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Filed Pursuant to Rule 424(b)(5)

Registration No. 333-208238

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered		Amount to be Registered				Proposed Maximum Offering Price per Security				Proposed Maximum Aggregate Offering Price				Amount of Registration Fee
7.00% Mandatory Convertible Preferred Shares, nominal (par) value NIS 0.10 per share			3,712,500	(1)		$	1,000.00			$	3,712,500,000.00			$	373,848.75	(2)
Ordinary Shares, nominal (par) value NIS 0.10 per share (3)			59,400,000	(4)			—				—				—(5)

(1)	Includes 337,500 7.00% Mandatory Convertible Preferred Shares (“Mandatory Convertible Preferred Shares”) issuable upon exercise of the underwriters’ option to purchase additional Mandatory Convertible Preferred Shares from us solely to cover overallotments, if any.

 

(2)	Calculated in accordance with Rule 457(r) under the Securities Act of 1933, as amended. This “Calculation of Registration Fee” table shall be deemed to update the “Calculation of Registration Fee” table in our Registration Statement on Form F-3 (File No. 333-208238).

 

(3)	Such Ordinary Shares may be represented by American Depositary Shares. Such American Depositary Shares are or will be registered on a separately filed registration statement on Form F-6. Each American Depositary Share represents one Ordinary Share.

 

(4)

The number of Ordinary Shares to be registered is based on the maximum number of our Ordinary Shares into which such 3,712,500 Mandatory Convertible Preferred Shares can be converted, which is 16.0000 Ordinary Shares per Mandatory Convertible Preferred Share as described in this prospectus supplement, for a maximum of 59,400,000 Ordinary Shares. Pursuant to Rule 416, the number of Ordinary Shares registered includes an indeterminate number of additional Ordinary Shares that may be issued from time to time upon conversion of the Mandatory Convertible Preferred Shares as a result of the anti-dilution provisions thereof.

 

(5)	Pursuant to Rule 457(i), there is no additional filing fee payable with respect to the Ordinary Shares issuable upon conversion of the Mandatory Convertible Preferred Shares because no additional consideration will be received in connection with the exercise of the conversion privilege.

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PROSPECTUS SUPPLEMENT

(To Prospectus dated November 30, 2015)

$3,375,000,000

 

		Teva Pharmaceutical Industries Limited 7.00% Mandatory Convertible Preferred Shares

 

 

We are offering 3,375,000 of our 7.00% Mandatory Convertible Preferred Shares, nominal (par) value NIS 0.10 per share (“Mandatory Convertible Preferred Shares”).

Dividends on the Mandatory Convertible Preferred Shares will be payable on a cumulative basis when, as and if declared by our board of directors, or an authorized committee thereof, at an annual rate of 7.00% on the liquidation preference of $1,000.00 per Mandatory Convertible Preferred Share. Declared dividends will be paid in cash on March 15, June 15, September 15 and December 15 of each year commencing March 15, 2016, to and including December 15, 2018.

Each Mandatory Convertible Preferred Share will automatically convert on the mandatory conversion date of December 15, 2018, into between 13.3333 and 16.0000 ADSs (as defined below), subject to anti-dilution adjustments. The number of our ADSs issuable on conversion of the Mandatory Convertible Preferred Shares will be determined based on the average VWAP (as defined below) per ADS over the 20 consecutive trading day period beginning on and including the 22^nd scheduled trading day immediately preceding the mandatory conversion date. At any time prior to the mandatory conversion date, other than during a fundamental change conversion period (as defined below), holders of the Mandatory Convertible Preferred Shares may elect to convert each Mandatory Convertible Preferred Share, in whole or in part, into our ADSs at the minimum conversion rate of 13.3333 ADSs per Mandatory Convertible Preferred Share, subject to anti-dilution adjustments. If a fundamental change (as defined below) occurs, holders may elect to convert any Mandatory Convertible Preferred Shares during a specified period beginning on the fundamental change effective date (as defined below), in which case such Mandatory Convertible Preferred Shares will be converted into our ADSs at the fundamental change conversion rate (as defined below) and converting holders will also be entitled to receive a fundamental change dividend make-whole amount and accumulated dividend amount (each as defined below), payable in cash or ADSs, at our discretion.

Concurrently with this offering, we are offering 54,000,000 American Depositary Shares (“ADSs”), each representing one of our ordinary shares, nominal (par) value NIS 0.10 per share. The concurrent ADS offering is being made by means of a separate prospectus supplement and not by means of this prospectus supplement. This prospectus supplement is not an offer to sell or a solicitation of an offer to buy any securities being offered in the concurrent ADS offering. See “Summary—Financing Transactions—ADS Offering.”

We intend to use the net proceeds of this offering, together with the net proceeds of the concurrent ADS offering and the proposed debt financings (each as described herein), to finance our pending acquisition of Allergan plc’s worldwide generic pharmaceuticals business, and related fees and expenses, to finance our pending Rimsa acquisition (as described below) and/or otherwise for general corporate purposes. The completion of this offering is not contingent on the closing of the concurrent ADS offering (nor is the completion of the concurrent ADS offering contingent on the closing of this offering) or the completion of such acquisitions, which, if completed, will occur subsequent to the closing of this offering.

Prior to this offering, there has been no public market for the Mandatory Convertible Preferred Shares. We do not intend to list the Mandatory Convertible Preferred Shares on any securities exchange. Our ADSs are listed on the New York Stock Exchange (the “NYSE”) under the symbol “TEVA.” On December 2, 2015, the last reported sale price of our ADSs on the NYSE was $63.12 per share.

Investing in the Mandatory Convertible Preferred Shares involves risks. See “Risk Factors” beginning on page S-15 of this prospectus supplement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

		Per Share				Total
Offering price		$	1,000.00			$	3,375,000,000
Underwriting discount		$	25.00			$	84,375,000
Proceeds to issuer (before expenses)		$	975.00			$	3,290,625,000

We have granted the underwriters the option to purchase up to an additional 337,500 Mandatory Convertible Preferred Shares from us solely to cover overallotments, if any, at the public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus supplement. See the section entitled “Underwriting” beginning on page S-81 of this prospectus supplement.

The underwriters expect to deliver the Mandatory Convertible Preferred Shares to purchasers on or about December 8, 2015.

Joint Book-Running Managers

 

Barclays		BofA Merrill Lynch		Citigroup			Morgan Stanley

 

BNP PARIBAS		Credit Suisse		HSBC
Mizuho Securities		RBC Capital Markets		SMBC Nikko

The date of this prospectus supplement is December 2, 2015.

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We have not authorized anyone to provide any information or to make any representations other than those contained or incorporated by reference in this prospectus supplement, the accompanying prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus supplement and the accompanying prospectus is an offer to sell only the Mandatory Convertible Preferred Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus supplement and the accompanying prospectus is current only as of the respective dates of such documents.

This prospectus supplement and accompanying prospectus are only being distributed to and are only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), (iii) high net worth entities, and other persons to whom they may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order or (iv) persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any Mandatory Convertible Preferred Shares may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). The Mandatory Convertible Preferred Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire the Mandatory Convertible Preferred Shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus supplement or the accompanying prospectus.

This prospectus supplement and accompanying prospectus have been prepared on the basis that any offer of Mandatory Convertible Preferred Shares in any Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) will be made pursuant to an exemption under Article 3, paragraph 2 of the Prospectus Directive from the requirement to publish a prospectus for offers of Mandatory Convertible Preferred Shares. Accordingly any person making or intending to make an offer in that Relevant Member State of Mandatory Convertible Preferred Shares which are the subject of the offering contemplated in this prospectus supplement may only do so in circumstances in which no obligation arises for the issuer or any of the managers to publish a prospectus pursuant to Article 3 of the Prospectus Directive, in each case, in relation to such offer. Neither the issuer nor the managers have authorized, nor do they authorize, the making of any offer of Mandatory Convertible Preferred Shares in circumstances in which an obligation arises for the issuer or the managers to publish a prospectus for such offer. The expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.

In connection with the issue of the Mandatory Convertible Preferred Shares, the joint book-running managers (or persons acting on behalf of any of the joint book-running managers) may over-allot Mandatory Convertible Preferred Shares or effect transactions with a view to supporting the market price of the Mandatory Convertible Preferred Shares at a level higher than that which might otherwise prevail. However, there is no assurance that the joint book-running managers (or persons acting on behalf of a joint book-running manager) will undertake stabilization action. Such stabilizing, if commenced, may be discontinued at any time and, if begun, must be brought to an end after a limited period. Any stabilization action or over-allotment must be conducted by the relevant joint book-running managers (or persons acting on behalf of any joint book-running manager) in accordance with all applicable laws and rules.

 

 

 

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TABLE OF CONTENTS

Prospectus Supplement

 

		Page
Summary			S-1
Risk Factors			S-15
Forward-Looking Statements			S-25
Ratio of Earnings to Fixed Charges			S-27
Capitalization			S-28
Use of Proceeds			S-30
Unaudited Pro Forma Condensed Combined Financial Statements			S-31
Description of Mandatory Convertible Preferred Shares			S-49
United States Federal Income Tax Considerations			S-72
Israeli Tax Considerations			S-77
Underwriting			S-81
Experts			S-88
Legal Matters			S-88
Where You Can Find More Information			S-88
Incorporation of Certain Documents by Reference			S-89

Prospectus

 

About this Prospectus			i
Teva Pharmaceutical Industries Limited			1
Risk Factors			3
Forward Looking Statements			3
Ratio of Earnings to Fixed Charges			4
Price Range of ADSs and Ordinary Shares			4
Use of Proceeds			6
Description of Ordinary Shares			6
Description of American Depositary Shares			10
Description of Mandatory Convertible Preferred Shares			17
Taxation			38
Plan of Distribution			38
Experts			40
Legal Matters			41
Where You Can Find More Information			41
Enforcement of Civil Liabilities			43

 

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RISK FACTORS

Before you invest in the Mandatory Convertible Preferred Shares, you should carefully consider the risks involved. Accordingly, you should carefully consider the information contained in or incorporated by reference into this prospectus supplement and the accompanying prospectus, including the risk factors listed below and in the accompanying prospectus. See also “Forward-Looking Statements.”

Risks Related to Our Business

Investment in our securities involves various risks. In making an investment decision, you should carefully consider the risks and uncertainties described under the heading “Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2014, our Reports of Foreign Private Issuer on Form 6-K that are incorporated herein by reference and any future filings made by Teva pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), prior to the termination of this offering as well as the risk factors below.

Risks Related to the Actavis Generics Acquisition

If the Actavis Generics acquisition is consummated, generics will be a significantly larger component of our business.

For the nine months ended September 30, 2015, our generics segment represented approximately 46% of our revenues. Following the consummation of the Actavis Generics acquisition, generics will comprise a significantly larger component of our business, expected to be approximately 60% of our revenues. Accordingly, we will be increasingly subject to the risks associated with that business.

Teva may fail to realize all of the anticipated benefits of the Actavis Generics acquisition or those benefits may take longer to realize than expected. Teva may also encounter significant difficulties in integrating Actavis Generics.

The ability of Teva to realize the anticipated benefits of the Actavis Generics acquisition will depend, to a large extent, on Teva’s ability to integrate the Actavis Generics business. The combination of two independent businesses is a complex, costly and time-consuming process. As a result, Teva and Actavis Generics will be required to devote significant management attention and resources prior to closing to prepare for integrating, and Teva will be required to devote significant management attention and resources post-closing to integrate, the business practices and operations of Teva and Actavis Generics. The integration process may disrupt the businesses and, if implemented ineffectively, would restrict the realization of the full expected benefits. The failure to meet the challenges involved in integrating the two businesses and to realize the anticipated benefits of the transactions could cause an interruption of, or a loss of momentum in, the activities of the combined businesses and could adversely affect the results of operations of the combined businesses.

In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer and other business relationships, and diversion of management’s attention. The difficulties of combining the operations of the companies include, among others:

 

•

the diversion of management’s attention to integration matters;

 

•

difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination;

 

•

difficulties in the integration of operations and systems;

 

•

conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies;

 

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difficulties in the assimilation of employees;

 

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difficulties in managing the expanded operations of a significantly larger and more complex company;

 

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challenges in keeping existing customers and obtaining new customers;

 

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challenges in attracting and retaining key personnel; and

 

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coordinating a geographically dispersed organization.

Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact the business, financial condition and results of operations of the combined company. In addition, even if the operations of the businesses of Teva and Actavis Generics are integrated successfully, the full benefits of the transactions and other pending acquisitions (such as the Rimsa acquisition) may not be realized, including the synergies, cost savings or sales or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration of the businesses of Teva and Actavis Generics. All of these factors could cause dilution to the earnings per share of Teva, decrease or delay the expected accretive effect of the transactions, and negatively impact the price of the Mandatory Convertible Preferred Shares or our ADSs. As a result, it cannot be assured that the Actavis Generics acquisition will result in the realization of the full benefits anticipated from such transaction.

If the Actavis Generics acquisition is consummated, Teva will incur a substantial amount of debt to finance the aggregate cash consideration portion and certain other amounts to be paid in connection with the acquisition, which will increase its expenses and could adversely affect Teva’s business, including by restricting its ability to engage in additional transactions or incur additional indebtedness or resulting in a downgrade or other adverse action with respect to Teva’s credit rating.

In connection with the Actavis Generics acquisition, Teva expects that one or more of its subsidiaries will borrow approximately $27 billion through various debt financings that it will guarantee. Following the completion of the acquisition, on a pro forma basis, giving effect to the incurrence of debt, the consolidated debt of Teva would have been approximately $38.7 billion as of September 30, 2015. As a result, Teva’s borrowing costs will increase significantly.

This substantial level of debt could have important consequences to Teva’s business, including, but not limited to:

 

•

reducing the benefits Teva expects to receive from the Actavis Generics acquisition;

 

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making it more difficult for Teva to satisfy its obligations;

 

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limiting Teva’s ability to borrow additional funds and increasing the cost of any such borrowing;

 

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increasing Teva’s vulnerability to, and reducing its flexibility to respond to, general adverse economic and industry conditions;

 

•

limiting Teva’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates;

 

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placing Teva at a competitive disadvantage as compared to its competitors, to the extent that they are not as highly leveraged; and

 

•

restricting Teva from pursuing certain business opportunities.

Teva’s credit ratings impact the cost and availability of future borrowings and, accordingly, Teva’s cost of capital. Teva’s ratings at any time will reflect each rating organization’s then opinion of Teva’s financial

 

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strength, operating performance and ability to meet its debt obligations. Following the announcement of the Actavis Generics acquisition, Standard and Poor’s Financial Services LLC and Moody’s Investor Service, Inc. downgraded Teva’s ratings to BBB+ and Baa1, respectively, and expect to further downgrade Teva’s ratings in connection with the consummation of the acquisition to BBB and Baa2, respectively. Any reduction in Teva’s credit ratings may limit Teva’s ability to borrow at interest rates consistent with the interest rates that have been available to Teva prior to the acquisition. If Teva’s credit ratings are downgraded or put on watch for a potential downgrade, Teva may not be able to sell additional debt securities or borrow money in the amounts, at the times or interest rates or upon the more favorable terms and conditions that might be available if Teva’s current credit ratings are maintained.

Teva expects that, for a period of time following the consummation of the Actavis Generics acquisition, Teva will have significantly less cash on hand than the pro forma cash on hand of the combined businesses prior to the closing. This reduced amount of cash could adversely affect Teva’s ability to grow.

Teva is expected to have, for a period of time following the consummation of the Actavis Generics acquisition, significantly less cash and cash equivalents on hand than the approximately $928 million of cash and cash equivalents that Teva had as of September 30, 2015. On a pro forma basis, giving effect to the Actavis Generics acquisition as if it had been consummated on September 30, 2015, Teva would have had $617 million of cash and cash equivalents. Although the management of Teva believes that it will have access to cash sufficient to meet Teva’s business objectives and capital needs, the lessened availability of cash and cash equivalents for a period of time following the consummation of the Actavis Generics acquisition could constrain Teva’s ability to grow its business. Teva’s more leveraged financial position following the Actavis Generics acquisition could also make it vulnerable to general economic downturns and industry conditions, and place it at a competitive disadvantage relative to its competitors that have more cash at their disposal. In the event that Teva does not have adequate capital to maintain or develop its business, additional capital may not be available to Teva on a timely basis, on favorable terms, or at all.

The purchase agreement for the Actavis Generics acquisition may be terminated in accordance with its terms and the Actavis Generics acquisition may not be completed.

The purchase agreement for the Actavis Generics acquisition contains a number of conditions that must be fulfilled to complete the acquisition. Those conditions primarily consist of U.S. and European Union antitrust approvals and other customary conditions, including, among others, (i) the accuracy of representations and warranties and compliance with covenants and (ii) the absence of any material adverse effect with respect to Actavis Generics or Teva. The purchase agreement contains certain customary termination rights, including, among others, the right of either party to terminate the purchase agreement if the closing has not occurred by July 26, 2016, which date may be extended by up to an additional three months in certain circumstances.

While we intend to use the proceeds of this offering to fund the Actavis Generics acquisition, this offering is not contingent on the completion of the Actavis Generics acquisition. If the Actavis Generics acquisition is not consummated, holders of the Mandatory Convertible Preferred Shares will be exposed to the risks faced by the Company’s existing business without any of the potential benefits from the Actavis Generics acquisition. In these circumstances, such holders will also be relying on the judgment of our management and board of directors with regard to the use of the proceeds from this offering, and will not have the opportunity, as part of their investment decision, to assess whether the proceeds are being used appropriately. In these circumstances it is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for us or our securityholders. In addition, if the purchase agreement is terminated in specified circumstances, certain termination fees become payable.

 

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Teva and Allergan must obtain governmental and regulatory consents to consummate the Actavis Generics acquisition, which if delayed or not granted or granted with unacceptable conditions, may prevent, delay or jeopardize the consummation of the transaction, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the transaction.

