898			—
		11,015,625			6,651,011
Less current portion		(480,182		)	(111,250		)
Total long-term debt		$	10,535,443		$	6,539,761

(1) Short-term borrowings under uncommitted line of credit have been included in Accrued liabilities and other current liabilities in the consolidated balance sheets.

(2) Represents obligations of Medicis.

The total fair value of the Company’s long-term debt, with carrying values of $11.0 billion and $6.7 billion at December 31, 2012 and 2011, was $11.7 billion and $6.7 billion, respectively. The fair value of the Company’s long-term debt is estimated using the quoted market prices for the same or similar issues and other pertinent information available to management as of the end of the respective periods.

Aggregate maturities of our long-term debt for each of the five succeeding years ending December 31 and thereafter are as follows:

2013	$	480,182
2014	468,000
2015	468,000
2016	1,939,759
2017	523,000
Thereafter	7,269,580
Total gross maturities	11,148,521
Unamortized discounts	(132,896		)
Total long-term debt	$	11,015,625

Brazil Uncommitted Line of Credit

On September 25, 2012, the Company’s subsidiary in Brazil entered into an uncommitted unsecured line of credit with a financial institution for total availability of R$21.9 million ($10.7 million at December 31, 2012). This uncommitted line of credit bears an interest rate of the Interbank Deposit Certificate Rate plus 0.23% per month and was renewed on February 26, 2013. As of December 31, 2012, the Company had $10.5 million of borrowings under this line of credit. The effective interest rate on the drawn borrowings was approximately 0.8% per month.

Senior Secured Credit Facilities

On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the Third Amended and Restated Credit and Guaranty Agreement (the “Credit Agreement”) with a syndicate of financial institutions and investors. As of that date, the Credit Agreement provided for a $275.0 million revolving credit facility, including a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans (the “Revolving Credit Facility”), a $2.225 billion senior secured term loan A facility (the “Term Loan A Facility”) and a $600.0 million senior secured term loan B facility (the “Term Loan B Facility”). The Revolving Credit Facility matures on April 20, 2016 and does not amortize. The Term Loan A Facility matures on April 20, 2016 and began amortizing quarterly on March 31, 2012 at an initial annual rate of 5.0%. The amortization schedule under the Term Loan A Facility will increase to 10.0% annually commencing March 31, 2013 and 20.0% annually commencing March 31, 2014, payable in quarterly installments. The Term Loan B Facility matures on February 13, 2019 and began amortizing quarterly on June 30, 2012 at an annual rate of 1.0%.

On June 14, 2012, the Company and certain of its subsidiaries as guarantors entered into a joinder agreement to increase the Term Loan B Facility by $600.0 million of incremental term loans to $1.2 billion. In addition, on July 9, 2012, the Company and certain of its subsidiaries as guarantors entered into a joinder agreement to increase the Term Loan B Facility by an additional $100.0 million of incremental term loans to $1.3 billion (the Term Loan B Facility as so amended, the “Amended Term Loan B Facility”). The incremental term loans mature on February 13, 2019, began amortizing quarterly on September 30, 2012 at an annual rate of 1.0% and have terms that are consistent with the Company’s Term Loan B Facility.

On September 11, 2012, the Company and certain of its subsidiaries as guarantors entered into a joinder agreement to increase the amount of commitments under the Revolving Credit Facility by $175.0 million to an aggregate of $450.0 million (the Revolving Credit Facility as so amended, the “New Revolving Credit Facility”).

On October 2, 2012, the Company and certain of its subsidiaries as guarantors entered into a joinder agreement to reprice and refinance the Amended Term Loan B Facility (the “Repricing Transaction”) by the issuance of $1.3 billion in new incremental term loans (the “New Term Loan B Facility”). The incremental term loans under the New Term Loan B Facility mature on February 13, 2019, begin amortizing quarterly on March 31, 2013 at an annual rate of 1.0% and have terms consistent with the Amended Term Loan B Facility. In connection with the refinancing of the Amended Term Loan B Facility pursuant to the Repricing Transaction, the Company paid a prepayment premium of approximately $13.0 million, equal to 1.0% of the refinanced term loans under the Amended Term Loan B Facility. In addition, repayments of outstanding loans under the New Term Loan B Facility in connection with certain refinancings on or prior to October 2, 2013 require a prepayment premium of 1.0% of such loans prepaid.

In connection with the Medicis acquisition, on December 11, 2012, the Company issued $1.0 billion in incremental term B loans (the “Incremental Term Loan B Facility” and together with the New Revolving Credit Facility, the New Term Loan B Facility and the Term Loan A Facility, the “Senior Secured Credit Facilities”). The Incremental Term Loan B Facility matures on December 11, 2019, begins amortizing quarterly on March 31, 2013 at an annual rate of 1.0% and has terms consistent with the New Term Loan B Facility.