Consummation of the Actavis Generics acquisition will require approval by certain governmental and regulatory authorities, including those required under the antitrust and competition laws of those in the U.S., the European Union and certain other foreign countries and authorities. The governmental agencies with which the parties will make these filings and seek certain of these approvals and consents have broad discretion in administering the governing regulations. Teva can provide no assurance that all required approvals and consents will be obtained. Moreover, as a condition to their approval of the transaction, certain governmental agencies may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of the business of the combined company after the closing of the acquisition. Any one of these requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the effective time of the acquisition or materially reduce the anticipated benefits of the transaction. If the parties to the transaction agree to any material requirements, limitations, costs, divestitures or restrictions in order to obtain any approvals or clearances required to consummate the acquisition, these requirements, limitations, costs, divestitures or restrictions could adversely affect Teva’s ability to integrate Actavis Generics with its operations and/or reduce or eliminate the anticipated benefits of the transaction. This could result in a failure to consummate the transactions or have a material adverse effect on the business and results of operations of the combined company. In addition, if the purchase agreement is terminated under certain circumstances by Allergan or Teva due to failure to obtain necessary antitrust approvals, then Teva must pay Allergan $1 billion.

The actual financial positions and results of operations of Teva and Actavis Generics may differ materially from the unaudited pro forma financial data included in this prospectus supplement.

The pro forma financial information contained in this prospectus supplement is presented for illustrative purposes only and may not be an indication of what Teva’s financial position or results of operations would have been had the transactions been completed on the dates indicated. The pro forma financial information has been derived from the audited and unaudited historical financial statements of Teva, and Actavis Generics and certain adjustments and assumptions have been made regarding the combined businesses after giving effect to the transactions. The assets and liabilities of Actavis Generics have been measured at fair value based on various preliminary estimates using assumptions that Teva’s management believes are reasonable utilizing information currently available. The process for estimating the fair value of acquired assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. These estimates may be revised as additional information becomes available and as additional analyses are performed. Differences between preliminary estimates in the pro forma financial information and the final acquisition accounting will occur and could have a material impact on the pro forma financial information and the combined company’s financial position and future results of operations.

In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect Teva’s financial condition or results of operations following the closing. Any potential decline in Teva’s financial condition or results of operations may cause significant variations in Teva’s share price.

Teva will incur direct and indirect costs as a result of the Actavis Generics acquisition.

Teva will incur substantial expenses in connection with and as a result of completing the Actavis Generics acquisition and, over a period of time following the completion of the Actavis Generics acquisition, Teva further expects to incur substantial expenses in connection with coordinating the businesses, operations, policies and procedures of Teva and Actavis Generics. While Teva has assumed that a certain level of transaction expenses will be incurred, factors beyond Teva’s control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately.

 

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Risks Related to the Mandatory Convertible Preferred Shares and ADSs

You will bear the risk of a decline in the market price of our ADSs between the pricing date for the Mandatory Convertible Preferred Shares and the mandatory conversion date.

The number of our ADSs that you will receive upon mandatory conversion of the Mandatory Convertible Preferred Shares is not fixed but instead will depend on the applicable market value of our ADSs, which is the average VWAP per ADS over the 20 consecutive trading day period beginning on and including the 22nd scheduled trading day immediately preceding the mandatory conversion date. The aggregate market value of our ADSs that you would receive upon mandatory conversion may be less than the aggregate liquidation preference of the Mandatory Convertible Preferred Shares. Specifically, if the applicable market value of our ADSs is less than the reference price of $62.50, the market value of our ADSs that you would receive upon mandatory conversion of each Mandatory Convertible Preferred Share will be less than the $1,000.00 liquidation preference, and an investment in the Mandatory Convertible Preferred Shares would result in a loss. Accordingly, you will bear the risk of a decline in the market price of our ADSs. Any such decline could be substantial.

The opportunity for equity appreciation provided by your investment in the Mandatory Convertible Preferred Shares is less than that provided by a direct investment in our ADSs.

The market value of our ADSs that you would receive upon mandatory conversion of each Mandatory Convertible Preferred Share on the mandatory conversion date will only exceed the liquidation preference of $1,000.00 per Mandatory Convertible Preferred Share if the applicable market value of our ADSs exceeds the threshold appreciation price of $75.00. The threshold appreciation price represents an appreciation of 20% over the reference price. In this event, you would receive on the mandatory conversion date approximately 83.33% (which percentage is equal to the reference price divided by the threshold appreciation price) of the value of our ADSs that you would have received if you had made a direct investment in our ADSs on the date of this prospectus supplement. This means that the opportunity for equity appreciation provided by an investment in the Mandatory Convertible Preferred Shares is less than that provided by a direct investment in our ADSs.

In addition, if the market value of our ADSs appreciates and the applicable market value of our ADSs is equal to or greater than the reference price but less than or equal to the threshold appreciation price, the aggregate market value of our ADSs that you would receive upon mandatory conversion will only be equal to the aggregate liquidation preference of the Mandatory Convertible Preferred Shares, and you will realize no equity appreciation on our ADSs.

Investors will not have any rights to require us to redeem the Mandatory Convertible Preferred Shares for any reason, including in the event that the Actavis Generics acquisition is not completed.

Investors will not have any rights to require us to redeem the Mandatory Convertible Preferred Shares for any reason, including, in the event that the Actavis Generics acquisition is not completed. Further, investors will not have any right to require us to redeem the Mandatory Convertible Preferred Shares if, subsequent to the completion of this offering, we or Actavis Generics experience any changes in our business or financial condition or if the terms of the Actavis Generics acquisition or the financing thereof change.

Our ability to declare and pay dividends on the Mandatory Convertible Preferred Shares may be limited.

Our declaration and payment of dividends on the Mandatory Convertible Preferred Shares in the future will be determined by our board of directors (or, to the extent permissible under applicable law and the Articles, an authorized committee thereof) in its sole discretion and will depend on business conditions, our financial condition, earnings and liquidity and other factors. The agreements governing any of our and our subsidiaries’ existing or future indebtedness may limit our ability to declare and pay dividends on our ordinary shares and the Mandatory Convertible Preferred Shares. In the event that the agreements governing any such indebtedness restrict our ability to declare and pay dividends in cash on the Mandatory Convertible Preferred Shares, we may be unable to declare and pay dividends in cash on the Mandatory Convertible Preferred Shares unless we can repay or refinance the amounts outstanding under such agreements.

 

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Under Israeli law, we may declare and pay a dividend only if, upon the reasonable determination of our board of directors, the distribution will not prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Israeli Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings accumulated over the two most recent years according to our then last adjusted, reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date of distribution. In the event that we do not have accumulated earnings legally available for distribution, as defined in the Israeli Companies Law, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.

If upon an early conversion at the option of a holder we have not declared and paid all or any portion of the accumulated dividends payable on the Mandatory Convertible Preferred Shares for specified periods prior to such conversion, converting holders will receive an additional number of ADSs having a market value generally equal to the amount of such undeclared, accumulated and unpaid dividends, subject and pursuant to the calculations and limitations described under “Description of Mandatory Convertible Preferred Shares—Conversion at the Option of the Holder”. Furthermore, upon mandatory conversion or conversion at the option of the holder upon a fundamental change, we may, at our sole discretion, pay any undeclared, unpaid and accumulated dividends (as well as the dividend make-whole amount, in the event of a conversion upon a fundamental change) in ADSs, having a market value generally equal to the amount of such dividend amounts, subject and pursuant to the calculations and limitations described under “Description of Mandatory Convertible Preferred Shares—Mandatory Conversion,” and “Description of Mandatory Convertible Preferred Shares—Conversion at the Option of the Holder Upon Fundamental Change; Fundamental Change Dividend Make-Whole Amount,” respectively. Due to the calculations and limitations used in determining the number of ADSs to be issued in lieu of any undeclared, unpaid and accumulated dividends (or in lieu of any dividend make-whole amount) in the event of an early conversion upon a fundamental change, in certain circumstances, a certain shortfall may occur between the value of the ADSs so issued and the respective dividend amounts in lieu of which they were issued, which we may be required to pay in cash, provided that we are legally permitted to do so and are not restricted by the terms of our indebtedness at that time. However, we will not have any obligation to pay any such shortfall in in the event of an early conversion at the option of the holder.

Recent regulatory actions may adversely affect the trading price and liquidity of the Mandatory Convertible Preferred Shares.

Investors in, and potential purchasers of, the Mandatory Convertible Preferred Shares who employ, or seek to employ, a convertible arbitrage strategy with respect to the Mandatory Convertible Preferred Shares may be adversely impacted by regulatory developments that may limit or restrict such a strategy. The SEC and other regulatory and self-regulatory authorities have implemented various rules and may adopt additional rules in the future that restrict and otherwise regulate short selling and over-the-counter swaps and security-based swaps, which restrictions and regulations may adversely affect the ability of investors in, or potential purchasers of, the Mandatory Convertible Preferred Shares to conduct a convertible arbitrage strategy with respect to the Mandatory Convertible Preferred Shares. This could, in turn, adversely affect the trading price and liquidity of the Mandatory Convertible Preferred Shares.

The adjustment to the conversion rate and the payment of the fundamental change dividend make-whole amount upon the occurrence of certain fundamental changes may not adequately compensate you.

If a fundamental change (as defined in “Description of Mandatory Convertible Preferred Shares—Conversion at the Option of the Holder Upon Fundamental Change; Fundamental Change Dividend Make-Whole Amount”) occurs on or prior to the mandatory conversion date, holders will be entitled to convert their Mandatory Convertible Preferred Shares during the fundamental change conversion period at the fundamental change conversion rate (in each case as defined in “Description of Mandatory Convertible Preferred

 

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Shares—Conversion at the Option of the Holder Upon Fundamental Change; Fundamental Change Dividend Make-Whole Amount”). The fundamental change conversion rate provides an adjustment to the conversion rate otherwise applicable unless the fundamental change share price (as defined in “Description of Mandatory Convertible Preferred Shares—Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount”) is less than $30.00 or above $300.00 (in each case, subject to adjustment). In addition, with respect to any Mandatory Convertible Preferred Shares converted during the fundamental change conversion period, you will also receive, among other consideration, a fundamental change dividend make-whole amount in cash, ADSs or a combination thereof, at our election. Although this adjustment to the conversion rate and the payment of the fundamental change dividend make-whole amount are designed to compensate you for the lost option value of the Mandatory Convertible Preferred Shares and lost dividends as a result of a fundamental change, they are only an approximation of such lost value and lost dividends and may not adequately compensate you for your actual loss.

The conversion rate of the Mandatory Convertible Preferred Shares may not be adjusted for all dilutive events that may adversely affect the market price of the Mandatory Convertible Preferred Shares or our ADSs issuable upon conversion of the Mandatory Convertible Preferred Shares.

The number of our ADSs that you are entitled to receive upon conversion of the Mandatory Convertible Preferred Shares is subject to adjustment for share splits and combinations, share dividends and certain other transactions described in “Description of Mandatory Convertible Preferred Shares—Anti-Dilution Adjustments,” including in the event we declare dividends on our ordinary shares above our current rate of $0.34 per share per quarter. However, other events, such as employee and director option grants or offerings of our ADSs or securities convertible into our ADSs (other than those set forth in “Description of Mandatory Convertible Preferred Shares—Anti-dilution adjustments”) for cash or in connection with acquisitions, which may adversely affect the market price of our ADSs, may not result in any adjustment. Further, if any of these other events adversely affects the market price of our ADSs, it may also adversely affect the market price of the Mandatory Convertible Preferred Shares. In addition, the terms of the Mandatory Convertible Preferred Shares do not restrict our ability to offer ADSs or securities convertible into ADSs in the future or to engage in other transactions that could dilute our ADSs. We have no obligation to consider the interests of the holders of the Mandatory Convertible Preferred Shares in engaging in any such offering or transaction.

You will have no rights with respect to our ADSs until the Mandatory Convertible Preferred Shares are converted, but you may be adversely affected by certain changes made with respect to our ADSs.

You will have no rights with respect to our ADSs, including voting rights, rights to respond to tender offers for our ADSs, if any, and rights to receive dividends or other distributions on our ADSs, if any (other than through a conversion rate adjustment), prior to the conversion date with respect to a conversion of the Mandatory Convertible Preferred Shares, but your investment in the Mandatory Convertible Preferred Shares may be negatively affected by these events. Upon conversion, you will be entitled to exercise the rights of a holder of ADSs only as to matters for which the record date occurs after the conversion date. For example, in the event that an amendment is proposed to our Articles requiring shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior to the conversion date, you will not be entitled to vote on the amendment, unless the proposed amendment will adversely affect the rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Shares, although you will nevertheless be subject to any changes in the powers, preferences or rights of our ADSs. See “Description of American Depositary Shares” in the accompanying prospectus for further discussion of our ADSs.

You will have no voting rights except under limited circumstances.

You will have no voting rights, except in certain limited circumstances and as specifically required by Israeli law. In certain circumstances where the rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Shares are adversely affected thereby, holders of the Mandatory Convertible Preferred

 

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Shares will have the right to vote with respect to certain amendments to our Articles or in connection with certain reclassifications, mergers or consolidation transactions. See “Description of Mandatory Convertible Preferred Shares—Voting Rights.” You will have no right to vote for any members of our board of directors.

The Mandatory Convertible Preferred Shares will rank junior to all of our consolidated liabilities.

In the event of a bankruptcy, liquidation, dissolution or winding up, our assets will be available to pay obligations on the Mandatory Convertible Preferred Shares only after all of our consolidated liabilities have been paid. In the event of a bankruptcy, liquidation, dissolution or winding up, there may not be sufficient assets remaining, after paying our and our subsidiaries’ liabilities, to pay amounts due on any or all of the Mandatory Convertible Preferred Shares then outstanding. As of September 30, 2015, we had a total of approximately $11.7 billion of outstanding debt and, on an as-adjusted basis after giving effect to the Actavis Generics acquisition (but not the Rimsa acquisition) and the proposed debt financings, would have had approximately $38.7 billion of outstanding debt. We have the ability to, and may incur, additional debt in the future.

You may be subject to tax with respect to the Mandatory Convertible Preferred Shares even though you do not receive a corresponding cash distribution.

The conversion rate of the Mandatory Convertible Preferred Shares is subject to adjustment in certain circumstances. See “Description of Mandatory Convertible Preferred Shares—Anti-Dilution Adjustments.” If, as a result of an adjustment (or failure to make an adjustment), your proportionate interest in our assets or earnings and profits is increased, you may be deemed to have received for U.S. federal income tax purposes a taxable distribution without the receipt of any cash. In addition, we may make certain distributions to holders of the Mandatory Convertible Preferred Shares that are paid in ADSs. In these circumstances and possibly others, a holder of Mandatory Convertible Preferred Shares may be subject to tax even though it has received no cash with which to pay that tax, thus giving rise to an out-of-pocket expense. Additionally, the amount of the dividend paid in ADSs, and tax withheld, may be calculated differently under U.S. and Israeli tax law. See “United States Federal Income Tax Considerations” and “Israeli Tax Considerations” for a further discussion of the U.S. federal tax implications and Israeli tax implications for U.S. shareholders and non-Israeli shareholders.

Certain rights of the holders of the Mandatory Convertible Preferred Shares and certain contractual and statutory provisions could delay or prevent an otherwise beneficial takeover or takeover attempt of us and, therefore, the ability of holders of Mandatory Convertible Preferred Shares to exercise their rights associated with a potential fundamental change.

Certain rights of the holders of the Mandatory Convertible Preferred Shares could make it more difficult or more expensive for a third party to acquire us. For example, if a fundamental change were to occur on or prior to December 15, 2018, holders of the Mandatory Convertible Preferred Shares may have the right to convert their Mandatory Convertible Preferred Shares, in whole or in part, at an increased conversion rate and will also be entitled to receive a fundamental change dividend make-whole amount equal to the present value of all remaining dividend payments on their Mandatory Convertible Preferred Shares. See “Description of Mandatory Convertible Preferred Shares—Conversion at the Option of the Holder Upon Fundamental Change; Fundamental Change Dividend Make-Whole Amount.” These features of the Mandatory Convertible Preferred Shares could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.

The Israeli withholding rate on dividend distributions is uncertain and may vary from distribution to distribution.

The rate of withholding taxes under Israeli law applicable to dividend payments with respect to the Mandatory Convertible Preferred Shares and ADSs depends on the profits out of which Teva chooses to make the payments. Accordingly, withholding on dividend distributions could be imposed generally at a rate of 15%,

 

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20% or 25%, or a blended rate between 15% and 25%, unless the shareholder is or was a substantial shareholder, as defined under Israeli law. See “Israeli Tax Considerations—Israeli Taxation Applicable to Holders of Mandatory Convertible Preferred Shares and ADSs—Capital Gains and Income Taxes Applicable to Israeli Resident Shareholders” and “—Withholding Taxes on Dividends Distributed by Teva to Non-Israeli Residents.” Holders should consult their tax advisors regarding the availability of the foreign tax credit under the holder’s particular circumstances and the requirements for claiming such credit.

An active trading market for the Mandatory Convertible Preferred Shares does not exist and may not develop.

The Mandatory Convertible Preferred Shares are a new issue of securities with no established trading market. We do not intend to list the Mandatory Convertible Preferred Shares on any securities exchange. Even if a trading market for the Mandatory Convertible Preferred Shares does develop, the depth or liquidity of that market or the ability of the holders to sell the Mandatory Convertible Preferred Shares, or to sell the Mandatory Convertible Preferred Shares at a favorable price, may be limited.

The price of the Mandatory Convertible Preferred Shares and ADSs may be volatile.

We expect that generally the market price of our ADSs will affect the market price of the Mandatory Convertible Preferred Shares more than any other single factor. The market price of our ADSs may be influenced by many factors, some of which are beyond our control, including those described in or incorporated by reference in this “Risk Factors” section and the following:

 

•

the factors described below under the heading “Forward-Looking Statements;”

 

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actual or anticipated fluctuations in our operating results or our competitors’ operating results;

 

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announcements by us or our competitors of new products, capacity changes, significant contracts, acquisitions or strategic investments;

 

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our growth rate and our competitors’ growth rates;

 

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the financial market and general economic conditions;

 

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changes in stock market analyst recommendations regarding us, our competitors or the pharmaceutical industry generally, or lack of analyst coverage of our ADSs;

 

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sales of our ADSs by our executive officers, directors and significant shareholders or any sales of substantial amounts of our ADSs;

 

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developments indicating the Actavis Generics acquisition will or will not occur;

 

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changes in accounting principles; and

 

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changes in tax laws and regulations.

In addition, we expect that the market price of the Mandatory Convertible Preferred Shares will be influenced by yield and interest rates in the capital markets, the time remaining to the mandatory conversion date, our creditworthiness and the occurrence of certain events affecting us that do not require an adjustment to the conversion rate. Fluctuations in yield rates in particular may give rise to arbitrage opportunities based upon changes in the relative values of our ADSs and Mandatory Convertible Preferred Shares. Any such arbitrage could, in turn, cause a decrease in the market prices of our ADSs and the Mandatory Convertible Preferred Shares.

Sales of substantial amounts of our ADSs in the public market, or the perception that these sales may occur, could cause the market price of our ADSs, and thus the Mandatory Convertible Preferred Shares, to decline.

Sales of substantial amounts of our ADSs in the public market, including the shares being offered in our concurrent ADS offering and the approximately 100 million of our ordinary shares (or ADSs with respect

 

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thereto) being issued to pay the stock consideration portion of the Actavis Generics acquisition, or the perception that these sales may occur, or the conversion of the Mandatory Convertible Preferred Shares or the payment of dividends on the Mandatory Convertible Preferred Shares in the form of our ADSs, or the perception that such conversions or dividends could occur, could cause the market price of our ADSs and thus, the market price of the Mandatory Convertible Preferred Shares, to decline. This could also impair our ability to raise additional capital through the sale of our equity securities.

The availability of our ADSs for sale in the future could reduce the market price of our ADSs.

In the future we may issue additional securities to raise capital. We may also acquire interests in other companies using our ADSs or a combination of cash and our ADSs. We may also issue securities convertible into our ADSs in addition to the Mandatory Convertible Preferred Shares offered hereby. Any of these events may dilute your ownership interest in us and have an adverse impact on the price of our ADSs.

 

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FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this prospectus supplement contain or incorporate by reference some forward-looking statements. Forward-looking statements describe our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these statements include, among other things, statements relating to:

 

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our business strategy;

 

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the anticipated results of acquisitions, including our pending Actavis Generics and Rimsa acquisitions;

 

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the development and launch of our products, including product approvals and results of clinical trials;

 

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projected markets and market size;

 

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anticipated results of litigation and regulatory proceedings;

 

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our projected revenues, market share, expenses, net income margins and capital expenditures; and

 

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our liquidity.

This prospectus supplement contains or incorporates by reference forward-looking statements, which express the current beliefs and expectations of management and involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks relating to: our ability to develop and commercialize additional pharmaceutical products; competition for our specialty products, especially Copaxone^® (including competition from orally-administered alternatives, as well as from generic equivalents such as the recently launched Sandoz product) and our ability to continue to migrate users to our 40 mg/mL version and maintain patients on that version; our ability to identify and successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions (such as our pending Actavis Generics and Rimsa acquisitions); the possibility of material fines, penalties and other sanctions and other adverse consequences arising out of our ongoing FCPA investigations and related matters; our ability to achieve expected results from the research and development efforts invested in our pipeline of specialty and other products; our ability to reduce operating expenses to the extent and during the timeframe intended by our cost reduction program; the extent to which any manufacturing or quality control problems damage our reputation for high quality production and require costly remediation; increased government scrutiny in both the U.S. and Europe of our patent settlement agreements, confidentiality agreements and other measures to protect the intellectual property rights of our specialty medicines; the effects of reforms in healthcare regulation and pharmaceutical pricing, reimbursement and coverage; governmental investigations into sales and marketing practices, particularly for our specialty pharmaceutical products; adverse effects of political or economic instability, corruption or acts of terrorism on our significant worldwide operations; interruptions in our supply chain or problems with internal or third-party information technology systems that adversely affect our complex manufacturing processes; significant disruptions of our information technology systems or breaches of our security data; competition for our generic products, both from other pharmaceutical companies and as a result of increased governmental pricing pressures; competition for our specialty pharmaceutical businesses from companies with greater resources and capabilities; the impact of continuing consolidation of our distributors and customers; decreased opportunities to obtain U.S. market exclusivity for new generic products; potential liability in the U.S., Europe and other foreign markets for sales of generic products prior to a final resolution of outstanding patent litigation; our potential exposure to product liability claims that are not covered by insurance; any failure to retain key personnel, or to attract additional executive and managerial talent; any failures to comply with the complex Medicare and Medicaid reporting and payment obligations; significant impairments charges relating to intangible assets goodwill and property, plant and equipment; the effects of the increase of leverage

 

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and our resulting reliance on access to the capital markets; potentially significant increases in tax liabilities; the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or a change in our business; variations in patent laws that may adversely affect our ability to manufacture products in the most efficient manner; environmental risks; and other factors that are discussed in this prospectus supplement including under “Risk Factors” above, our Annual Report on Form 20-F for the year ended December 31, 2014, and in our other filings with the SEC.

Forward-looking statements speak only as of the date on which they are made and we assume no obligation to update or revise any forward-looking statements or other information contained herein, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures we make in our Annual Reports on Form 20-F and our Reports of Foreign Private Issuer on Form 6-K that are filed with the SEC. Also note that we provide a cautionary discussion of risks and uncertainties under “Risk Factors” above. These are factors that we believe could cause our actual results to differ materially from expected results. Other factors besides those listed here or in the accompanying prospectus could also adversely affect us. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

 

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RATIO OF EARNINGS TO FIXED CHARGES

Our ratio of earnings to fixed charges in accordance with U.S. GAAP for each of the periods presented below was as follows:

 

		Nine months ended September 30, 2015				Year ended December 31,
						2014				2013				2012				2011				2010
Ratio of earnings to fixed charges			7.7				11.8				4.7				5.7				12.5				16.5

Teva did not have any issued and outstanding preferred shares for the relevant periods.

 

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CAPITALIZATION

The following table sets forth Teva’s capitalization as of September 30, 2015:

 

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on a historical basis;

 

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on an as adjusted basis after giving effect to the net proceeds from this offering (but not the application of the net proceeds therefrom) based on the public offering price of $1,000 per Mandatory Convertible Preferred Share;

 

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on an as further adjusted basis to also give effect to the net proceeds from the concurrent ADS offering (but not the application of the net proceeds therefrom), based on the public offering price of $62.50 per ADS;

 

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on an as further adjusted basis to also give effect to the proposed debt financings (but not the application of the net proceeds therefrom); and

 

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on a pro forma basis to give effect to the consummation of the Actavis Generics acquisition, including the issuance of approximately 100 million Teva shares to Allergan (but not the Rimsa acquisition), estimated transaction costs, and the application of the net proceeds from this offering, the concurrent ADS offering and the proposed debt financings.

You should read this table together with our financial statements and pro forma information included or incorporated by reference in this prospectus supplement, as well as the information under “Summary—Actavis Generics Acquisition,” “Risk Factors” and “Use of Proceeds.” Investors in the Mandatory Convertible Preferred Shares should not place undue reliance on the as adjusted information included in this prospectus supplement because this offering is not contingent upon any of the transactions reflected in the adjustments included in the following information.

 

		September 30, 2015 (Unaudited)
		Actual				As Adjusted for this Offering				As Further Adjusted for the ADS Offering				As Further Adjusted for the Proposed Debt Financings				Pro Forma for the Actavis Generics Acquisition
		U.S. Dollars in Millions
0.25% Convertible Senior Debentures due 2026		$	521			$	521			$	521			$	521			$	521
New bridge loan facilities(1)			—				—				—				22,000				22,000
Other short-term debt, including current maturities			1,627				1,627				1,627				1,877				1,877
Total short-term debt			2,148				2,148				2,148				24,398				24,398
2.400% Senior Notes due 2016			950				950				950				950				950
0.99% and 1.42% JPY Term Loans due 2017 and 2019(2)			839				839				839				839				839
JPY LIBOR +0.3% Term Loan due 2018(2)			292				292				292				292				292
1.500% CHF Senior Notes due 2018(3)			463				463				463				463				463
2.875% EUR Senior Notes due 2019(4)			1,123				1,123				1,123				1,123				1,123
2.250% Senior Notes due 2020			700				700				700				700				700
3.650% Senior Notes due 2021			1,198				1,198				1,198				1,198				1,198
2.950% Senior Notes due 2022			843				843				843				843				843
1.25% EUR Senior Notes due 2023(5)			1,451				1,451				1,451				1,451				1,451
1.875% EUR Senior Notes due 2027(6)			781				781				781				781				781
6.150% Senior Notes due 2036			803				803				803				803				803
Term facilities			15				15				15				15				15
New term loan facilities			—				—				—				4,750				4,750
Other long-term debt, net of current maturities			58				58				58				58				58
Total long-term debt		$	9,516			$	9,516			$	9,516			$	14,266			$	14,266

 

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		September 30, 2015 (Unaudited)
		Actual				As Adjusted for this Offering				As Further Adjusted for the ADS Offering				As Further Adjusted for the Proposed Debt Financings				Pro Forma for the Actavis Generics Acquisition
		U.S. Dollars in Millions
Equity:
Teva shareholders’ equity:
Mandatory Convertible Preferred Shares of NIS 0.10 par value per share; authorized 5 million shares; no shares issued prior to this offering			—			$	3,290			$	3,290			$	3,290			$	3,290
Ordinary shares of NIS 0.10 par value per share; authorized 2,495 million shares; 957 million shares issued prior to the concurrent ADS offering(7)		$	50			$	50			$	51			$	51			$	54
Additional paid-in capital			14,425				14,425				17,715				17,715				23,900
Retained earnings			14,657				14,657				14,657				14,657				14,583
Accumulated other comprehensive loss			(2,141	)			(2,141	)			(2,141	)			(2,141	)			(2,141	)
Treasury shares—109 million ordinary shares			(4,252	)			(4,252	)			(4,252	)			(4,252	)			(4,252	)
			22,739				26,029				29,320				29,320				35,434
Non-controlling interests			161				161				161				161				161
Total equity			22,900				26,190				29,481				29,481				35,595
Total capitalization		$	34,564			$	37,854			$	41,145			$	68,145			$	74,259

 

(1)	Teva expects that borrowings under these bridge loan facilities will be reduced in proportion to the new notes that Teva expects to issue in the proposed debt financings.

(2)	¥100.5 billion senior unsecured fixed-rate term loan facility (equivalent amount based on exchange rate published by Bloomberg of ¥119.67 to $1 on September 30, 2015).

(3)	CHF 450 million senior notes (equivalent amount based on the exchange rate published by Bloomberg of CHF0.9749 to $1 on September 30, 2015).

(4)	€1 billion senior notes (equivalent amount based on the exchange rate published by Bloomberg of €0.8944 to $1 on September 30, 2015).

(5)	€1.3 billion senior notes (equivalent amount based on the exchange rate published by Bloomberg of €0.8944 to $1 on September 30, 2015).

(6)	€700 million senior notes (equivalent amount based on the exchange rate published by Bloomberg of €0.8944 to $1 on September 30, 2015).

(7)	Pro forma includes $6.2 billion from the issuance of approximately 100 million Teva shares to Allergan, based on the closing price of a Teva share at November 20, 2015 of $61.70.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $3.29 billion (or approximately $3.62 billion if the underwriters exercise their overallotment option in full).

We expect to use the net proceeds of this offering, together with the net proceeds of the concurrent ADS offering and the proposed debt financings, to finance the cash consideration portion of the purchase price for the Actavis Generics acquisition and related fees and expenses, to finance our pending Rimsa acquisition and/or otherwise for general corporate purposes. For additional information regarding sources and uses of funds in connection with the Actavis Generics acquisition, refer to notes 3 and 6 to the Unaudited Condensed Combined Financial Statements, together with “Summary—The Company—Financing Transactions.” In the event that we do not consummate the Actavis Generics acquisition and the Rimsa acquisition for any reason, then we expect to use the net proceeds from this offering for general corporate purposes.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The unaudited pro forma condensed combined statements of operations (“pro forma statements of operations”) for the nine months ended September 30, 2015 and for the year ended December 31, 2014 have been prepared by Teva and give effect to the acquisition of the global generics business and certain other assets of Allergan plc (“Actavis Generics”) as if the transaction had occurred on January 1, 2014.

The unaudited pro forma condensed combined balance sheet (“pro forma balance sheet”) as of September 30, 2015 combines the historical consolidated balance sheets of Teva and Actavis Generics (including financing that will occur upon consummation of the acquisition of Actavis Generics) as if the transactions had occurred on September 30, 2015.

In the preparation of the unaudited pro forma financial information Teva has received limited information from Allergan. Full access to all relevant information of Actavis Generics will only be available to Teva upon closing of the acquisition due to regulatory restrictions.

The historical consolidated financial information has been adjusted to give effect to pro forma events that are: (i) directly attributable to the aforementioned transactions, (ii) factually supportable, and (iii) with respect to the unaudited pro forma statements of operations, expected to have a continuing impact on the combined results.

The unaudited pro forma condensed combined financial statements (“pro forma financial statements”) should be read in conjunction with the accompanying notes to the unaudited pro forma financial statements. In addition, the unaudited pro forma financial statements were based on and should be read in conjunction with the:

 

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Unaudited condensed consolidated financial statements of Teva as of and for the nine months ended September 30, 2015 and the related notes, included in Teva’s Report on Form 6-K, as filed with the SEC on October 29, 2015;

 

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Audited consolidated financial statements of Teva as of and for the year ended December 31, 2014 and the related notes, included in Teva’s Annual Report on Form 20-F for the year ended December 31, 2014, as filed with the SEC on February 9, 2015;

 

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Unaudited abbreviated special purpose combined financial statements of Actavis Generics for the nine months ended September 30, 2015, as filed with the SEC on Form 6-K on November 30, 2015; and

 

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Audited special purpose combined statements of net assets acquired and revenues and direct expenses (“abbreviated special purpose combined financial statements”) of Actavis Generics as of and for the year ended December 31, 2014, as filed with the SEC on Form 6-K on November 30, 2015.

The unaudited pro forma financial statements are for informational purposes only. They do not purport to indicate the actual results that would have been attained had the acquisition of Actavis Generics been completed on the assumed dates or for the periods presented. In addition, the unaudited pro forma financial statements do not purport to project the future financial position or operating results of Teva following the acquisition of Actavis Generics.

The unaudited pro forma financial statements have been prepared assuming the application of the purchase method of accounting under U.S. GAAP, with Teva being the accounting acquirer.

To produce the unaudited pro forma financial information, Teva allocated the estimated purchase price for the acquisition of Actavis Generics using its best estimates of fair value. To the extent there are changes to the business of Actavis Generics or we obtain additional or more complete information related to the underlying assets and liabilities acquired, the assumptions and estimates herein could change significantly. The allocation of the purchase price is dependent upon certain valuations and other studies that are not yet finalized. Accordingly,

 

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the pro forma acquisition adjustments are preliminary, and subject to further adjustments, as additional information becomes available, and as additional analyses are performed. There can be no assurance that the final valuation will not result in material changes to the unaudited pro forma financial statements.

In addition, the unaudited pro forma financial statements do not reflect any cost savings (or the associated costs to achieve such savings), operating synergies or revenue enhancements that the combined company may achieve following the acquisition of Actavis Generics.

Furthermore, Teva could have additional expenses as a result of post-closing restructuring activities. The unaudited pro forma financial information does not reflect such potential expenses, which could be significant.

 

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Unaudited Pro Forma Balance Sheet Information as of September 30, 2015

(U.S. $ in millions)

 

		Historical				Special purpose, as adjusted*				Pro forma
		Teva September 30, 2015				Actavis Generics September 30, 2015				Pro forma adjustments				Note		Financing adjustments				Note		Teva/Actavis Generics Pro Forma Combined
		I				II				III						IV						I+II+III+IV
ASSETS
Current assets:
Cash and cash equivalents		$	928			$	—			$	(74	)		4c		$	33,750			6a		$	617
											(33,750	)		3, 4a			(237	)		6c, 6f
Accounts receivable			5,275				2,878				—						—						8,153
Inventories			4,092				1,163				801			4d			—						6,056
Deferred income taxes			915				355				—						—						1,270
Other current assets			1,290				305				—						56			6c			1,651
Total current assets			12,500				4,701				(33,023	)					33,569						17,747
Other non-current assets			2,469				159				—						12			6c			2,640
Property, plant and equipment, net			6,422				1,309				—			4e			—						7,731
Identifiable intangible assets, net			8,060				2,855				22,059			4f			—						30,119
											(2,855	)		4f
Goodwill			19,174				3,695				21,477			4g			—						40,651
											(3,695	)		4g
Total assets		$	48,625			$	12,719			$	3,963					$	33,581					$	98,888
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt		$	2,148			$	—			$	—					$	22,250			6b, 6d		$	24,398
Sales reserves and allowances			6,759				1,292				—						—						8,051
Accounts payable and accruals			2,964				964				—						—						3,928
Other current liabilities			1,107				91				160			4h			—						1,358
Total current liabilities			12,978				2,347				160						22,250						37,735
Long-term liabilities:
Deferred income taxes			1,909				444				7,450			4h			—						9,803
Other taxes and long term liabilities			1,322				167				—						—						1,489
Senior notes and loans			9,516				—				—						4,750			6b, 6e			14,266
Total long term liabilities			12,747				611				7,450						4,750						25,558
Total liabilities			25,725				2,958				7,610						27,000						63,293
Equity:
Shareholders’ equity:
Ordinary shares			50				—				3			3, 4a			3			6a, 6f			56
Additional paid-in capital			14,425				—				6,185			3, 4a			6,578			6a, 6f			27,188
Retained earnings			14,657				—				(74	)		4c			—						14,583
Accumulated other comprehensive loss			(2,141	)			—				—						—						(2,141	)
Treasury shares			(4,252	)			—				—						—						(4,252	)
			22,739				—				6,114						6,581						35,434
Non-controlling interests			161				—				—						—						161
Total equity			22,900				—				6,114						6,581						35,595
Total liabilities and equity		$	48,625			$	2,958			$	13,724					$	33,581					$	98,888
Net assets acquired						$	9,761			$	(9,761	)		4b

 

*	For reconciliation to the special purpose financial statements, refer to note 2.