As of December 31, 2012, $2,083.5 million in term loans was outstanding under the Term Loan A Facility, $1,275.2 million in term loans was outstanding under the New Term Loan B Facility, $974.0 million in term loans was outstanding under the Incremental Term Loan B Facility and the Company had no outstanding borrowings under the New Revolving Credit Facility.

The loans under the Senior Secured Credit Facilities may be made to, and the letters of credit under the New Revolving Credit Facility may be issued on behalf of, the Company. All borrowings under the Senior Secured Credit Facilities are subject to the satisfaction of customary conditions, including the absence of a default or an event of default and the accuracy in all material respects of representations and warranties.

Borrowings under the New Revolving Credit Facility and the Term Loan A Facility bear interest at a rate per annum equal to, at the Company’s option, either (a) a base rate determined by reference to the higher of (1) the rate of interest quoted in the print edition of The Wall Street Journal, Money Rates Section, as the Prime Rate (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks) and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBO rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin. The initial applicable margin for borrowings under the New Revolving Credit Facility and the Term Loan A Facility was 1.75% with respect to base rate borrowings and 2.75% with respect to LIBO rate borrowings. Interest rates for the New Revolving Credit Facility and the Term Loan A Facility are subject to increase or decrease quarterly based on leverage ratios. As of December 31, 2012, the effective rate of interest on the Company’s borrowings under the New Revolving Credit Facility and the Term Loan A Facility was 3.52% and 3.27% per annum, respectively.

As of December 31, 2012, the applicable margin for borrowings under both the New Term Loan B Facility and the Incremental Term Loan B Facility was 2.25% with respect to base rate borrowings and 3.25% with respect to LIBO rate borrowings, subject to a 1.0% LIBO rate floor. As of December 31, 2012, the effective rate of interest on the Company’s borrowings under the New Term Loan B Facility and the Incremental Term Loan Facility was 4.35% and 3.48% per annum, respectively.

In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay commitment fees of 0.50% per annum in respect of the unutilized commitments under the New Revolving Credit Facility, payable quarterly in arrears. The Company also is required to pay letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBO rate borrowings under the New Revolving Credit Facility on a per annum basis, payable quarterly in arrears, as well as customary fronting fees for the issuance of letters of credit and agency fees.

Subject to certain exceptions and customary baskets set forth in the Credit Agreement, the Company is required to make mandatory prepayments of the loans under the Senior Secured Credit Facilities under certain circumstances, including from (a) 100% of net cash proceeds from asset sales outside the ordinary course of business (subject to reinvestment rights), (b) 100% of the net cash proceeds of insurance and condemnation proceeds for property or asset losses (subject to reinvestment rights and net proceeds threshold), (c) 50% of the net cash proceeds from the issuance of equity securities subject to decrease based on leverage ratios, (d) 100% of the net cash proceeds from the incurrence of debt (other than permitted debt as defined in the Credit Agreement) and (e) 50% of Consolidated Excess Cash Flow (as defined in the Credit Agreement) subject to decrease based on leverage ratios.

The Company is permitted to voluntarily reduce the unutilized portion of the revolving commitment amount and repay outstanding loans under the New Revolving Credit Facility at any time without premium or penalty, other than customary “breakage” costs with respect to LIBO rate loans. Except for repayments of outstanding loans under the New Term Loan B Facility and the Incremental Term Loan B Facility in connection with certain refinancings on or prior to October 2, 2013, the Company is permitted to voluntarily repay outstanding loans under the Term Loan A Facility, the New Term Loan B Facility and the Incremental Term Loan B Facility at any time without premium or penalty, other than customary “breakage” costs with respect to LIBO rate loans. Repayments of outstanding loans under the New Term Loan B Facility and the Incremental Term Loan B Facility in connection with certain refinancings on or prior to October 2, 2013 require a prepayment premium of 1.0% of such loans prepaid.

The Company’s obligations and the obligations of the guarantors under the Senior Secured Credit Facilities and certain hedging arrangements and cash management arrangements entered into with lenders under the Senior Secured Credit Facilities (or affiliates thereof) are secured by first-priority security interests in substantially all tangible and intangible assets of Valeant and the guarantors, including 100% of the capital stock of Valeant and each domestic subsidiary of Valeant, 65% of the capital stock of each foreign subsidiary of Valeant that is directly owned by Valeant or a guarantor that is a subsidiary of Valeant, and 100% of the capital stock of each other material subsidiary of the Company (other than Valeant’s subsidiaries), in each case subject to certain exclusions set forth in the credit documentation governing the Senior Secured Credit Facilities.

The Senior Secured Credit Facilities contain a number of covenants that, among other things and subject to certain exceptions, restrict the Company’s ability and the ability of its subsidiaries to: incur additional indebtedness; create liens; enter into agreements and other arrangements that include negative pledge clauses; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; create restrictions on the payment of dividends or other distributions by subsidiaries; make investments, loans, advances and acquisitions; merge, amalgamate or sell assets, including equity interests of the subsidiaries; enter into sale and leaseback transactions; engage in transactions with affiliates; enter into new lines of business; and enter into amendments of or waivers under subordinated indebtedness, organizational documents and certain other material agreements.