 

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Unaudited Pro Forma Statement of Operations Information

For the Nine Months Ended September 30, 2015

(U.S. $ in millions, except share and per share amounts)

 

		Historical				Special purpose, as adjusted*				Pro forma
		Teva Nine months ended September 30, 2015				Actavis  Generics Nine months ended September 30, 2015																Teva/Actavis Generics
										Pro forma adjustments				Note		Financing adjustments				Note		Pro Forma Combined
		I				II				III						IV						I+II+III+IV
Net revenues		$	14,771			$	4,637			$	(357	)		5c, 5d		$	—					$	19,051
Cost of sales			6,262				2,631				807			5a, 5b, 5c, 5d			—						9,700
Gross profit			8,509				2,006				(1,164	)					—						9,351
Research and development expenses			1,079				322				—						—						1,401
Selling and marketing expenses			2,562				419				—						—						2,981
General and administrative expenses			948				446				(48	)		5e			—						1,346
Legal settlements and loss contingencies			531				—				—						—						531
Impairments, restructuring and others			968				170				—						—						1,138
Operating income			2,421				649				(1,116	)					—						1,954
Financial expenses—net			930				—				—						309			6g			1,239
Income before income taxes			1,491				649				(1,116	)					(309	)					715
Income taxes			385				—				(92	)		5f			(62	)		6i			231
Share in losses of associated companies—net			7				—				—						—						7
Net income			1,099				649				(1,024	)					(247	)					477
Net income attributable to non-controlling interests			11				—				—						—						11
Net income attributable to Teva		$	1,088			$	649			$	(1,024	)				$	(247	)				$	466
Earnings per share attributable to Teva:
Basic ($)			1.28																				0.44
Diluted ($)			1.26																				0.44
Weighted average number of shares (in millions):
Basic			851								100			3, 5g			109			5g, 6f			1,060
Diluted			860								100			3, 5g			109			5g, 6f			1,069

 

*	For reconciliation to the special purpose financial statements, refer to note 2.

 

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Unaudited Pro Forma Statement of Operations Information

For the Year Ended December 31, 2014

(U.S. $ in millions, except share and per share amounts)

 

		Historical				Special purpose, as adjusted*				Pro forma
		Teva Year  ended December 31, 2014				Actavis  Generics Year ended December 31, 2014																		Teva/Actavis Generics Pro Forma Combined
										Pro forma adjustments				Note		Financing adjustments				Note
		I				II				III						IV								I+II+III+IV
Net revenues		$	20,272			$	6,374			$	(486	)		5c, 5d		$	—							$	26,160
Cost of sales			9,216				3,685				964			5a, 5b, 5c, 5d			—								13,865
Gross profit			11,056				2,689				(1,450	)					—								12,295
Research and development expenses			1,488				478				—						—								1,966
Selling and marketing expenses			3,861				643				—						—								4,504
General and administrative expenses			1,217				524				—						—								1,741
Legal settlements and loss contingencies			(111	)			—				—						—								(111	)
Impairments, restructuring and others			650				111				—						—								761
Operating income			3,951				933				(1,450	)					—								3,434
Financial expenses—net			313				—				—						301				6g				614
Income before income taxes			3,638				933				(1,450	)					(301	)							2,820
Income taxes			591				—				(103	)		5f			(60	)			6i				428
Share in losses of associated companies—net			5				—				—						—								5
Net income			3,042				933				(1,347	)					(241	)							2,387
Net loss attributable to non-controlling interests			(13	)			—				—						—								(13	)
Net income attributable to Teva		$	3,055			$	933			$	(1,347	)				$	(241	)						$	2,400
Earnings per share attributable to Teva:
Basic ($)			3.58																						2.26
Diluted ($)			3.56																						2.25
Weighted average number of shares (in millions):
Basic			853								100			3, 5g			109				5g, 6f				1,062
Diluted			858								100			3, 5g			109				5g, 6f				1,067

 

*	For reconciliation to the special purpose financial statements, refer to note 2.

 

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Notes to Unaudited Pro Forma Financial Statements

 

1.

General

On July 26, 2015, Teva entered into a definitive agreement with Allergan plc (“Allergan”) to acquire Actavis Generics. Teva will pay total consideration of $33.75 billion in cash and approximately 100 million Teva ordinary shares to be issued to Allergan at the closing of the transaction. At the time of the announcement, total consideration was estimated to be $40.5 billion. However, the final consideration will be based on the closing price of Teva’s ordinary shares at the date of acquisition. Closing of the transaction is subject to certain conditions, including relevant regulatory approvals. Subject to satisfaction of the closing conditions, Teva expects the acquisition to close in the first quarter of 2016.

On October 1, 2015, Teva entered into an agreement to purchase the net assets of Representaciones e Investigaciones Medicas, S.A. de C.V. (“Rimsa”) in a set of transactions for an aggregate of $2.3 billion in cash. These unaudited pro forma financial statements do not reflect the consummation of this acquisition, as the amounts related thereto are not considered material. In the opening balance sheet related to the acquisition of Rimsa, we expect to record approximately $2.3 billion in additional net assets and liabilities. Assets are expected to consist primarily of intangible assets and goodwill, while liabilities will be primarily related to additional borrowings to finance the purchase. Rimsa’s revenue and operating income during the year ended December 31, 2014 were approximately $227 million and $36 million, respectively. Amounts related to the unaudited pro forma balance sheet and statements of operations were not material and are not included in the accompanying pro forma balance sheets or statements of operations.

On May 5, 2015, Teva completed a tender offer for all of the outstanding shares of Auspex Pharmaceuticals, Inc. at $101 per share in cash, or an aggregate of $3.5 billion, in accordance with a merger agreement dated March 29, 2015. Net cash consideration paid by Teva amounted to $3.3 billion. Accordingly, the acquired assets and liabilities are already reflected in the unaudited pro forma balance sheet. Amounts related to the pro forma statement of operations for the period prior to the acquisition were not material and are not presented in the pro forma statements of operations.

During the third quarter of 2015, Teva acquired stakes in Gecko Health Innovations, Inc., Immuneering Corporation and Microchips Biotech, Inc. for an aggregate of approximately $102 million and certain contingent payments. Accordingly, acquired assets and liabilities are already reflected in the unaudited pro forma balance sheet. Amounts related to the pro forma statements of operations for periods prior to the acquisitions were not material and are not presented in the pro forma statements of operations.

For purposes of the pro forma statements of operations, the acquisitions by Actavis Generics of Auden Mckenzie Holdings Limited during 2015 and Silom Medical Company and Forest Laboratories during 2014, as well as the sales of its Australian and Western Europe businesses during 2015 and 2014, respectively, were recorded in the pro forma statements of operations from the date of the transaction, as amounts for the periods prior to such transactions were not material.

The cumulative impact of the above transactions by Actavis Generics and Teva, which are not presented in the unaudited pro forma financial statements, was considered to be immaterial.

For purposes of preparing the unaudited pro forma balance sheet as of September 30, 2015, Teva has presented the following information:

 

•

The Teva unaudited consolidated balance sheet as of September 30, 2015;

 

•

The Actavis Generics unaudited abbreviated special purpose adjusted combined statement of net assets as of September 30, 2015. For reconciliation to the special purpose combined financial statements, refer to note 2;

 

•

Pro forma adjustments to reflect the acquisition of Actavis Generics as if it had occurred on September 30, 2015; and

 

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•

Financing-related adjustments to reflect the acquisition of Actavis Generics as if it had occurred on September 30, 2015.

For purposes of preparing the unaudited pro forma statement of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014, Teva has presented the following information:

 

•

The Teva unaudited consolidated statement of operations for the nine months ended September 30, 2015 and the audited consolidated statement of operations for the year ended December 31, 2014;

 

•

The Actavis Generics unaudited abbreviated special purpose adjusted combined statement of revenues and direct expenses for the nine months ended September 30, 2015, and the audited abbreviated special purpose adjusted combined statement of revenues and direct expenses for the year ended December 31, 2014. For reconciliation to the special purpose combined financial statements, refer to note 2;

 

•

Pro forma adjustments to reflect the acquisition of Actavis Generics as if it had occurred on January 1, 2014; and

 

•

Financing-related adjustments to reflect the acquisition of Actavis Generics as if it had occurred on January 1, 2014.

Since the unaudited pro forma financial information has been prepared based on preliminary estimates with the assistance of a third-party appraiser and limited access to Allergan’s detailed data, such estimates and assumptions applied are subject to change pending further review of the assets acquired and liabilities assumed, the final purchase price and our assessment of fair value. Differences from the preliminary estimates could exist and could be material.

 

2.	Basis of Presentation

As of the date of this prospectus, Teva has not completed the detailed valuation analyses necessary to determine the estimated fair market value of Actavis Generics’ assets to be acquired and liabilities to be assumed. As indicated in the notes to the unaudited pro forma financial statements, Teva has made certain adjustments to the historical book values of the assets and liabilities of Actavis Generics to reflect preliminary estimates of the fair value of intangible assets acquired with the residual excess of the purchase price over the historical net assets of Actavis Generics recorded as goodwill. Actual results may differ from those reflected in the unaudited pro forma financial statements. Differences could arise after Teva has determined the final purchase price for Actavis Generics and has completed the valuation analyses necessary to finalize fair value estimates and identified any necessary conforming accounting changes or other acquisition-related adjustments for Actavis Generics. There can be no assurance that such finalization will not result in material changes from the unaudited pro forma financial statements and affect Teva’s future results of operations and financial condition.

The unaudited pro forma financial statements were prepared assuming the application of the purchase method of accounting in accordance with Financial Accounting Standards Board’s Accounting Standards Codification, or ASC, Topic 805, Business Combinations, use of the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and were based on the historical financial statements of Teva and the abbreviated special purpose combined financial statements of Actavis Generics.

The abbreviated special purpose combined financial statements of Actavis Generics include statements of net assets acquired and statements of revenues and direct expenses based upon relief from SEC Rule 3-05, Significant Acquisition Carve-out Financial Statement Reporting Requirements, obtained by Teva from the Securities and Exchange Commission. The net assets acquired include legal entities and assets identified in accordance with the acquisition agreement. These abbreviated special purpose combined financial statements include revenues generated by Actavis Generics, less expenses directly attributable to Actavis Generics, and allocations of direct operating costs incurred by Allergan relating to Actavis Generics. A provision for income taxes has not been presented in these abbreviated special purpose combined financial statements as Actavis

 

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Generics has not operated as a standalone unit and no allocation of Allergan’s income tax provision or benefit has historically been made to Actavis Generics per above. While the allocation of the provision for income taxes was impracticable, Teva will be acquiring or assuming certain income tax assets and liabilities which have been reflected in these financial statements. There was no direct interest expense incurred by or allocated to Actavis Generics as no third-party debt will be transferred as part of the acquisition. Therefore, no interest expense has been reflected in these abbreviated special purpose combined financial statements.

Acquisition-related transaction costs, such as investment banking, advisory, legal, valuations, and other professional fees, are not included as a component of consideration transferred but are expensed as incurred. These costs are not presented in the unaudited pro forma statement of operations because they will not have a continuing impact on the consolidated results of Teva.

In connection with the acquisition of Actavis Generics, total transaction costs expected to be incurred by Teva are estimated to be approximately $74 million (excluding costs payable related to the financing).

The estimated acquisition-related transaction costs are reflected in the unaudited pro forma balance sheet as of September 30, 2015 as a reduction to cash and cash equivalents with a corresponding decrease to retained earnings. No tax effect was recorded for these costs as their deductibility has not been assessed and is not expected to be material.

Teva and Actavis Generics’ financial information is prepared in accordance with U.S. GAAP, with all amounts stated in U.S. dollars.

Certain comparative figures included in the historical consolidated financial statements of Actavis Generics have been rounded to conform to the unaudited pro forma financial statements presentation.

 

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Accounting policies and reclassifications

Following the acquisition, Teva will conduct a review of the accounting policies of Actavis Generics in an effort to determine if differences in accounting policies require restatement or reclassification of results of operations or reclassification of assets or liabilities to conform to Teva’s accounting policies and classifications. As a result of that review, Teva may identify differences between the accounting policies of Teva and Actavis Generics that, when conformed, could have a material impact on this unaudited pro forma financial information. During the preparation of this unaudited pro forma financial information, Teva was not aware of any material differences between accounting policies of Teva and Actavis Generics, except for certain reclassifications necessary to conform to Teva’s financial presentation, and accordingly, this unaudited pro forma financial information does not assume any material differences in accounting policies among Teva and Actavis Generics. The abbreviated special purpose combined financial statement column in these unaudited pro forma financial statements includes the following reclassifications:

 

a.	Reclassifications made to the Actavis Generics unaudited abbreviated special purpose combined statement of net assets as of September 30, 2015 to conform to the Teva presentation:

 

(U.S. $ in millions)		Special purpose				Reclassifications				Special purpose, as adjusted
		I				II				I+II
ASSETS
Current assets:
Accounts receivable		$	1,965			$	913			$	2,878
Inventories			1,163				—				1,163
Deferred income taxes			355				—				355
Assets held for sale			5				(5	)			—
Other current assets			300				5				305
Total current assets			3,788				913				4,701
Other non-current assets			35				124				159
Non-current deferred tax assets			124				(124	)			—
Property, plant and equipment, net			1,309				—				1,309
Identifiable intangible assets, net			2,855				—				2,855
Goodwill			3,695				—				3,695
Total assets		$	11,806			$	913			$	12,719
LIABILITIES AND EQUITY
Current liabilities:
Sales reserves and allowances		$	—			$	1,292			$	1,292
Accounts payable and accruals			1,343				(379	)			964
Income tax payables			39				(39	)			—
Current deferred tax liabilities			39				(39	)			—
Other current liabilities			13				78				91
Total current liabilities			1,434				913				2,347
Long-term liabilities:
Deferred income taxes			444				—				444
Other tax payables			70				(70	)			—
Long-term liabilities			97				(97	)			—
Other taxes and long term liabilities			—				167				167
Total long term liabilities			611				—				611
Total liabilities		$	2,045			$	913			$	2,958
Net assets acquired		$	9,761			$	—			$	9,761

 

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b.

 

•

A reclassification of accrued sales allowances of $913 million and $379 million from accounts receivable and accounts payable and accruals, respectively, to sales reserves and allowances;

 

•

A reclassification of $124 million from non-current deferred tax assets to other non-current assets;

 

•

A reclassification of $97 million from long term liabilities to other taxes and long term liabilities;

 

•

A reclassification of $70 million from other tax payables to other taxes and long term liabilities;

 

•

A reclassification of $39 million and $39 million from current deferred tax liabilities and income tax payables, to other current liabilities; and

 

•

A reclassification of $5 million from assets held for sale to other current assets.

 

c.	Reclassifications made to the Actavis Generics unaudited abbreviated special purpose combined statement of revenues and direct expenses for the nine months ended September 30, 2015 to conform to the Teva presentation:

 

(U.S. $ in millions)		Special purpose				Reclassifications				Special purpose, as adjusted
		I				II				I+II
Net revenues		$	4,637			$	—			$	4,637
Cost of sales			2,246				385				2,631
Gross profit			2,391				(385	)			2,006
Research and development expenses			322				—				322
Selling and marketing expenses			431				(12	)			419
General and administrative expenses			504				(58	)			446
Amortization			423				(423	)			—
Asset sales, impairments and contingent consideration charges, net			54				(54	)			—
Impairments, restructuring and others			—				170				170
Other expense (income)			8				(8	)			—
Revenues less direct expenses		$	649			$	—			$	649

 

•

A reclassification of $423 million from amortization to cost of sales;

 

•

A reclassification of restructuring costs of $58 million, $38 million and $12 million from general and administrative expenses, cost of sales and selling and marketing expenses, respectively to impairments, restructuring and others;

 

•

A reclassification of $54 million from asset sales, impairments and contingent consideration charges, net to impairments, restructuring and others; and

 

•

A reclassification of $8 million from other expense to impairments, restructuring and others.

 

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d.	Reclassifications made to the Actavis Generics audited abbreviated special purpose combined statement of revenues and direct expenses for the year ended December 31, 2014 to conform to the Teva presentation:

 

(U.S. in millions)		Special purpose				Reclassifications				Special purpose, as adjusted
		I				II				I+II
Net revenues		$	6,374			$	—			$	6,374
Cost of sales			3,089				596				3,685
Gross profit			3,285				(596	)			2,689
Research and development expenses			482				(4	)			478
Selling and marketing expenses			650				(7	)			643
General and administrative expenses			534				(10	)			524
Amortization			652				(652	)			—
Asset sales, impairments and contingent consideration charges, net			20				(20	)			—
Impairments, restructuring and others			—				111				111
Other expense (income)			14				(14	)			—
Revenues less direct expenses		$	933			$	—			$	933

 

•

A reclassification of $652 million from amortization to cost of sales;

 

•

A reclassification of restructuring costs of $56 million, $10 million, $7 million and $4 million from cost of sales, general and administrative expenses, selling and marketing expenses and research and development expenses, respectively, to impairments, restructuring and others;

 

•

A reclassification of $20 million from asset sales, impairments and contingent consideration charges, net to impairments, restructuring and others; and

 

•

A reclassification of $14 million from other expense to impairments, restructuring and others.

 

3.	Actavis Generics Purchase Price

Upon consummation of the acquisition of Actavis Generics, Allergan will receive total consideration of $39.9 billion, consisting of $33.75 billion in cash and approximately 100 million Teva ordinary shares as follows:

 

(U.S. $ in millions, except per share amount)
Total cash consideration		$	33,750
Price of Teva ordinary share at November 20, 2015			61.7
Number of Teva ordinary shares to be issued to Allergan (in millions)			100.3
Total consideration from Teva ordinary shares to be issued to Allergan			6,188
Fair value of total consideration transferred		$	39,938

Upon consummation of the acquisition, unvested equity awards of Actavis Generics will be replaced with equity awards of Teva. The specific terms and conditions of Teva awards are still being assessed. The fair value of these awards was considered to be immaterial and therefore is not included in the unaudited pro forma financial statements.