The Credit Agreement requires that the Company maintain a secured leverage ratio not to exceed 2.50 to 1.00 as of the last day of each fiscal quarter beginning with the fiscal quarter ending March 31, 2012. The Credit Agreement requires that the Company maintain an interest coverage ratio of not less than 3.00 to 1.00 as of the last day of each fiscal quarter. The Credit Agreement also contains certain customary affirmative covenants and events of default. If an event of default, as specified in the Credit Agreement, shall occur and be continuing, the Company may be required to repay all amounts outstanding under the Senior Secured Credit Facilities. As of December 31, 2012, the Company was in compliance with all covenants associated with the Senior Secured Credit Facilities.

2016 Notes and 2022 Notes

On March 8, 2011, Valeant issued $950.0 million aggregate principal amount of 6.50% senior notes due 2016 (the “2016 Notes”) and $550.0 million aggregate principal amount of 7.25% senior notes due 2022 (the “2022 Notes”) in a private placement. The 2016 Notes will mature on July 15, 2016 and the 2022 Notes will mature on July 15, 2022. The 2016 Notes accrue interest at the rate of 6.50% per year and the 2022 Notes accrue interest at the rate of 7.25% per year, payable semi-annually in arrears on each January 15 and July 15, commencing on July 15, 2011. The 2016 Notes were issued at par and the 2022 Notes were issued at 98.125% of par for an effective annual yield of 7.50%. The 2016 Notes and 2022 Notes are senior unsecured obligations of Valeant and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of the Company’s subsidiaries (other than Valeant) that is a guarantor under its other senior notes. Certain of the future subsidiaries of Valeant and the Company may be required to guarantee the 2016 Notes and 2022 Notes.

Net proceeds of the 2016 Notes and 2022 Notes offering of $975.0 million were used to prepay the amount outstanding under previous Valeant’s term loan A facility. In addition, net proceeds of $274.8 million were used to fund the repurchase of common shares of the Company from ValueAct Capital Master Fund, L.P. (“ValueAct”) in March 2011 (as described in note 16).

Valeant may redeem all or a portion of the 2016 Notes at any time prior to July 15, 2013, and the 2022 Notes at any time prior to July 15, 2016, in each case, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. In the fourth quarter of 2011, Valeant redeemed $34.5 million of principal amount of the 2016 Notes for $34.2 million through open-market purchases. On or after July 15, 2013, Valeant may redeem all or a portion of the 2016 Notes and, on or after July 15, 2016, Valeant may redeem all or a portion of the 2022 Notes, in each case at the redemption prices applicable to the 2016 Notes or the 2022 Notes, as set forth in the 2016 Notes and 2022 Notes indenture, plus accrued and unpaid interest to the date of redemption of the 2016 Notes or the 2022 Notes, as applicable. In addition, prior to July 15, 2013 for the 2016 Notes and July 15, 2014 for the 2022 Notes, Valeant may redeem up to 35% of the aggregate principal amount of either the 2016 Notes or the 2022 Notes, at redemption prices of 106.500% and 107.250%, respectively, of the principal amount thereof, plus accrued and unpaid interest to the redemption date, in each case with the net proceeds of certain equity offerings.

If Valeant or the Company experiences a change in control, Valeant may be required to repurchase the 2016 Notes or 2022 Notes, as applicable, in whole or in part, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the purchase date of the 2016 Notes or the 2022 Notes, as applicable.

The 2016 Notes and 2022 Notes indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee additional debt; make certain investments and other restricted payments; create liens; enter into transactions with affiliates; engage in mergers, consolidations or amalgamations; repurchase capital stock, repurchase subordinated debt and make certain investments; and transfer and sell assets. If an event of default, as specified in the 2016 Notes and 2022 Notes indenture, shall occur and be continuing, either the trustee or the holders of a specified percentage of the 2016 Notes and 2022 Notes may accelerate the maturity of all the 2016 Notes and 2022 Notes.

2017 Notes and 2020 Notes

Concurrent with the closing of the Merger, Valeant issued $500.0 million aggregate principal amount of 2017 Notes and $700.0 million aggregate principal amount of 2020 Notes in a private placement. The 2017 Notes mature on October 1, 2017 and the 2020 Notes mature on October 1, 2020. Interest on the 2017 Notes and 2020 Notes accrues at the rate of 6.75% and 7.00%, respectively, and is payable semi-annually in arrears on each April 1 and October 1, commencing on April 1, 2011. The 2017 Notes were issued at a discount of 99.5% for an effective annual yield of 6.84% and the 2020 Notes were issued at a discount of 99.375% for an effective annual yield of 7.09%. The 2017 Notes and 2020 Notes are the senior unsecured obligations of Valeant and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than Valeant). Certain of the future subsidiaries of the Company may be required to guarantee the 2017 Notes and 2020 Notes.

A portion of the proceeds of the 2017 Notes and 2020 Notes offering was used to repay $1.0 billion of previous term loan B facility and the remaining portion was used for general corporate purposes.

Valeant may redeem all or a portion of the 2017 Notes at any time prior to October 1, 2014, and Valeant may redeem all or a portion of the 2020 Notes at any time prior to October 1, 2015, in each case at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium, as set forth in the 2017 Notes and 2020 Notes Indenture. In the fourth quarter of 2011, Valeant redeemed $10.0 million of principal amount of the 2020 Notes for $9.5 million through open-market purchases. On or after October 1, 2014, Valeant may redeem all or a portion of the 2017 Notes, and on or after October 1, 2015, Valeant may redeem all or a portion of the 2020 Notes, in each case at the redemption prices applicable to the 2017 Notes or the 2020 Notes, as set forth in the 2017 Notes and 2020 Notes Indenture, plus accrued and unpaid interest to the date of redemption. In addition, prior to October 1, 2013, Valeant may redeem up to 35% of the aggregate principal amount of either the 2017 Notes or the 2020 Notes at prices of 106.750% and 107.000%, respectively, of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, in each case with the net proceeds of certain equity offerings.

If Valeant or the Company experiences a change of control, Valeant may be required to repurchase the 2017 Notes and 2020 Notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the purchase date.

The 2017 Notes and 2020 Notes Indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee additional debt; make certain investments and other restricted payments; create liens; enter into transactions with affiliates; engage in mergers, consolidations or amalgamations; repurchase capital stock, repurchase subordinated debt and make certain investments; and transfer and sell assets. If an event of default, as specified in the 2017 Notes and 2020 Notes Indenture, shall occur and be continuing, either the trustee or the holders of a specified percentage of the 2017 Notes and 2020 Notes may accelerate the maturity of all the 2017 Notes and 2020 Notes.

2018 Notes

On November 23, 2010, Valeant issued $1.0 billion aggregate principal amount of 6.875% Senior Notes due 2018 (the “2018 Notes” and, together with the 2017 Notes and 2020 Notes, the “Notes”) in a private placement. The 2018 Notes mature on December 1, 2018. Interest on the 2018 Notes accrues at a rate of 6.875% and is payable semi-annually in arrears on each June 1 and December 1, commencing on June 1, 2011. The 2018 Notes were issued at a discount of 99.24% for an effective annual yield of 7.0%. The 2018 Notes are the senior unsecured obligations of Valeant and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than Valeant). Certain of the future subsidiaries of Valeant and the Company may be required to guarantee the 2018 Notes.

A portion of the proceeds of the 2018 Notes offering was used to repay the remaining $500.0 million owed under previous term loan B facility and the balance of the proceeds were used for general corporate purposes, including acquisitions, debt repayment and securities repurchases.

Valeant may redeem all or a portion of the 2018 Notes at any time prior to December 1, 2014, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium, as set forth in the 2018 Notes Indenture. In the fourth quarter of 2011, Valeant redeemed $55.4 million of principal amount of the 2018 Notes for $54.9 million. On or after December 1, 2014, Valeant may redeem all or a portion of the 2018 Notes at the redemption prices applicable to the 2018 Notes, as set forth in the 2018 Notes Indenture, plus accrued and unpaid interest to the date of redemption. In addition, prior to December 1, 2013, Valeant may redeem up to 35% of the aggregate principal amount of the 2018 Notes at 106.875% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, in each case with the net proceeds of certain equity offerings.

If Valeant or the Company experiences a change of control, Valeant may be required to repurchase the 2018 Notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the purchase date.

The 2018 Notes Indenture contains covenants consistent with those contained in the 2017 Notes and 2020 Notes Indenture (as described above).

2021 Notes

On February 8, 2011, Valeant issued at par $650.0 million aggregate principal amount of 6.75% senior notes due 2021 (the “2021 Notes”) in a private placement. Interest on the 2021 Notes accrues at the rate of 6.75% per year and is payable semi-annually in arrears on each February 15 and August 15, commencing on August 15, 2011. The 2021 Notes mature on August 15, 2021. The 2021 Notes are senior unsecured obligations of Valeant and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of the Company’s subsidiaries (other than Valeant) that is a guarantor under its other senior notes. Certain of the future subsidiaries of Valeant and the Company may be required to guarantee the 2021 Notes.

The net proceeds of the 2021 Notes offering were used principally to finance the acquisitions of PharmaSwiss (as described in note 3) and Zovirax® (as described in note 4).