In accordance with ASC 805, the fair value of equity securities issued as part of the consideration transferred will be measured on the closing date of the acquisition at the then-current market price. This requirement will likely result in a per share price different from the $61.70 as of November 20, 2015 assumed in these unaudited pro forma financial statements and that difference may be material. Refer also to note 4a below for sensitivity analysis.

 

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4.	Actavis Generics Unaudited Pro Forma Balance Sheet Adjustments

The following summarizes the pro forma adjustments in connection with the acquisition of Actavis Generics to give effect to the acquisition as if it had occurred on September 30, 2015 for purposes of the unaudited pro forma balance sheet.

Assuming an acquisition date of September 30, 2015, the following is a preliminary estimate of the assets to be acquired and the liabilities to be assumed by Teva in connection with the acquisition of Actavis Generics, reconciled to the estimated purchase price:

 

(U.S. $ in millions)		Note				Amount
Purchase consideration
Fair value of total consideration transferred			4a			$	39,938
Recognized amounts of identifiable assets acquired and liabilities assumed
Book value of net assets			4b				9,761
Elimination of Actavis Generics historical intangibles			4f				(2,855	)
Elimination of Actavis Generics historical deferred tax on intangibles			4f				376
Elimination of Actavis Generics historical goodwill			4g				(3,695	)
Net assets to be acquired							3,587
Preliminary estimate of fair value adjustments of net assets acquired
Inventories step-up			4d				801
Intangible assets, net			4f				22,059
Deferred income tax liability			4h				(7,986	)
Goodwill			4g			$	21,477

 

a.

As a result of the acquisition Teva will pay total consideration of $39.9 billion (calculated using the assumed share price noted above).

The table below depicts a sensitivity analysis of the estimated purchase consideration and goodwill, assuming a $5 and $10 increase or decrease of the closing price of Teva ordinary shares.

 

(in U.S. $, except number of shares issued)
Price of Teva Ordinary Share		Number of Shares Issued				Calculated Value of Share Consideration				Cash Consideration				Total Purchase Price				Total Goodwill
		in millions
$71.70			100.3			$	7,191			$	33,750			$	40,941			$	22,480
66.70			100.3				6,690				33,750				40,440				21,979
61.70			100.3				6,188				33,750				39,938				21,477
56.70			100.3				5,687				33,750				39,437				20,976
$51.70			100.3			$	5,185			$	33,750			$	38,935			$	20,474

 

b.

Reflects the acquisition of net assets of Actavis Generics having a historical book value of $9.8 billion as of September 30, 2015.

 

c.

Reflects the recognition of $74 million of acquisition-related transaction costs expected to be incurred by Teva. These fees are recorded against retained earnings solely for the purposes of this presentation. There is no continuing impact of these transaction costs on the combined operating results and, as such, these costs are not included in the pro forma statement of operations.

 

d.

Reflects a preliminary fair value adjustment of $801 million, which has been assigned to inventories to be acquired. The pro forma fair value adjustment is based on Actavis Generics’ inventories as of September 30, 2015, adjusted as follows, based on third-party appraiser estimates, using the following methods:

 

i.

Finished goods at estimated selling prices less the sum of costs of disposal and a reasonable profit allowance for the selling effort of a market participant;

 

ii.

Work in process at estimated selling prices of finished goods less the sum of costs to complete, costs of disposal, and a reasonable profit allowance for the completing and selling effort of a market participant based on profit for similar finished goods; and

 

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iii.

Raw materials at current replacement costs.

Teva’s assumptions as to the fair value adjustment of Actavis Generics’ inventories may change as it conducts, with full access to Allergan’s detailed data and the assistance of a third-party appraiser, a valuation of Actavis Generics’ inventories following the completion of the acquisition. There can be no assurance that these changes will not be material.

Teva will reflect the fair value adjustment of Actavis Generics’ inventory as the acquired inventory is sold, which for purposes of this unaudited pro forma financial information is assumed to occur within the first year after closing.

 

e.

Teva has assumed that the net book value of Actavis Generics’ historical property, plant and equipment (“PP&E”) approximates fair value for these assets for purposes of these unaudited pro forma financial statements. Teva’s assumptions as to the fair value adjustment of Actavis Generics’ PP&E may change as it conducts, with access to Allergan’s management and the assistance of a third-party appraiser, a valuation of Actavis Generics’ PP&E following the completion of the acquisition. There can be no assurance that these changes will not be material.

Based on estimated useful lives averaging approximately 40 years for buildings, for each $40 million change in the total fair value adjustment there could be an annual change in depreciation expense of approximately $1 million.

Based on estimated useful lives averaging approximately between 15 and 20 years for machinery and equipment, for each $20 million change in the total fair value adjustment there could be an annual change in depreciation expense of approximately between $1 and $1.3 million.

 

f.

Reflects the elimination of the historical Actavis Generics identifiable intangible assets amount of $2.9 billion as well as the corresponding tax effect of $376 million, and the recognition of the fair value adjustment estimate for identifiable intangible assets of $22.1 billion which is preliminary and will be finally determined, with access to Allergan’s detailed data and the assistance of a third-party appraiser, based on the assumptions that market participants would use in pricing an asset. An adjustment has been made to intangible assets acquired, primarily consisting of product rights and in-process research and development (“IPR&D”). Amortization related to the fair value of the finite-lived intangible assets has been reflected as pro forma adjustments to the unaudited pro forma statements of operations.

Teva’s assumptions as to the fair value of Actavis Generics’ identifiable intangible assets and the estimated amortization periods are based on publicly available information as well as limited information provided by Allergan’s management (including Actavis Generics’ abbreviated special purpose combined financial statements, information on Actavis Generics’ patents, analyst reports and investor presentations) and these assumptions will likely change as Teva finalizes the valuation of Actavis Generics’ identifiable intangible assets following the completion of the acquisition.

The fair value adjustment estimate of identifiable intangible assets is preliminary and is determined using the “income approach,” which is a valuation technique that calculates an estimate of the fair value of an asset based on market participants’ expectations of the cash flows an asset would generate over its remaining useful life.

The fair value of the identifiable intangible assets and their weighted-average useful lives are as follows:

 

(U.S. $ in millions)		Estimated Fair Value				Estimated Useful Life
Product rights		$	17,228				10
In-process research and development			4,831				N/A
		$	22,059

 

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Acquired IPR&D assets are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the date of the acquisition of Actavis Generics, these assets will not be amortized into earnings. Instead, they will be subject to periodic impairment testing. Upon successful completion of the development process for an acquired IPR&D project, a determination as to the useful life of the asset will be made. At that point in time, the asset would then be considered a finite-lived intangible asset and amortization of the asset into earnings would commence. The impact on earnings can be significant. If an IPR&D project was not successfully developed, it may result in an impairment charge.

For every $250 million change in the preliminary fair value estimate of amortizable intangible assets, the annual amortization expense would change by approximately $25 million, depending on the specific intangible asset. An increase of one year in the estimated amortization period would result in a decrease of approximately $157 million in annual amortization expense and a decrease of one year in the estimated amortization period would result in an increase of approximately $191 million in annual amortization expense.

 

g.

Reflects the elimination of the historical goodwill amount of $3.7 billion and the recognition of goodwill amount of $21.5 billion related to the acquisition of Actavis Generics. Goodwill is calculated as the difference between the fair value of the consideration expected to be transferred, and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed. The estimated goodwill calculation is preliminary and is subject to change based upon final determination of the fair value of assets acquired and liabilities assumed and finalization of the purchase price. Goodwill is not amortized, but is assessed at least annually or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable based on management’s assessment.

 

h.

Reflects a deferred income tax liability adjustment of $7.6 billion, resulting from fair value adjustments for the inventory and identifiable intangible assets acquired. This estimate was determined based on the excess book basis over the tax basis of the inventory and identifiable intangible assets acquired, using a weighted average statutory tax rate of approximately 35% based on estimated geographical mix of income and estimated tax rates of Teva following the completion of the acquisition.

Teva’s effective tax rate following the completion of the acquisition could be significantly different depending on various factors.

For purposes of the unaudited pro forma financial statements, no adjustment has been made to the balance of unrecognized tax benefits.

This estimate of deferred income tax liabilities is preliminary and is subject to change based upon Teva’s final determination of the tax rate and the fair values of tangible and identifiable intangible assets acquired and liabilities assumed.

 

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The effect of deferred taxes was estimated as follows:

 

(U.S. $ in millions)
Deferred income tax impact due to:
Estimated fair value for inventory step-up		$	(160	)
Estimated fair value for intangible assets			(7,826	)
Elimination of historical deferred tax on intangible assets			376
Estimated adjustments to deferred income taxes			(7,610	)
Actavis Generics historical deferred tax liabilities, net			(4	)
Estimated deferred income tax liabilities, net		$	(7,614	)
Consists of:
Deferred income tax assets—current			355
Deferred income tax assets—non-current			124
Deferred income tax liabilities—current			(199	)
Deferred income tax liabilities—non-current			(7,894	)
Estimated deferred income tax liabilities, net		$	(7,614	)

 

5.	Actavis Generics Unaudited Pro Forma Statements of Operations Adjustments

The following summarizes the pro forma adjustments in the accompanying unaudited pro forma statement of operations in connection with the acquisition of Actavis Generics to give effect to the acquisition as if it had occurred on January 1, 2014 for purposes of the unaudited pro forma statements of operations:

 

a.

An increase in amortization expense associated with fair value adjustments to the carrying value of intangible assets for the nine months ended September 30, 2015 and the year ended December 31, 2014. The increase in amortization expense is recorded as follows:

 

(U.S. $ in millions)		Estimated Fair Value				Amortization Nine Months Ended September 30, 2015				Amortization Year Ended December 31, 2014
Estimated Amortization		$	22,059			$	1,433			$	1,911
Less: Historical Amortization Expenses of Actavis Generics							423				652
						$	1,010			$	1,259

 

b.

Teva’s pro forma statement of operations does not include a charge related to the inventory fair value adjustment of Actavis Generics’ inventory, as the sale of the acquired inventory is expected to occur within the first year following the acquisition and there is no continuing impact on Teva’s results of operations. The inventory fair value adjustments recorded to cost of sales for prior acquisitions made in 2015 and 2014 by Actavis Generics in its abbreviated special purpose combined statements of revenues and direct expenses in the amounts of $28 million and $53 million for the nine months ended September 30, 2015 and for the year ended December 31, 2014, respectively, have been reversed, as, for the purpose of the pro forma statements of operations, such adjustments also have no continuing impact on Teva’s results of operations after January 1, 2014.

 

c.

To reflect elimination of product sales and cost of goods of $24 million and $41 million for the nine months ended September 30, 2015 and for the year ended December 31, 2014, respectively, between Teva and Actavis Generics.

 

d.

To reflect the impact on sales of estimated divestment of products (following regulatory requirements in the relevant markets as well as commercial considerations) of $333 million and $445 million for the nine months ended September 30, 2015 and for the year ended December 31, 2014, respectively. In

 

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addition the impact of corresponding cost of goods of $151 million and $201 million for the nine months ended September, 2015 and for the year ended December 31, 2014 was reflected.

Teva’s assumptions as to the impact of products required to be divested are solely based on management’s assessments and publicly available information. These assumptions will likely change following the completion of the acquisition based on conditions imposed in connection with regulatory approvals. In addition, Teva is currently seeking potential buyers for products expected to be divested. The impact of such divestitures is not presented in the unaudited pro forma statement of operations as there is no continuing impact on Teva’s results of operations.

 

e.

The acquisition-related costs recorded to general and administrative expenses for prior acquisitions made in 2015 by Actavis Generics in its abbreviated special purpose combined statements of revenues and direct expenses in the amount of $48 million for the nine months ended September 30, 2015 have been reversed, as, for the purpose of the pro forma statements of operations, such adjustments also have no continuing impact on Teva’s results of operations.

 

f.

Adjustments to record tax expense on income before taxes as presented in the abbreviated special purpose combined statement of revenues and direct expenses as well as to record the tax effect to the pro forma adjustments.

Since the abbreviated special purpose combined financial statements of Actavis Generics did not include income taxes, for purposes of this unaudited pro forma statement of operations Teva used a 20% estimated tax rate for calculating the income taxes on income before taxes of Actavis Generics.

The total effective tax rate of Teva after completion of the acquisition could be significantly different depending on various factors.

 

g.

The unaudited pro forma combined basic and diluted earnings per share for the periods presented have been adjusted by:

 

•

The number of Teva ordinary shares to be issued to Allergan in connection with the acquisition, included in the pro forma adjustments (refer to notes 3 and 7 for the computation); and

 

•

The number of Teva ordinary shares expected to be issued to raise a portion of the cash consideration, included in the financing adjustments (refer to notes 6 and 7 for the computation).

 

6.	Financing Adjustments

The total consideration to Allergan will consist of $33.75 billion in cash and approximately 100 million Teva ordinary shares, which represent $6.19 billion in value based on November 20, 2015 Teva’s closing share price.

 

a.

The adjustment to cash is as follows:

 

(U.S. $ in millions)		Note
Bridge Facility			6b			$	22,000
Proceeds from issuance of Teva ordinary shares			6f				6,750
Term Facilities			6b				5,000
						$	33,750
Debt issuance costs			6c				68
Equity issuance costs			6f				169
							237
Total financing						$	33,513

As part of the equity component of the acquisition financing, Teva may issue mandatory convertible preferred equity securities, which may comprise up to sixty percent of the aggregate equity issued.

 

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However, the terms of such shares are not yet known. Accordingly, for purposes of this unaudited pro forma financial information Teva has assumed that all of the equity securities issued to finance the transaction will be issued in the form of Teva ordinary shares at the closing price of November 20, 2015, which was $61.70.

 

b.

The borrowings under the bridge and the term facilities represent financing available as of the time of this filing. For the purpose of the unaudited pro forma financial information, Teva has assumed a drawdown of $22 billion and $5 billion on the bridge facility and term facilities, respectively. For a discussion of proposed financing transactions in lieu of borrowing under the bridge facility, see “Summary—The Company—Financing Transactions.”

On September 25, 2015, Teva entered into a $27 billion bridge facility, which was amended to $22 billion on November 16, 2015. The bridge facility initially matures on the earlier of (i) twelve months from the first utilization under the bridge facility agreement or (ii) 24 months following the signing date of the commitment letter, which we refer to as the initial maturity date. If, on the initial maturity date, any loans under the bridge facility are still outstanding and no default or event of default (in each case as defined in the bridge facility agreement) is then continuing, the borrower has the option, subject to the payment of an extension fee, to extend the maturity of the then outstanding loans under the bridge facility, which date we refer to as the first extension date, until the date that is six months from the first extension date, which date we refer to as the first extension maturity date. If, on the first extension maturity date, any loans under the bridge facility are still outstanding and no default or event of default is then continuing, the borrower has the option to extend the maturity of the then outstanding loans under the bridge facility, which date we refer to as the second extension date, until the date that is six months from the second extension date.

On November 16, 2015, Teva entered into $5 billion term facilities with a syndicate of banks. The term facilities provide for two tranches of term loans. The first tranche of $2.5 billion has a maturity date of three years with total balance due on maturity. The second tranche of $2.5 billion has a maturity date of five years. Principal installments of $250 million, $250 million, $500 million and $500 million under this second tranche will be due and payable on the first, second, third and fourth anniversaries, respectively of the funding of the term loan agreement, with remaining $1 billion balance due at maturity.

 

c.

Represents capitalized deferred financing costs assumed of $68 million related to the current bridge and term facilities structure in place for Teva’s new borrowings to fund the acquisition. Since the bridge facility has a maturity of one year, there is no adjustment to the pro forma statement of operations for these debt issuance costs as there is no continuing impact of on Teva’s results. Term facilities’ issuance costs amortization was considered to be immaterial and was not included in the pro forma statement of operations.

 

d.

Represents the bridge facility of $22 billion and current maturity of the term facilities of $250 million.

 

e.

Represents the long-term maturity of the term facilities of $4.8 billion.

 

f.

The estimated net proceeds from the offering of the equity securities are $6.6 billion, which represent approximately 109 million Teva ordinary shares based on Teva’s November 20, 2015 closing share price.

 

g.

The pro forma adjustment to financing expenses is approximately $309 million and $301 million for the nine months ended September 30, 2015 and for the year ended December 31, 2014, respectively, reflecting an annual weighted average rate of approximately 1.53% and 1.11% for the nine months ended September 30, 2015 and the year ended December 31, 2014, respectively.

For purposes of the unaudited pro forma statements of operations, Teva has assumed that the amounts outstanding under the bridge facility will bear an interest rate of LIBOR, plus an estimated margin ranging from 40 to 130 basis points. For the term facilities Teva has assumed the first tranche of $2.5 billion will bear an interest rate of LIBOR plus a margin ranging from 1.000% to 1.375%, and the second tranche of $2.5 billion will bear an interest rate of LIBOR plus a margin ranging from 1.125% to 1.500% based on Teva’s credit rating from time to time.

 

h.

The estimated debt and interest expense reflected in the unaudited pro forma financial statements may change and the change could be material. A change of 0.125% in the interest rate would result in an

 

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increase or decrease in the pro forma interest expense of approximately $25 million and $34 million for the nine months ended September 30, 2015 and for the year ended December 31, 2014, respectively.

 

i.

An estimated tax rate of 20% was applied to the applicable pro forma adjustments. Teva’s tax rate following the completion of the acquisition could be significantly different depending on various factors.

The fees Teva will ultimately pay and the level of net debt expected to be incurred could vary significantly from what is assumed in the unaudited pro forma financial statements. Variances could arise from multiple factors including: other acquisitions Teva may pursue, the amount of cash on hand at the time of the closing of the acquisition, actual timing and amount of borrowings and repayments under the bridge facility, the actual mix of permanent debt and equity financing, Teva’s credit rating, permanent debt maturities, actual interest rates, actual financial debt instruments and actual fixed or floating mix of permanent debt financing.