Valeant may redeem all or a portion of the 2021 Notes at any time prior to February 15, 2016, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. On or after February 15, 2016, Valeant may redeem all or a portion of the 2021 Notes at the redemption prices applicable to the 2021 Notes as set forth in the 2021 Notes indenture, plus accrued and unpaid interest to the date of redemption of the 2021 Notes. In addition, prior to February 15, 2014, Valeant may redeem up to 35% of the aggregate principal amount of the 2021 Notes at a redemption price of 106.750% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of certain equity offerings.

If Valeant or the Company experiences a change in control, Valeant may be required to repurchase the 2021 Notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the purchase date of the 2021 Notes.

The 2021 Notes indenture contains covenants substantially consistent with those contained in the 2016 Notes and 2022 Notes indenture (as described above).

2020 Senior Notes

On October 4, 2012, VPI Escrow Corp. (the “Issuer”), a newly formed wholly owned subsidiary of Valeant, issued $1,750.0 million aggregate principal amount of the 2020 Senior Notes in a private placement. The 2020 Senior Notes mature on October 15, 2020. The 2020 Senior Notes accrue interest at the rate of 6.375% per year, which is payable semi-annually in arrears on April 15 and October 15, commencing on April 15, 2013. In connection with the issuance of the 2020 Senior Notes, the Company incurred approximately $26.3 million in underwriting fees, which are recognized as debt issue discount, which resulted in the net proceeds of $1,723.7 million. At the time of the closing of the Medicis acquisition, (1) the Issuer merged with and into Valeant, with Valeant continuing as the surviving corporation, (2) Valeant assumed all of the Issuer’s obligations under the 2020 Senior Notes and the related indenture and (3) the funds previously held in escrow were released to the Company and were used to finance the Medicis acquisition.

The 2020 Senior Notes are guaranteed by the Company and each of the Company’s subsidiaries (other than Valeant) that is a guarantor of the Senior Secured Credit Facilities.

The indenture governing the terms of the 2020 Senior Notes provide that the 2020 Senior Notes are redeemable at the option of the Issuer, in whole or in part, at any time on or after October 15, 2016, at the specified redemption prices, plus accrued and unpaid interest, if any, to the redemption date. In addition, the Issuer may redeem some or all of the 2020 Senior Notes prior to October 15, 2016, in each case at a price equal to 100% of the principal amount thereof, plus a make-whole premium. Prior to October 15, 2015, the Issuer may also redeem up to 35% of the aggregate principal amount of the 2020 Senior Notes using the proceeds from certain equity offerings at a redemption price equal to 106.375% of the principal amount of the 2020 Senior Notes, plus accrued and unpaid interest to the date of redemption.

If Valeant or the Company experiences a change in control, Valeant may be required to repurchase the 2020 Senior Notes, as applicable, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to, but excluding the purchase date of the 2020 Senior Notes, as applicable.

The 2020 Senior Notes indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee additional debt, make certain investments and other restricted payments, create liens, enter into transactions with affiliates, engage in mergers, consolidations or amalgamations, repurchase capital stock, repurchase subordinated debt and make certain investments and transfer and sell assets.

6.375% senior notes due 2020

Concurrently with the offering of the 2020 Senior Notes on October 4, 2012, Valeant issued $500.0 million aggregate principal amount of 6.375% senior notes due 2020 (the “6.375% Senior Notes”) in a private placement. The 6.375% Senior Notes mature on October 15, 2020. The 6.375% Senior Notes accrue interest at the rate of 6.375% per year, which is payable semi-annually in arrears on April 15 and October 15, commencing on April 15, 2013. In connection with the issuance of the 6.375% Senior Notes, the Company incurred approximately $7.5 million in underwriting fees, which are recognized as debt issue discount, which resulted in the net proceeds of $492.5 million. The 6.375% Senior Notes are senior unsecured obligations of Valeant and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of the Company’s subsidiaries (other than Valeant) that is a guarantor of the Senior Secured Credit Facilities.

The 6.375% Senior Notes are redeemable at the option of Valeant, in whole or in part, at any time on or after October 15, 2016, at the specified redemption prices, plus accrued and unpaid interest, if any, to date of redemption. In addition, Valeant may redeem some or all of the 6.375% Senior Notes prior to October 15, 2016, in each case at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a make-whole premium. Prior to October 15, 2015, Valeant may also redeem up to 35% of the aggregate principal amount of the 6.375% Senior Notes using the proceeds from certain equity offerings at a redemption price equal to 106.375% of the principal amount of the 6.375% Senior Notes, plus accrued and unpaid interest to the date of redemption.

If Valeant or the Company experiences a change in control, Valeant may be required to repurchase the 6.375% Senior Notes, as applicable, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to, but excluding the purchase date of the 6.375% Senior Notes, as applicable.

The 6.375% Senior Notes indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee additional debt, make certain investments and other restricted payments, create liens, enter into transactions with affiliates, engage in mergers, consolidations or amalgamations, repurchase capital stock, repurchase subordinated debt and make certain investments and transfer and sell assets.

5.375% Convertible Notes

On June 10, 2009, the Company issued $350.0 million principal amount of 5.375% senior convertible notes due August 1, 2014 (the “5.375% Convertible Notes”). The 5.375% Convertible Notes mature on August 1, 2014. The 5.375% Convertible Notes were issued at par and pay interest semi-annually on February 1 and August 1 of each year. The 5.375% Convertible Notes may be converted based on a current conversion rate of 69.6943 common shares of the Company per $1,000 principal amount of notes, which represents a conversion price of approximately $14.35 per share. The conversion rate was adjusted on the Company specified types of distributions or enters into certain other transactions in respect of its common shares. In addition, following certain corporate transactions that occurred prior to maturity, the conversion rate increased for holders who elected to convert their holdings in connection with such corporate transactions.

The 5.375% Convertible Notes were convertible at any time prior to the maturity date under the following circumstances:

· during any calendar quarter if the closing price of the Company’s common shares exceeds 130% of the conversion price then in effect during a defined period at the end of the previous quarter;

· during a defined period if the trading price of the 5.375% Convertible Notes falls below specified thresholds for a defined trading period;

· if the 5.375% Convertible Notes have been called for redemption;

· upon the occurrence of specified corporate transactions; or

· 25 trading days prior to the maturity date.

Upon conversion, the 5.375% Convertible Notes would be settled in cash, common shares, or a combination of cash and common shares, at the Company’s option.

The Company could redeem for cash all or a portion of the 5.375% Convertible Notes at any time on or after August 2, 2012, at a price equal to 100% of the principal amount of the 5.375% Convertible Notes to be redeemed, plus any accrued and unpaid interest, if during a defined period the closing price of the Company’s common shares exceeds 130% of the conversion price then in effect. The Company could not otherwise redeem any of the 5.375% Convertible Notes at its option prior to maturity, except upon the occurrence of certain changes to the laws governing Canadian withholding taxes.

At the date of issuance, the principal amount of the 5.375% Convertible Notes was allocated into a liability component and an equity component. The liability component was fair valued at $293.3 million, based on a 9.5% market rate of interest for similar debt with no conversion rights. The value allocated to the liability component is being accreted to the face value of the 5.375% Convertible Notes over the five-year period prior to maturity, using the effective interest method. The accretion of the liability component was being recognized as additional non-cash interest expense. The difference between the principal amount of the 5.375% Convertible Notes and the value allocated to the liability component of $56.7 million was recorded in additional paid-in capital in shareholders’ equity, as the carrying amount of the equity component.

In connection with the issuance of the 5.375% Convertible Notes, the Company incurred financing costs of $16.5 million, which were allocated to the liability and equity components in proportion to the preceding allocation of the principal amount of the 5.375% Convertible Notes.

On June 29, 2012, the Company distributed a notice of redemption to holders of the Company’s 5.375% Convertible Notes to redeem all of the outstanding 5.375% Convertible Notes on August 2, 2012 (the “Redemption Date”), at a redemption price of 100% of the outstanding aggregate principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date. On August 1, 2012, all of the outstanding 5.375% Convertible Notes were converted by holders, and on September 5, 2012, they were settled 100% in cash in the aggregate amount of $62.1 million.

Immediately prior to settlement, the carrying amount of the liability component of the 5.375% Convertible Notes was $16.0 million and the estimated fair value of the liability component was $18.3 million. The difference of $2.3 million between the carrying amount and the estimated fair value of the liability component was recognized as a loss on extinguishment of debt in the three-month period ended September 30, 2012. The difference of $43.8 million between the estimated fair value of the liability component of $18.3 million and the aggregate purchase price of $62.1 million resulted in charges to additional paid-in capital and accumulated deficit of $0.2 million and $43.6 million, respectively.

During the year ended December 31, 2012, 2011 and 2010, the Company repurchased $1.1 million, $205.0 million and $126.3 million aggregate principal amount of the 5.375% Convertible Notes, respectively, for an aggregate purchase price of $4.0 million, $623.3 million and $259.2 million, respectively.

Interest expense was recognized based on the effective rate of interest of 9.5% on the liability component of the 5.375% Convertible Notes as follows:

	2012		2011		2010
Cash interest per contractual coupon rate	$	559	$	6,265	$	18,335
Non-cash amortization of debt discount	333		3,433		9,265
	$	892	$	9,698	$	27,600

In addition, interest expense included the non-cash amortization of deferred financing costs associated with the 5.375% Convertible Notes of $0.1 million, $0.8 million and $2.1 million in 2012, 2011 and 2010, respectively.