 

7.	Unaudited Pro Forma per Share Information

The following table sets forth selected historical share information of Teva and unaudited pro forma share information of Teva after giving effect to the acquisition of Actavis Generics:

 

		Nine Months Ended September 30, 2015								Year Ended December 31, 2014
		Historical				Pro Forma				Historical				Pro Forma
Earnings per ordinary share attributable to Teva ordinary shareholders:
Basic		$	1.28			$	0.44			$	3.58			$	2.26
Diluted		$	1.26			$	0.44			$	3.56			$	2.25
Weighted average ordinary shares outstanding (in millions):
Basic			851				1,060				853				1,062
Diluted			860				1,069				858				1,067

The table below depicts a sensitivity analysis of the total estimated number of Teva ordinary shares to be issued to raise a portion of the cash consideration, assuming a $5 and $10 increase or decrease of the closing price of Teva ordinary shares. Since the number of shares to be issued to Allergan is fixed, it does not impact the sensitivity analysis.

 

(in U.S. $, except number of shares issued)
Price of Teva Ordinary Share		Number of Shares Issued				Value of Share Consideration				Diluted EPS Nine Months Ended September 30, 2015				Diluted EPS Year Ended December 31, 2014
		in millions
$71.70			94.1			$	6,750			$	0.44			$	2.28
66.70			101.2				6,750				0.44				2.27
61.70			109.4				6,750				0.44				2.25
56.70			119.0				6,750				0.43				2.23
$51.70			130.6			$	6,750			$	0.43			$	2.20

 

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DESCRIPTION OF MANDATORY CONVERTIBLE PREFERRED SHARES

The following is a summary of certain provisions of our Mandatory Convertible Preferred Shares. A copy of our Articles setting forth the terms of the Mandatory Convertible Preferred Shares, as well as our Memorandum are available upon request from us at the address set forth in the section of this prospectus supplement entitled “Where You Can Find More Information.” This description of the terms of the Mandatory Convertible Preferred Shares is not complete and is subject to, and qualified in its entirety by reference to, the provisions of our Articles.

As used in this section, unless otherwise expressly stated or the context otherwise requires, the terms “Teva,” “the Company,” “us,” “we” or “our” refer to Teva Pharmaceutical Industries Limited and not any of its subsidiaries.

General

Under our Articles, our board of directors is authorized, without any approval of our shareholders, to issue up to 5,000,000 Mandatory Convertible Preferred Shares. At the consummation of this offering, we will issue 3,375,000 Mandatory Convertible Preferred Shares. In addition, we have granted the underwriters an option to purchase up to 337,500 additional Mandatory Convertible Preferred Shares solely to cover overallotments as described under “Underwriting.”

The Mandatory Convertible Preferred Shares when issued, and any of the Company’s ordinary shares delivered to the ADS depositary (as defined below) for the issuance and delivery of ADSs upon conversion of Mandatory Convertible Preferred Shares, will be fully paid and nonassessable. The holders of the Mandatory Convertible Preferred Shares will have no preemptive or preferential rights to purchase or subscribe for our ordinary shares, ADSs, obligations, warrants or other securities of ours of any class. Computershare Trust Company, N.A. will serve as transfer agent, registrar, and conversion and dividend disbursing agent for the Mandatory Convertible Preferred Shares. The Mandatory Convertible Preferred Shares are not expected to be listed on any securities exchange.

Ranking

The Mandatory Convertible Preferred Shares, with respect to dividend rights and distribution rights upon our liquidation, winding-up or dissolution, will rank:

 

•

senior to (i) our ordinary shares, ordinary “A” shares and deferred shares and (ii) each class or series of our share capital established after the first original issue date of Mandatory Convertible Preferred Shares (which we refer to as the “initial issue date”) the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Mandatory Convertible Preferred Shares as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as “junior shares”);

 

•

on parity with each class or series of our share capital established after the initial issue date the terms of which expressly provide that such class or series will rank on parity with the Mandatory Convertible Preferred Shares as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as “parity shares”); and

 

•

junior to each class or series of our share capital established after the initial issue date the terms of which expressly provide that such class or series will rank senior to the Mandatory Convertible Preferred Shares as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as “senior shares”).

 

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Dividends

Subject to the rights of holders of any class or series of senior shares, holders of the Mandatory Convertible Preferred Shares will be entitled to receive, when, as and if declared by our board of directors or, to the extent permissible under applicable law and the Articles, an authorized committee thereof (for purposes of this section “Description of Mandatory Convertible Preferred Shares,” our “board of directors”), out of funds legally available for payment, cumulative dividends at the rate per annum of 7.00% on the liquidation preference of $1,000.00 per Mandatory Convertible Preferred Share (equivalent to $70.00 per annum per share) (the “dividend rate”), payable in cash. See “—Method of Payment of Dividends” below.

Declared dividends on the Mandatory Convertible Preferred Shares will be payable quarterly on March 15, June 15, September 15, and December 15 of each year to and including the mandatory conversion date (as defined below), commencing March 15, 2016 (each, a “dividend payment date”), at such annual rate, and dividends shall accumulate from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the initial issue date of the Mandatory Convertible Preferred Shares, whether or not in any dividend period or periods there have been funds legally available for the payment of such dividends.

Declared dividends will be payable on the relevant dividend payment date to holders of record of the Mandatory Convertible Preferred Shares as they appear on our share register at 5:00 p.m., New York City time, on the immediately preceding March 1, June 1, September 1 and December 1 (each, a “record date”), whether or not such holders convert their shares, or such shares are automatically converted, after a record date and on or prior to the immediately succeeding dividend payment date. These record dates will apply regardless of whether a particular record date is a business day. A “business day” means any day other than a Saturday or Sunday or other day on which commercial banks in New York City (or, with respect to the use of the term in the sections entitled “—Conversion at the Option of the Holder Upon Fundamental Change; Fundamental Change Dividend Make-Whole Amount” and “—Anti-Dilution Adjustments,” or Tel Aviv, Israel) are authorized or required by law or executive order to close. If a dividend payment date is not a business day, payment will be made on the next succeeding business day, without any interest or other payment in lieu of interest accruing with respect to this delay.

A dividend period is the period from and including a dividend payment date to but excluding the next dividend payment date, except that the initial dividend period will commence on and include the initial issue date of the Mandatory Convertible Preferred Shares and will end on and exclude the first dividend payment date occurring after the initial issue date. The amount of dividends payable on each Mandatory Convertible Preferred Share for each full dividend period (after the initial dividend period) will be computed by dividing the annual dividend rate by four. Dividends payable on the Mandatory Convertible Preferred Shares for any period other than a full dividend period will be computed based upon the actual number of days elapsed during the period over a 360-day year (consisting of 12 30-day months). Accordingly, the dividend on the Mandatory Convertible Preferred Shares for the first dividend period, assuming the initial issue date is December 8, 2015 will be $19.06 per share (based on the annual dividend rate of 7.00% and a liquidation preference of $1,000.00 per share) and will be payable, when, as and if declared, on March 15, 2016 to the holders of record thereof on March 1, 2016. The dividend on the Mandatory Convertible Preferred Shares for each subsequent dividend period, when, as and if declared, will be $17.50 per share (based on the annual dividend rate of 7.00% and a liquidation preference of $1,000.00 per share). Accumulations of dividends on the Mandatory Convertible Preferred Shares will not bear interest.

No dividend will be declared or paid upon, or any sum of cash set apart for the payment of dividends upon, any outstanding Mandatory Convertible Preferred Shares with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid upon, or a sufficient sum of cash has been set apart for the payment of such dividends upon, all outstanding Mandatory Convertible Preferred Shares.

Our ability to declare and pay cash dividends and to make other distributions with respect to our share capital, including the Mandatory Convertible Preferred Shares, may be limited by the Israeli Companies Law and the regulations promulgated thereunder and the terms of our and our subsidiaries’ existing and any future indebtedness. See “Risk Factors—Risks Relating to the Mandatory Convertible Preferred Shares and ADSs—Our ability to declare and pay dividends on the Mandatory Convertible Preferred Shares may be limited.”

 

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So long as any Mandatory Convertible Preferred Share remains outstanding, no dividend or distribution shall be declared or paid on our ordinary shares, ADSs or any other class or series of junior shares, and none of our ordinary shares, ADSs or any other class or series of junior shares shall be purchased, redeemed or otherwise acquired for consideration by us or any of our subsidiaries unless all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid upon, or a sufficient sum of cash has been set apart for the payment of such dividends upon, all outstanding Mandatory Convertible Preferred Shares. The foregoing limitation shall not apply to: (i) any dividend or distribution payable in ordinary shares, ADSs or other junior shares, (ii) purchases, redemptions or other acquisitions of ordinary shares, ADSs or other junior shares in connection with the administration of any benefit or other incentive plan, including any employment contract, in the ordinary course of business (including purchases to offset the share dilution amount pursuant to a publicly announced repurchase plan); provided that any purchases to offset the share dilution amount shall in no event exceed the share dilution amount; (iii) any dividends or distributions of rights in connection with a shareholders’ rights plan or any redemption or repurchase of rights pursuant to any shareholders’ rights plan; (iv) purchases of ordinary shares, ADSs or junior shares pursuant to a contractually binding requirement to buy ordinary shares, ADSs or junior shares existing prior to the preceding dividend period, including under a contractually binding share repurchase plan; or (v) the deemed purchase or acquisition of fractional interests in our ordinary shares, ADSs or junior shares pursuant to the conversion or exchange provisions of such shares or the security being converted or exchanged. The phrase “share dilution amount” means the increase in the number of diluted shares outstanding (determined in accordance with U.S. GAAP, and as measured from the initial issue date) resulting from the grant, vesting, settlement or exercise of equity-based compensation to directors, employees, agents and others and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

When dividends on the Mandatory Convertible Preferred Shares (i) have not been declared and paid in full on any dividend payment date, or (ii) have been declared but a sum of cash sufficient to discharge our obligations in respect thereof has not been set aside for the benefit of the holders thereof on the applicable record date, no dividends may be declared or paid on any parity shares unless dividends are declared on the Mandatory Convertible Preferred Shares such that the respective amounts of such dividends declared on the Mandatory Convertible Preferred Shares and such parity shares shall bear the same ratio to each other as all accumulated dividends and all declared and unpaid dividends per share on the Mandatory Convertible Preferred Shares and such parity shares bear to each other; provided that any unpaid dividends will continue to accumulate.

Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by our board of directors may be declared and paid on any securities, including our ordinary shares and ADSs, from time to time out of any funds legally available for such payment, and holders of the Mandatory Convertible Preferred Shares shall not be entitled to participate in any such dividends.

Method of Payment of Dividends

Any declared dividend (or any portion of any declared dividend) on the Mandatory Convertible Preferred Shares, whether or not for a current dividend period or any prior dividend period, will be paid by the Company in cash.

Liquidation Preference

In the event of our voluntary or involuntary liquidation, winding-up or dissolution, each holder of the Mandatory Convertible Preferred Shares will be entitled to receive a liquidation preference in the amount of $1,000.00 per Mandatory Convertible Preferred Share (the “liquidation preference”), plus an amount equal to accumulated and unpaid dividends on the Mandatory Convertible Preferred Shares to but excluding the date fixed for liquidation, winding-up or dissolution to be paid out of our assets legally available for distribution to our shareholders, after satisfaction of liabilities to our creditors and holders of any senior shares and before any payment or distribution is made to holders of junior shares (including our ordinary shares and ADSs). If, upon

 

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our voluntary or involuntary liquidation, winding-up or dissolution, the amounts payable with respect to the liquidation preference plus an amount equal to accumulated and unpaid dividends on the Mandatory Convertible Preferred Shares and all parity shares are not paid in full, the holders of the Mandatory Convertible Preferred Shares and any other such parity shares will share equally and ratably in any distribution of our assets in proportion to their liquidation preference and an amount equal to accumulated and unpaid dividends to which they are entitled. After payment of the full amount of the liquidation preference and an amount equal to accumulated and unpaid dividends to which they are entitled, the holders of the Mandatory Convertible Preferred Shares will have no right or claim to any of our remaining assets. See “—General” and “Risk Factors—Risks Relating to the Mandatory Convertible Preferred Shares and ADss—The Mandatory Convertible Preferred Shares will rank junior to all of our consolidated liabilities.”

Neither the sale of all or substantially all of our assets, nor our merger or consolidation into or with any other person, will be deemed to be our voluntary or involuntary liquidation, winding-up or dissolution.

Our Articles and our Memorandum do not contain any provision requiring funds to be set aside to protect the liquidation preference of the Mandatory Convertible Preferred Shares even though it is substantially in excess of the nominal (par) value thereof.

Voting Rights

The holders of the Mandatory Convertible Preferred Shares will not have any voting rights or any right to appoint directors or any other right with respect to our annual meetings and special meetings except as described below and as specifically required by Israeli law from time to time.

So long as any Mandatory Convertible Preferred Shares remain outstanding, we will not, without the adoption of a resolution, by a majority of at least three-quarters in voting power of the Mandatory Convertible Preferred Shares who are present, entitled to vote thereon (if any) and voting thereon, voting together as a single class, at a meeting of holders of Mandatory Convertible Preferred Shares where a legal quorum of two-thirds of the then outstanding Mandatory Convertible Preferred Shares is present in person or by proxy:

 

(1)

amend or alter the provisions of our Memorandum or Articles so as to authorize or create, or increase the authorized amount of, any class or series of senior shares; or

 

(2)

amend, alter or repeal the provisions of our Memorandum or Articles so as to adversely affect the rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Shares, including, without limitation, the majority and quorum requirements relating to the Mandatory Convertible Preferred Shares, the right to payment of additional amounts as described under “—Payment of Additional Amounts;” and the terms of the Mandatory Convertible Preferred Shares stipulated in the form of share certificate approved by our board of directors as described under “—Share Certificates;” or

 

(3)

consummate a binding share exchange or reclassification involving the Mandatory Convertible Preferred Shares or a merger or consolidation of us with another entity, unless in each case: (i) the Mandatory Convertible Preferred Shares remain outstanding or, in the case of any such merger or consolidation with respect to which we are not the surviving or resulting entity (or the Mandatory Convertible Preferred Shares are otherwise exchanged or reclassified), are converted or reclassified into or exchanged for preferred shares of the surviving or resulting entity or its ultimate parent; and (ii) such Mandatory Convertible Preferred Shares that remain outstanding or such preferred shares, as the case may be, have rights, preferences, privileges and voting powers that, taken as a whole, are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, taken as a whole, of the Mandatory Convertible Preferred Shares immediately prior to the consummation of such transaction;

provided, however, that (A) (1) any increase in the amount of our authorized Mandatory Convertible Preferred Shares or the issuance of any additional Mandatory Convertible Preferred Shares or (2) the authorization or

 

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creation of any class or series of parity or junior shares, any increase in the amount of authorized but unissued shares of such class or series of parity or junior shares or the issuance of additional shares of such class or series of parity or junior shares will be deemed not to adversely affect (or to otherwise cause to be materially less favorable) the rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Shares and shall not require the consent or the adoption of a resolution by the holders of the Mandatory Convertible Preferred Shares; (B) in the event of a binding share exchange or reclassification involving the Mandatory Convertible Preferred Shares, or of a merger or consolidation of the Company with or into another entity, as described in clause (3) above in which the provisions of clauses (i) and (ii) of such clause (3) are complied with, the consent or the adoption of a resolution by the holders of the Mandatory Convertible Preferred Shares shall not be required in order to effect, validate or approve such share exchange, reclassification, merger or consolidation; and (C) to the extent that, notwithstanding the provisions of immediately preceding clauses (A) and (B), the consent or approval of the holders of Mandatory Convertible Preferred Shares, voting together as a single class, is nonetheless required by applicable law or the Articles in such circumstances, or such consent or approval is otherwise required by applicable law or the Articles with respect to any matter that is not set forth in the provisions of clauses (1) through (3) above, such approval or consent may be given by the adoption of a resolution, by a simple majority of the voting power of the Mandatory Convertible Preferred Shares who are present, entitled to vote thereon (if any) and voting thereon, voting together as a single class, given in person or by proxy or by an authorized person, at a meeting of holders of Mandatory Convertible Preferred Shares and the legal quorum for any such meeting shall be that applicable to general meetings of the holders of our ordinary shares, as set forth in the Articles and described under “Description of Ordinary Shares—Voting and Quorum Requirements” in the accompanying prospectus.

The rules and procedures for calling and conducting any meeting of the holders of the Mandatory Convertible Preferred Shares (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other procedural aspect or matter with regard to such a meeting or such consents shall be governed by any rules our board of directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of our Articles (including the provisions set forth above), applicable law and, if applicable, the rules of any national securities exchange or other trading facility on which the Mandatory Convertible Preferred Shares are listed or traded at the time.

Notwithstanding the foregoing, pursuant to temporary guidelines issued by the Tel Aviv Stock Exchange, the conversion dates and the conversion rates and mechanisms, including the anti-dilution adjustments and adjustments in the event of recapitalizations or reclassifications as described herein cannot be changed.

Mandatory Conversion

Each Mandatory Convertible Preferred Share will automatically convert on December 15, 2018 (the “mandatory conversion date”) into a number of our ADSs equal to the conversion rate described below. If we declare a dividend for the dividend period ending on the mandatory conversion date, we will pay such dividend to the holders of record as of the immediately preceding record date, as described above under “—Dividends.” If, prior to the mandatory conversion date, we have not declared all or any portion of the accumulated and unpaid dividends on the Mandatory Convertible Preferred Shares, the amount of such undeclared, accumulated and unpaid dividends (such amount, the “additional conversion amount”) will be paid to the eligible holders of the Mandatory Convertible Preferred Shares in cash, ADSs or a combination thereof, as determined in the Company’s sole discretion in lieu of such accumulated and unpaid dividends. If we elect to deliver the additional conversion amount, or any portion thereof, in ADSs, such ADSs will be valued for such purpose at 97% of the average VWAP (as defined below) per ADS over the five consecutive trading day (as defined below) period beginning on and including the seventh scheduled trading day immediately preceding the mandatory conversion date (the “average price”).