1.375% Convertible Notes, 2.50% Convertible Notes and 1.50% Convertible Notes

In connection with the acquisition of Medicis, the Company assumed Medicis’ outstanding long-term debt, including current portion, of approximately $778.0 million at the Medicis acquisition date. As described in note 3, the Medicis long-term debt, including current portion, is comprised of the following: (i) 1.375% convertible senior notes due June 1, 2017 (the “1.375% Convertible Notes”), (ii) 2.50% contingent convertible senior notes due June 4, 2032 (the “2.50% Convertible Notes”) and (iii) 1.50% contingent convertible senior notes due June 4, 2033 (the “1.50% Convertible Notes”).

1.375% Convertible Notes

The 1.375% Convertible Notes will mature on June 1, 2017 and pay 1.375% annual cash interest, payable semi-annually in arrears on June 1 and December 1. As of December 31, 2012, $228.6 million principal amount of the 1.375% Convertible Notes were outstanding. The 1.375% Convertible Notes are senior unsecured obligations of Medicis and are not guaranteed by Valeant or any of its or Medicis’ subsidiaries. These notes do not contain any restrictions on the payment of dividends or the incurrence of additional indebtedness and do not contain any financial covenants. From the acquisition date of December 11, 2012 through to December 31, 2012, $318.1 million principal amount of the 1.375% Convertible Notes were converted into cash.

The acquisition of Medicis constitutes a fundamental change and a make-whole adjustment event under the terms of the 1.375% Convertible Notes. The effective date of the fundamental change and make-whole adjustment event is December 11, 2012. As a result of the acquisition of Medicis by the Company, holders of these convertible notes had the right to require the Company to (i) repurchase the 1.375% Convertible Notes by January 24, 2013 at a fundamental change repurchase price of $1,002.10 per $1,000 principal amount; (ii) surrender the notes for conversion for the make-whole adjustment by January 24, 2013 at a make-whole conversion price of $1,093.32 per $1,000 principal amount; or (iii) surrender the notes for the regular conversion by January 25, 2013 at a regular conversion price of $934.68 per $1,000 principal amount.

Following January 25, 2013, the 1.375% Convertible Notes are convertible, at the holder’s option, prior to the close of business on the business day immediately preceding March 1, 2017 in the following circumstances: (1) during the five consecutive trading day period immediately following any ten consecutive trading day period in which the trading price of the 1.375% Convertible Notes per $1,000 principal amount for each such trading day was less than 98% of the regular conversion price; and (2) upon the occurrence of specified corporate transactions.

Subsequent to December 31, 2012, $228.4 million principal amount of the 1.375% Convertible Notes were converted.

2.50% Convertible Notes

The 2.50% Convertible Notes are senior unsecured obligations of Medicis and are not guaranteed by Valeant or any of its or Medicis’ subsidiaries. These notes do not contain any restrictions on the payment of dividends or the incurrence of additional indebtedness and do not contain any financial covenants. As of December 31, 2012, $5.1 million principal amount of the 2.50% Convertible Notes were outstanding. From the acquisition date of December 11, 2012 through to December 31, 2012, $226.0 million principal amount of the 2.50% Convertible Notes were converted into cash.

The acquisition of Medicis constitutes a change of control under the terms of the 2.50% Convertible Notes. The effective date of the change of control is December 11, 2012. As a result of the acquisition of Medicis by the Company, holders of these convertible notes had the right to require the Company to (i) repurchase the 2.50% Convertible Notes by January 22, 2013 at a change of control purchase price of $1,004.42 per $1,000 principal amount; or (ii) surrender the 2.50% Convertible Notes for conversion by December 26, 2012 at a conversion price of $1,514.63 per $1,000 principal amount.

In addition, the Company provided notice to the holders of the 2.50% Convertible Notes that it would redeem all remaining outstanding notes on February 11, 2013, at a redemption price, payable in cash, of 100% of the principal amount, plus accrued and unpaid interest, including contingent interest, if any. Holders of the 2.50% Convertible Notes could surrender these notes for conversion on or before February 7, 2013. On February 11, 2013, all of the outstanding 2.50% Convertible Notes were converted by holders and settled 100% in cash in the aggregate amount of $5.1 million.

1.50% Convertible Notes

As of December 31, 2012, $0.1 million principal amount of the 1.50% Convertible Notes were outstanding. The 1.50% Convertible Notes are senior unsecured obligations of Medicis and are not guaranteed by Valeant or any of its or Medicis’ subsidiaries. These notes do not contain any restrictions on the payment of dividends or the incurrence of additional indebtedness and do not contain any financial covenants. From the acquisition date of December 11, 2012 through to December 31, 2012, $0.1 million principal amount of the 1.50% Convertible Notes were converted into cash.

The acquisition of Medicis constitutes a change of control under the terms of the 1.50% Convertible Notes. The effective date of the change of control is December 11, 2012. As a result of the acquisition of Medicis by the Company, holders of these convertible notes had the right to require the Company to (i) repurchase the 1.50% Convertible Notes by January 22, 2013 at a change of control purchase price of $1,002.94 per $1,000 principal amount; or (ii) surrender the 1.50% Convertible Notes for conversion by December 26, 2012 at a conversion price of $1,135.19 per $1,000 principal amount.

In addition, the Company provided notice to the holders of the 1.50% Convertible Notes that it would redeem all remaining outstanding notes on February 11, 2013, at a redemption price, payable in cash, of 100% of the principal amount, plus accrued and unpaid interest, including contingent interest, if any. Holders of the 1.50% Convertible Notes could surrender these notes for conversion on or before February 7, 2013. On February 11, 2013, all of the outstanding 1.50% Convertible Notes were converted by holders and settled 100% in cash in the aggregate amount of $0.1 million.

4.0% Convertible Notes

As described in note 3, in connection with the Merger, the Company assumed $225.0 million aggregate outstanding principal amount of Valeant’s 4.0% Convertible Notes. Interest on the 4.0% Convertible Notes was payable semi-annually on May 15 and November 15 of each year. The 4.0% Convertible Notes were scheduled to mature on November 15, 2013. Valeant had the right to redeem the 4.0% Convertible Notes, in whole or in part, at their principal amount on or after May 20, 2011. The 4.0% Convertible Notes were convertible into common shares of the Company at a current conversion rate of 79.0667 shares per $1,000 principal amount of notes (which represents a conversion price of approximately $12.65 per share), reflecting an adjustment to account for the pre-Merger special dividend, the exchange ratio for the Merger and the post-Merger special dividend.

The fair value of $220.5 million allocated to the liability component of the 4.0% Convertible Notes, as of the Merger Date, was being accreted to the face value of the 4.0% Convertible Notes through the debt maturity date of November 15, 2013, using the effective interest rate method. The effective interest rate on the liability component of the 4% Convertible Notes was 4.62%. The accretion of the liability component was recognized as an additional non-cash interest expense.

On April 20, 2011, the Company distributed a notice of redemption to holders of Valeant’s 4.0% Convertible Notes, pursuant to which all of the outstanding 4.0% Convertible Notes would be redeemed on May 20, 2011 (the “Redemption Date”), at a redemption price of 100% of the outstanding aggregate principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date. The 4.0% Convertible Notes called for redemption could be converted at the election of the holders at any time before the close of business on May 19, 2011. Consequently, all of the outstanding 4.0% Convertible Notes were converted into 17,782,764 common shares of the Company, at a conversion rate of 79.0667 common shares per $1,000 principal amount of notes, which represented a conversion price of approximately $12.65 per share.

Immediately prior to settlement, the carrying amount of the liability component of the 4.0% Convertible Notes was $221.3 million and the estimated fair value of the liability component was $226.0 million. The difference of $4.7 million between the carrying amount and the estimated fair value of the liability component was recognized as a loss on extinguishment of debt in the three-month period ended June 30, 2011. The difference of $666.0 million between the estimated fair value of the liability component of $226.0 million and the aggregate fair value of the common shares issued to effect the settlement of $892.0 million resulted in charges to additional paid-in capital and accumulated deficit of $226.0 million and $440.0 million, respectively.

With respect to Valeant’s call option agreements in respect of the shares underlying the conversion of $200.0 million principal amount of the 4.0% Convertible Notes, these agreements consisted of purchased call options on 15,813,338 common shares, which matured on May 20, 2011, and written call options on the identical number of shares, which matured on August 18, 2011. As of the Merger Date, these call options were to be settled in common shares of the Company. In June 2011, 11,479,365 common shares were received on the net-share settlement of the purchased call options, which common shares were subsequently cancelled.

In September 2011, Valeant amended the written call option agreements so that Valeant could elect to settle all or some of the written call options in cash. In the third quarter of 2011, Valeant paid $66.9 million in cash and issued 7,518,595 of its common shares on a net-share basis to settle the written call options. In October 2011, 961,461 common shares were issued on a net-share basis to complete the settlement of the written call options.

Interest expense was recognized based on the effective rate of interest of 4.62% on the liability component of the 4.0% Convertible Notes as follows:

	2011		2010
Cash interest per contractual coupon rate	$	3,268	$	2,324
Non-cash amortization of debt discount	589		304
	$	3,857	$	2,628

Commitment Letter

In connection with the acquisition of Medicis, the Company and its subsidiary, Valeant, entered into a commitment letter, dated as of September 2, 2012, with JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC to provide up to $2.75 billion through a bridge loan facility. On September 11, 2012, the Company and Valeant entered into an amended and restated commitment letter with JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and other financial institutions. Subsequently, the Company obtained $2.75 billion in financing through a syndication of $1.0 billion in the Incremental Term Loan B Facility under the Company’s Senior Secured Credit Facilities and the issuance of the 2020 Senior Notes in the aggregate principal amount of $1.75 billion. Consequently, the commitment under the commitment letter to provide the bridge loan facility was not utilized and terminated on December 11, 2012, concurrently with the closing of the Medicis acquisition. As a result, the Company wrote off of $8.0 million of deferred financing costs.