 

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The conversion rate, which is the number of our ADSs issuable upon conversion of each Mandatory Convertible Preferred Share on the mandatory conversion date, will, subject to adjustment as described in “—Anti-Dilution Adjustments” below, be as follows:

 

•

if the applicable market value (as defined below) of our ADSs is greater than $75.00 (the “threshold appreciation price”), then the conversion rate will be 13.3333 of our ADSs per Mandatory Convertible Preferred Share (the “minimum conversion rate”), which is approximately equal to $1,000.00 divided by the threshold appreciation price;

 

•

if the applicable market value of our ADSs is less than or equal to the threshold appreciation price but greater than or equal to $62.50 (the “reference price,” which equals the per share public offering price of our ADSs in the concurrent ADS offering), then the conversion rate will be equal to $1,000.00 divided by the applicable market value of our ADSs, which will be between 13.3333 and 16.0000 of our ADSs per Mandatory Convertible Preferred Share; or

 

•

if the applicable market value of our ADSs is less than the reference price, then the conversion rate will be 16.0000 of our ADSs per Mandatory Convertible Preferred Share (the “maximum conversion rate”), which is equal to $1,000.00 divided by the reference price.

We refer to the minimum conversion rate and the maximum conversion rate collectively as the “fixed conversion rates.” The fixed conversion rates, the reference price, the floor price (as defined below), the threshold appreciation price and the applicable market value are each subject to adjustment as described above for any additional conversion amount or as described in “—Anti-Dilution Adjustments” below.

“Applicable market value” means the average VWAP per ADS over the 20 consecutive trading day period (the “settlement period”) beginning on and including the 22nd scheduled trading day immediately preceding the mandatory conversion date.

The “floor price” is $21.875, which amount represents 35% of the reference price (subject to adjustment in a manner inversely proportional to any anti-dilution adjustment to each fixed conversion rate as described in the section below entitled “—Anti-Dilution Adjustments”).

The “threshold appreciation price” is $75.00, which amount represents a 20% appreciation over the reference price and is subject to adjustment in a manner inversely proportional to any anti-dilution adjustment to each fixed conversion rate as described in the section below entitled “—Anti-Dilution Adjustments.”

A “trading day” is a day on which our ADSs:

 

•

are not suspended from trading, and on which trading in our ADSs is not limited, on any U.S. national or regional securities exchange or association or over-the-counter market during any period or periods aggregating one half-hour or longer; and

 

•

have traded at least once on the U.S. national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of our ADS;

provided that if our ADSs are not traded on any such exchange, association or market, “trading day” means any business day.

A “scheduled trading day” is any day that is scheduled to be a trading day.

“VWAP” per ADS on any trading day means the per share volume-weighted average price as displayed on Bloomberg page “TEVA US<EQUITY>AQR” (or its equivalent successor as determined by our board of directors if such page is not available) in respect of the period from 9:30 a.m. to 4:00 p.m., New York City time, on such trading day; or, if such price is not available, “VWAP” means the market value per ADS on such trading day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by us for this purpose. The “average VWAP” means the average of the VWAPs for each trading day in the relevant period.

 

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Hypothetical Conversion Values Upon Mandatory Conversion

For illustrative purposes only, the following table shows the number of our ADSs that a holder of the Mandatory Convertible Preferred Shares would receive upon mandatory conversion of one Mandatory Convertible Preferred Share at various applicable market values for our ADSs. The table assumes that there will be no conversion adjustments as described above for any additional conversion amount or as described below in “—Anti-Dilution Adjustments” and that any declared dividends on the Mandatory Convertible Preferred Shares will be paid in cash and not in additional ADSs. The actual applicable market value of our ADSs may differ from those set forth in the table below. Given a reference price of $62.50 and a threshold appreciation price of $75.00, a holder of the Mandatory Convertible Preferred Shares would receive on the mandatory conversion date the number of ADSs per Mandatory Convertible Preferred Shares set forth below:

 

Assumed applicable market value of our ADSs		Number of our ADSs to be received upon mandatory conversion		Conversion value (applicable market value multiplied by the number of our ADSs to be received upon mandatory conversion)
$   30.00		16.0000		$    480.00
$   40.00		16.0000		$    640.00
$   50.00		16.0000		$    800.00
$   62.50		16.0000		$ 1,000.00
$   65.00		15.3846		$ 1,000.00
$   70.00		14.2857		$ 1,000.00
$   75.00		13.3333		$ 1,000.00
$   90.00		13.3333		$ 1,200.00
$ 120.00		13.3333		$ 1,600.00
$ 150.00		13.3333		$ 2,000.00
$ 175.00		13.3333		$ 2,333.33
$ 200.00		13.3333		$ 2,666.66
$ 250.00		13.3333		$ 3,333.33
$ 300.00		13.3333		$ 3,999.99

Accordingly, if the applicable market value of our ADSs is greater than the threshold appreciation price, the aggregate market value of our ADSs delivered upon conversion of each Mandatory Convertible Preferred Share will be greater than the $1,000.00 liquidation preference of a Mandatory Convertible Preferred Share, assuming that the market price of our ADSs on the mandatory conversion date is the same as the applicable market value of our ADSs. If the applicable market value for our ADSs is equal to or greater than the reference price and equal to or less than the threshold appreciation price, the aggregate market value of our ADSs delivered upon conversion of each Mandatory Convertible Preferred Share will be equal to the $1,000.00 liquidation preference of a Mandatory Convertible Preferred Share, assuming that the market price of our ADSs on the mandatory conversion date is the same as the applicable market value of our ADSs. If the applicable market value of our ADSs is less than the reference price, the aggregate market value of our ADSs delivered upon conversion of each Mandatory Convertible Preferred Share will be less than the $1,000.00 liquidation preference of a Mandatory Convertible Preferred Share, assuming that the market price of our ADSs on the mandatory conversion date is the same as the applicable market value of our ADSs.

Conversion at the Option of the Holder

Other than during a fundamental change conversion period (as defined below in “—Conversion at the Option of the Holder Upon Fundamental Change; Fundamental Change Dividend Make-Whole Amount”), holders of the Mandatory Convertible Preferred Shares have the right to convert their Mandatory Convertible Preferred Shares, in whole or in part (but in no event less than one Mandatory Convertible Preferred Share), at any time prior to the mandatory conversion date (“early conversion”), into our ADSs at the minimum conversion rate of 13.3333 of our ADSs per Mandatory Convertible Preferred Share, subject to adjustment as described in “—Anti-Dilution Adjustments” below.

If, as of the effective date of any early conversion (the “early conversion date”), we have not declared all or any portion of the accumulated and unpaid dividends for all dividend periods ending on a dividend payment date

 

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prior to such early conversion date, the minimum conversion rate for such early conversion will be adjusted so that holders converting their Mandatory Convertible Preferred Shares at such time receive an additional number of our ADSs equal to such amount of undeclared, accumulated and unpaid dividends for such prior dividend periods (the “early conversion additional conversion amount”), divided by the greater of the floor price and the average VWAP per ADS over the 20 consecutive trading day period (the “early conversion settlement period”) commencing on and including the 22nd scheduled trading day immediately preceding the early conversion date (the “early conversion average price”). To the extent that the early conversion additional conversion amount exceeds the value of the product of the number of additional shares added to the conversion rate and the early conversion average price, we will not have any obligation to pay the shortfall in cash.

Except as described above, upon any early conversion of any Mandatory Convertible Preferred Shares, we will make no payment or allowance for unpaid dividends on such Mandatory Convertible Preferred Shares, unless such early conversion date occurs after the record date for a declared dividend and on or prior to the immediately succeeding dividend payment date, in which case such dividend will be paid on such dividend payment date to the holder of record of the converted Mandatory Convertible Preferred Shares as of such record date, as described in the section above entitled “—Dividends.”

Conversion at the Option of the Holder Upon Fundamental Change; Fundamental Change Dividend Make-Whole Amount

General

If a fundamental change (as defined below) occurs on or prior to the mandatory conversion date, holders of the Mandatory Convertible Preferred Shares will have the right to:

 

(i)

convert their Mandatory Convertible Preferred Shares, in whole or in part (but in no event less than one Mandatory Convertible Preferred Share), into ADSs at the fundamental change conversion rate described below;

 

(ii)

with respect to such converted Mandatory Convertible Preferred Shares, receive a fundamental change dividend make-whole amount (as defined below) payable in cash or our ADSs; and

 

(iii)

with respect to such converted Mandatory Convertible Preferred Shares, receive the accumulated dividend amount (as defined below) payable in cash or ADSs,

subject in the case of clauses (ii) and (iii) to certain limitations with respect to the number of our ADSs that we will be required to deliver, all as described below. Notwithstanding clauses (ii) and (iii) above, if the effective date of a fundamental change falls during a dividend period for which we have declared a dividend, we will pay such dividend on the relevant dividend payment date to the holders of record on the immediately preceding record date, as described in “—Dividends,” and the accumulated dividend amount will not include the amount of such dividend, and the fundamental change dividend make-whole amount will not include the present value of such dividend.

To exercise this right, holders must submit their Mandatory Convertible Preferred Shares for conversion at any time during the period (the “fundamental change conversion period”) beginning on the effective date of such fundamental change and ending at 5:00 p.m., New York City time, on the date that is 20 business days after the effective date (or, if earlier, the mandatory conversion date) at the fundamental change conversion rate (as defined below). Holders of the Mandatory Convertible Preferred Shares who do not submit their Mandatory Convertible Preferred Shares for conversion during the fundamental change conversion period will not be entitled to convert their Mandatory Convertible Preferred Shares at the relevant fundamental change conversion rate or to receive the relevant fundamental change dividend make-whole amount or the relevant accumulated dividend amount.

We will notify holders of the anticipated effective date of a fundamental change at least 20 calendar days prior to such anticipated effective date or, if such prior notice is not practicable, notify holders of the effective

 

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date of a fundamental change no later than the second business day following the actual effective date. If we notify holders of a fundamental change later than the 20th calendar day prior to the effective date of a fundamental change, the fundamental change conversion period will be extended by a number of days equal to the number of days from, and including, the 20th calendar day prior to the effective date of the fundamental change to, but excluding, the date of the notice; provided that the fundamental change conversion period will not be extended beyond the mandatory conversion date.

A “fundamental change” will be deemed to have occurred, at such time after the initial issue date of the Mandatory Convertible Preferred Shares, upon: (i) the consummation of any transaction or event (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, recapitalization or otherwise) in connection with which 90% or more of our outstanding ordinary shares, ADSs or other securities representing common equity interests are exchanged for, converted into, acquired for or constitute solely the right to receive, consideration 10% or more of which is not common stock or ordinary shares (or depositary shares representing common stock or ordinary shares) that are listed on, or immediately after the transaction or event will be listed on, any of the New York Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market; (ii) any “person” or “group” (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than us, any of our majority-owned subsidiaries or any of our or our majority-owned subsidiaries’ employee benefit plans, becoming the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power in the aggregate of all classes of share capital then outstanding entitled to vote generally in elections of our directors; or (iii) our ADSs (or, following a reorganization event, any ordinary shares, ADSs, depositary receipts or other securities representing common equity interests into which the Mandatory Convertible Preferred Shares become convertible in connection with such reorganization event) cease to be listed for trading on the New York Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market (or any of their respective successors) or another United States national securities exchange (each, a “qualifying market”).

Fundamental Change Conversion Rate

The “fundamental change conversion rate” will be determined by reference to the table below and is based on the effective date of the fundamental change (the “fundamental change effective date”) and the price (the “fundamental change share price”) paid or deemed paid per ordinary share or ADS therein. If the holders of our ordinary shares or ADSs receive only cash in the fundamental change, the fundamental change share price shall be the cash amount paid per ordinary share or ADS, as applicable. Otherwise, the fundamental change share price shall be the average VWAP per ADS over the 10 consecutive trading day period ending on, and including, the trading day preceding the fundamental change effective date.

The fundamental change share prices set forth in the first row of the table (i.e., the column headers) will be adjusted as of any date on which the fixed conversion rates of the Mandatory Convertible Preferred Shares are adjusted. The adjusted fundamental change share prices will equal the fundamental change share prices applicable immediately prior to such adjustment multiplied by a fraction, the numerator of which is the minimum conversion rate immediately prior to the adjustment giving rise to the fundamental change share price adjustment and the denominator of which is the minimum conversion rate as so adjusted. Each of the fundamental change conversion rates in the table will be subject to adjustment in the same manner as each fixed conversion rate as set forth in “—Anti-Dilution Adjustments,” and each of the fundamental change share prices will be subject to adjustment in an inverse manner.

 

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The following table sets forth the fundamental change conversion rate per Mandatory Convertible Preferred Share for each fundamental change share price and fundamental change effective date set forth below:

 

		Fundamental change share price on the fundamental change effective date
Effective date		$30.00				$40.00				$50.00				$62.50				$65.00				$70.00				$75.00				$90.00				$120.00				$150.00				$175.00				$200.00				$250.00				$300.00
December 8, 2015			13.4463				13.6548				13.4014				12.9367				12.8586				12.7288				12.6355				12.5347				12.6693				12.8144				12.8900				12.9402				13.0035				13.0432
December 15, 2016			14.2782				14.4414				14.1414				13.5044				13.3878				13.1874				13.0361				12.8362				12.9004				12.9922				13.0373				13.0679				13.1088				13.1357
December 15, 2017			15.0717				15.2267				15.0094				14.1982				14.0177				13.6925				13.4394				13.1063				13.1125				13.1532				13.1747				13.1906				13.2128				13.2277
December 15, 2018			16.0000				16.0000				16.0000				16.0000				15.3846				14.2857				13.3333				13.3333				13.3333				13.3333				13.3333				13.3333				13.3333				13.3333

The exact fundamental change share price and fundamental change effective date may not be set forth in the table, in which case:

 

•

if the fundamental change share price is between two fundamental change share price amounts on the table or the fundamental change effective date is between two dates on the table, the fundamental change conversion rate will be determined by straight-line interpolation between the fundamental change conversion rates set forth for the higher and lower fundamental change share price amounts and the two fundamental change effective dates, as applicable, based on a 365-day year;

 

•

if the fundamental change share price is in excess of $300.00 per share (subject to adjustment as described above), then the fundamental change conversion rate will be the minimum conversion rate, subject to adjustment; and

 

•

if the fundamental change share price is less than $30.00 per share (subject to adjustment as described above), then the fundamental change conversion rate will be the maximum conversion rate, subject to adjustment.

Fundamental Change Dividend Make-Whole Amount and Accumulated Dividend Amount

For any Mandatory Convertible Preferred Shares that are converted during the fundamental change conversion period, in addition to the ADSs issued upon conversion at the fundamental change conversion rate, we will at our option:

 

(a)

pay the holder thereof in cash, to the extent we are legally permitted to do so, the present value, computed using a discount rate of 3.50% per annum, of all dividend payments on the Mandatory Convertible Preferred Shares for all the remaining dividend periods (excluding any accumulated dividend amount and declared dividends for a dividend period during which the fundamental change effective date falls) from such fundamental change effective date to but excluding the mandatory conversion date (the “fundamental change dividend make-whole amount”);

 

(b)

increase the number of our ADSs to be issued on conversion by a number equal to (x) the fundamental change dividend make-whole amount divided by (y) the greater of the floor price and 97% of the fundamental change share price; or

 

(c)

pay the fundamental change dividend make-whole amount in a combination of cash and our ADSs in accordance with the provisions of clauses (a) and (b) above.

 

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In addition, to the extent that the accumulated dividend amount exists as of the fundamental change effective date, holders who convert their Mandatory Convertible Preferred Shares within the fundamental change conversion period will be entitled to receive such accumulated dividend amount upon conversion. As used herein, the term “accumulated dividend amount” means, in connection with a fundamental change, the aggregate amount of undeclared, accumulated and unpaid dividends, if any, on the Mandatory Convertible Preferred Shares for dividend periods prior to the relevant fundamental change effective date, including for the partial dividend period, if any, from, and including, the dividend payment date immediately preceding such fundamental change effective date to, but excluding, such fundamental change effective date (but excluding any declared dividends for a dividend period during which the fundamental change effective date falls). The accumulated dividend amount will be payable at our election:

 

•

in cash, to the extent we are legally permitted to do so;

 

•

in an additional number of our ADSs equal to (x) the accumulated dividend amount divided by (y) the greater of the floor price and 97% of the fundamental change share price; or

 

•

in a combination of cash and our ADSs in accordance with the provisions of the preceding two bullets.

We will pay the fundamental change dividend make-whole amount and the accumulated dividend amount in cash, except to the extent we elect on or prior to the second business day following the fundamental change effective date to make all or any portion of such payments in our ADSs. In addition, if we elect to deliver ADSs in respect of all or any portion of the fundamental change dividend make-whole amount or the accumulated dividend amount, to the extent that the fundamental change dividend make-whole amount or the accumulated dividend amount or any portion thereof paid in ADSs exceeds the product of the number of additional shares we deliver in respect thereof and 97% of the fundamental change share price, we will, if we are legally able to do so, declare and pay such excess amount in cash. Any such payment in cash may be made only if it is permitted by our then existing debt instruments, including any restricted payments covenants.

No fractional shares of our ADSs will be delivered to converting holders of the Mandatory Convertible Preferred Shares in respect of the fundamental change dividend make-whole amount or the accumulated dividend amount. We will instead pay a cash adjustment to each converting holder that would otherwise be entitled to a fraction of an ADS based on the average VWAP per ADS over the five consecutive trading day period beginning on, and including, the seventh scheduled trading day immediately preceding the conversion date.

Not later than the second business day following a fundamental change effective date (or, if we provide notice to holders of the fundamental change prior to the anticipated fundamental change effective date as described above, on the date we give holders notice of the anticipated fundamental change effective date), we will notify holders of:

 

•

the fundamental change conversion rate;

 

•

the fundamental change dividend make-whole amount and whether we will pay such amount in cash, our ADSs or a combination thereof, specifying the combination, if applicable; and

 

•

the accumulated dividend amount as of the fundamental change effective date and whether we will pay such amount in cash, our ADSs or a combination thereof, specifying the combination, if applicable.

Conversion Procedures

Upon Mandatory Conversion

Any outstanding Mandatory Convertible Preferred Shares will automatically convert into ADSs on the mandatory conversion date. The person or persons entitled to receive our ADSs issuable upon mandatory conversion of the Mandatory Convertible Preferred Shares will be treated as the record holder(s) of such shares as of 5:00 p.m., New York City time, on the mandatory conversion date. Except as provided in “—Anti-Dilution

 

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Adjustments,” prior to 5:00 p.m., New York City time, on the mandatory conversion date, the ADSs issuable upon conversion of the Mandatory Convertible Preferred Shares will be deemed not to be outstanding for any purpose and the holders thereof will have no rights with respect to such ADSs, including voting rights, rights to respond to tender offers and rights to receive any dividends or other distributions on the ADSs, by virtue of holding the Mandatory Convertible Preferred Shares. A certificate representing the ADSs issuable upon conversion will be issued and delivered to the converting holder or, if the Mandatory Convertible Preferred Share being converted is held in global form, the ADSs issuable upon conversion will be delivered to the converting holder through the facilities of DTC, in each case together with delivery by the Company to the converting holder of any cash (including, without limitation, cash in lieu of fractional shares) to which the converting holder is entitled, on the later of (i) the mandatory conversion date and (ii) the third business day immediately succeeding the last day of the settlement period.

Upon Early Conversion

If you elect to convert the Mandatory Convertible Preferred Shares prior to the mandatory conversion date, in the manner described in “—Conversion at the Option of the Holder” or “—Conversion at the Option of the Holder Upon Fundamental Change; Fundamental Change Dividend Make-Whole Amount,” you must observe the conversion procedures described in the following paragraphs.

If the Mandatory Convertible Preferred Shares are in global form, to convert the Mandatory Convertible Preferred Shares you must deliver to DTC the appropriate instruction form for conversion pursuant to DTC’s conversion program. If the Mandatory Convertible Preferred Shares are held in certificated form, you must comply with certain procedures set forth in the Articles. In either case, if required, you must pay all taxes or duties, if any.

The “conversion date” will be the date on which you have satisfied the foregoing requirements. You will not be required to pay any taxes or duties relating to the issuance or delivery of our ADSs if you exercise your conversion rights, but you will be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of the ADSs in a name other than your own. ADSs will be issued and delivered only after all applicable taxes and duties, if any, payable by you have been paid in full and will be issued on:

 

•

if the conversion date does not fall within the fundamental change conversion period: the latest of (i) the third business day immediately succeeding the conversion date, (ii) the third business day immediately succeeding the last day of the early conversion settlement period and (iii) the business day after you have paid in full all applicable taxes and duties, if any; and

 

•

if the conversion date falls within the fundamental change conversion period: the later of (i) the third business day immediately succeeding the conversion date and (ii) the business day after you have paid in full all applicable taxes and duties, if any.

The person or persons entitled to receive the ADSs issuable upon conversion of the Mandatory Convertible Preferred Shares will be treated as the record holder(s) of such shares as of 5:00 p.m., New York City time, on the applicable conversion date. Prior to 5:00 p.m., New York City time, on the applicable conversion date, the ADSs issuable upon conversion of the Mandatory Convertible Preferred Shares will be deemed not to be outstanding for any purpose and the holders thereof will have no rights with respect to such ADSs, including voting rights, rights to respond to tender offers and rights to receive any dividends or other distributions on the ADSs, by virtue of holding the Mandatory Convertible Preferred Shares.

Effect of TASE Regulations on Conversion Dates

Notwithstanding anything to the contrary set forth in the Articles, in accordance with the regulations of the Tel Aviv Stock Exchange Ltd. (“TASE”), if any conversion date for a Mandatory Convertible Preferred Share would otherwise take place on the “record date” (as such term is defined in the TASE’s regulations) for the

 

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distribution of dividends or bonus shares, a rights offering, a split or reverse split of the Company’s share capital, or a capital reduction (each of the foregoing a “company event”), such conversion date shall be postponed to the following “trading day” (as such term is defined in the TASE’s regulations). In addition, if the “ex day” (as such term is defined in the TASE’s regulations) in respect of a company event occurs prior to the TASE “record date” set for such event, any conversion date that would otherwise take place on such “ex day” shall be postponed to the following TASE “trading day.”

Fractional ADSs

No fractional ADSs will be issued to holders of the Mandatory Convertible Preferred Shares upon conversion and the number of ordinary shares or ADSs to be issued shall be rounded down to the nearest whole number of ordinary shares or ADSs (with payment therefor to be made as set forth below). In lieu of any fractional shares of our ADSs otherwise issuable in respect of the aggregate number of Mandatory Convertible Preferred Shares of any holder that are converted, that holder will be entitled to receive an amount in cash (computed to the nearest cent) equal to the product of: (i) that same fraction; and (ii) the average VWAP of our ADSs over the five consecutive trading day period beginning on and including the seventh scheduled trading day immediately preceding the conversion date.

If more than one Mandatory Convertible Preferred Share is surrendered for conversion at one time by or for the same holder, the number of full ADSs issuable upon conversion thereof shall be computed on the basis of the aggregate number of Mandatory Convertible Preferred Shares so surrendered.

Anti-Dilution Adjustments

Each fixed conversion rate will be adjusted if:

(1) We issue ordinary shares to all holders of our ordinary shares as a dividend or other distribution, in which event, each fixed conversion rate in effect at 5:00 p.m., New York City time, on the date fixed for determination of the holders of our ordinary shares entitled to receive such dividend or other distribution will be multiplied by a fraction:

 

•

the numerator of which is the sum of the number of our ordinary shares outstanding at 5:00 p.m., New York City time, on the date fixed for such determination and the total number of our ordinary shares constituting such dividend or other distribution; and

 

•

the denominator of which is the number of our ordinary shares outstanding at 5:00 p.m., New York City time, on the date fixed for such determination.

Any adjustment made pursuant to this clause (1) will become effective immediately after 5:00 p.m., New York City time, on the date fixed for such determination. If any dividend or distribution described in this clause (1) is declared but not so paid or made, each fixed conversion rate shall be readjusted, effective as of the date our board of directors publicly announces its decision not to pay or make such dividend or distribution, to such fixed conversion rate that would be in effect if such dividend or distribution had not been declared. For the purposes of this clause (1), the number of our ordinary shares outstanding at 5:00 p.m., New York City time, on the date fixed for such determination shall not include shares that we hold in treasury and which do not confer upon the holder thereof any dividend or distribution rights. For so long as any Mandatory Convertible Preferred Shares are outstanding, we will not pay any dividend or make any distribution on our ordinary shares that we hold in treasury, except for dividends and distributions on ordinary shares held by any of our subsidiaries, which confer upon the holder thereof dividend rights.

(2) We issue to all holders of our ordinary shares rights or warrants (other than rights or warrants issued pursuant to a dividend reinvestment plan or share purchase plan or other similar plans) entitling them, for a period of up to 45 calendar days from the date of issuance of such rights or warrants, to subscribe for or purchase our ordinary shares at less than the ordinary share current market price (as defined below), in which case each

 

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fixed conversion rate in effect at 5:00 p.m., New York City time, on the date fixed for determination of the holders of our ordinary shares entitled to receive such rights or warrants will be increased by multiplying such fixed conversion rate by a fraction:

 

•

the numerator of which is the sum of the number of our ordinary shares outstanding at 5:00 p.m., New York City time, on the date fixed for such determination and the number of our ordinary shares issuable or deliverable upon the exercise of such rights or warrants; and

 

•

the denominator of which is the sum of the number of our ordinary shares outstanding at 5:00 p.m., New York City time, on the date fixed for such determination and the number of our ordinary shares equal to the quotient of the aggregate offering price payable to exercise such rights or warrants divided by the ordinary share current market price.

Any adjustment made pursuant to this clause (2) will become effective immediately after 5:00 p.m., New York City time, on the date fixed for such determination. In the event that such rights or warrants described in this clause (2) are not so issued, each fixed conversion rate shall be readjusted, effective as of the date our board of directors publicly announces its decision not to issue such rights or warrants, to such fixed conversion rate that would then be in effect if such issuance had not been declared. To the extent that such rights or warrants are not exercised prior to their expiration or our ordinary shares are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, each fixed conversion rate shall be readjusted to such fixed conversion rate that would then be in effect had the adjustment made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of our ordinary shares actually delivered. In determining whether any rights or warrants entitle the holders thereof to subscribe for or purchase ordinary shares at less than the ordinary share current market price, and in determining the aggregate offering price payable to exercise such rights or warrants, there shall be taken into account any consideration received for such rights or warrants and the value of such consideration (if other than cash, to be determined in good faith by our board of directors, which determination shall be final). For the purposes of this clause (2), the number of our ordinary shares at the time outstanding shall not include shares that we hold in treasury and which do not confer upon the holder thereof any right to participate in the issuance of such rights or warrants. For so long as any Mandatory Convertible Preferred Shares are outstanding, we will not issue any such rights or warrants in respect of our ordinary shares that we hold in treasury, except in respect of ordinary shares held by any of our subsidiaries, which confer upon the holder thereof the right to participate in the issuance of such rights or warrants.

(3) We subdivide or combine our ordinary shares, in which event the conversion rate in effect at 5:00 p.m., New York City time, on the effective date of such subdivision or combination shall be multiplied by a fraction:

 

•

the numerator of which is the number of our ordinary shares that would be outstanding immediately after, and solely as a result of, such subdivision or combination; and

 

•

the denominator of which is the number of our ordinary shares outstanding immediately prior to such subdivision or combination.

Any adjustment made pursuant to this clause (3) shall become effective immediately after 5:00 p.m., New York City time, on the effective date of such subdivision or combination.

(4) We distribute to all holders of our ordinary shares evidences of our indebtedness, shares of our share capital, securities, rights to acquire shares of our share capital, cash (other than ordinary dividends (as defined below)) or other assets, excluding:

 

•

any dividend or distribution covered by clause (1) or (3) above;

 

•

any rights or warrants covered by clause (2) above;

 

•

any dividend or distribution covered by clause (5) below; and

 

•

any spin-off (as defined below) to which the provisions set forth below in this clause (4) shall apply,

 

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in which event each fixed conversion rate in effect at 5:00 p.m., New York City time, on the date fixed for the determination of holders of our ordinary shares entitled to receive such distribution will be multiplied by a fraction:

 

•

the numerator of which is the ordinary share current market price; and

 

•

the denominator of which is the ordinary share current market price minus the fair market value, as determined by our board of directors, in good faith (which determination shall be final), on such date fixed for determination of the portion of the evidences of indebtedness, shares of our share capital, securities, rights to acquire shares of our share capital, cash (other than ordinary dividends) or other assets so distributed applicable to one of our ordinary shares.

In the event that we make a distribution to all holders of our ordinary shares consisting of share capital of, or similar equity interests in, or relating to a subsidiary or other business unit of ours (referred to herein as a “spin-off”), each fixed conversion rate in effect at 5:00 p.m., New York City time, on the date fixed for the determination of holders of our ordinary shares entitled to receive such distribution will be multiplied by a fraction:

 

•

the numerator of which is the sum of the ordinary share current market price and the fair market value, as determined by our board of directors in good faith (which determination shall be final), of the portion of those shares of share capital or similar equity interests so distributed applicable to one ADS as of the 15th trading day after the effective date for such distribution (or, if such shares of share capital or equity interests are listed on a U.S. national or regional securities exchange, the current market price (as defined below) of such securities); and

 

•

the denominator of which is the ordinary share current market price.

Any adjustment made pursuant to this clause (4) shall become effective immediately after 5:00 p.m., New York City time, on the date fixed for the determination of the holders of our ordinary shares entitled to receive such distribution. In the event that such distribution described in this clause (4) is not so made, each fixed conversion rate shall be readjusted, effective as of the date our board of directors publicly announces its decision not to make such distribution, to such fixed conversion rate that would then be in effect if such distribution had not been declared. If an adjustment to each fixed conversion rate is required under this clause (4) during any settlement period or any early conversion settlement period in respect of Mandatory Convertible Preferred Shares that have been tendered for conversion, delivery of the ADSs issuable upon conversion will be delayed to the extent necessary in order to complete the calculations provided for in this clause (4).

(5) We pay or make a dividend or other distribution consisting exclusively of cash to all holders of our ordinary shares other than a regular, quarterly dividend the gross amount of which does not exceed $0.34 per ordinary share (the “initial dividend threshold” and any such dividends, “ordinary dividends”), excluding:

 

•

any cash that is distributed in a reorganization event (as described below);

 

•

any dividend or other distribution in connection with our voluntary or involuntary liquidation, dissolution or winding up; and

 

•

any consideration payable as part of a tender or exchange offer by the Company or any subsidiary of the Company as described under clause (6) below;

in which event, each fixed conversion rate in effect at 5:00 p.m., New York City time, on the date fixed for determination of the holders of our ordinary shares entitled to receive such dividend or other distribution will be multiplied by a fraction:

 

•

the numerator of which is the ordinary share current market price minus the initial dividend threshold (provided that if the distribution is not a regular, quarterly cash dividend, the initial dividend threshold will be deemed to be zero); and

 

•

the denominator of which is the ordinary share current market price minus the amount per share of such dividend or other distribution.

 

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Any adjustment made pursuant to this clause (5) shall become effective immediately after 5:00 p.m., New York City time, on the date fixed for the determination of the holders of our ordinary shares entitled to receive such dividend or other distribution. In the event that any dividend or other distribution described in this clause (5) is not so paid or so made, each fixed conversion rate shall be readjusted, effective as of the date our board of directors publicly announces its decision not to pay such dividend or make such other distribution, to such fixed conversion rate which would then be in effect if such dividend or other distribution had not been declared.

The initial dividend threshold is subject to adjustment in a manner inversely proportional to adjustments to the fixed conversion rates; provided that no adjustment will be made to the initial dividend threshold for any adjustment to the fixed conversion rates pursuant to this clause (5).

(6) We or any of our subsidiaries successfully complete a tender or exchange offer pursuant to a Schedule TO or registration statement on Form F-4 for our ordinary shares or ADSs (excluding any securities convertible or exchangeable for our ordinary shares or ADSs), where the cash and the value of any other consideration included in the payment per ordinary share or ADS exceeds the ordinary share current market price, in which event each fixed conversion rate in effect at 5:00 p.m., New York City time, on the date of expiration of the tender or exchange offer (the “expiration date”) will be multiplied by a fraction:

 

•

the numerator of which shall be equal to the sum of:

 

(i)

the aggregate cash and fair market value (as determined in good faith by our board of directors , which determination shall be final) on the expiration date of any other consideration paid or payable for all ordinary shares or ADSs purchased in such tender or exchange offer; and

 

(ii)

the product of:

 

1.

the ordinary share current market price; and

 

2.

the number of our ordinary shares and ADSs outstanding at the time such tender or exchange offer expires, less any purchased ordinary shares and ADSs; and

 

•

the denominator of which shall be equal to the product of:

 

(iii)

the ordinary share current market price; and

 

(iv)

the number of our ordinary shares and ADSs outstanding at the time such tender or exchange offer expires, including any purchased ordinary shares and ADSs.

Any adjustment made pursuant to this clause (6) shall become effective immediately after 5:00 p.m., New York City time, on the 10th trading day following the expiration date but will be given effect as of 9:00a.m. New York City time, on the expiration date for the tender or exchange offer. In the event that we are, or one of our subsidiaries is, obligated to purchase our ordinary shares or ADSs pursuant to any such tender offer or exchange offer, but we are, or such subsidiary is, permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then each fixed conversion rate shall be readjusted to be such fixed conversion rate that would then be in effect if such tender offer or exchange offer had not been made. Except as set forth in the preceding sentence, if the application of this clause (6) to any tender offer or exchange offer would result in a decrease in each fixed conversion rate, no adjustment shall be made for such tender offer or exchange offer under this clause (6). If an adjustment to each fixed conversion rate is required pursuant to this clause (6) during any settlement period or any early conversion settlement period in respect of the Mandatory Convertible Preferred Shares that have been tendered for conversion, delivery of the related conversion consideration will be delayed to the extent necessary in order to complete the calculations provided for in this clause (6).

Except with respect to a spin-off, in cases where the fair market value of the evidences of our indebtedness, shares of share capital, securities, rights to acquire our share capital, cash or other assets as to which clauses (4) or (5) above apply, applicable to one ordinary share, distributed to shareholders equals or exceeds the

 

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ordinary share current market price (as determined for purposes of calculating the conversion rate adjustment pursuant to such clause (4) or (5)), rather than being entitled to an adjustment in each fixed conversion rate, holders of the Mandatory Convertible Preferred Shares will be entitled to receive upon conversion, in addition to a number of our ordinary shares otherwise deliverable on the applicable conversion date, the kind and amount of the evidences of our indebtedness, shares of share capital, securities, rights to acquire our share capital, cash or other assets comprising the distribution that such holder would have received if such holder had owned, immediately prior to the record date for determining the holders of our ordinary shares entitled to receive the distribution, for each Mandatory Convertible Preferred Share, a number of our ADSs equal to the maximum conversion rate in effect on the date of such distribution.

To the extent that we have a rights plan in effect with respect to our ordinary shares or ADSs on any conversion date, upon conversion of any Mandatory Convertible Preferred Share, holders of Mandatory Convertible Preferred Shares will receive, in addition to ADSs, the rights under the rights plan, unless, prior to such conversion date, the rights have separated from our ordinary shares or ADSs, as applicable, in which case each fixed conversion rate will be adjusted at the time of separation of such rights as if we made a distribution to all holders of our ordinary shares as described in clause (4) above, subject to readjustment in the event of the expiration, termination or redemption of such rights. Any distribution of rights or warrants pursuant to a rights plan that would allow holders of Mandatory Convertible Preferred Shares to receive upon conversion, in addition to any ADSs, the rights described therein (unless such rights or warrants have separated from our the ordinary shares or ADSs) shall not constitute a distribution of rights or warrants that would entitle holders of Mandatory Convertible Preferred Shares to an adjustment to the conversion rate.

For purposes hereof, “ordinary share current market price” means the current market price (as defined below) per ADS, minus the fair market value per ADS (determined by us in good faith) of any property (cash or otherwise) then held by the ADS depositary on behalf of the existing ADS holders, divided by the number of ordinary shares represented by each ADS.

For the purposes of determining the adjustment to the fixed conversion rates for the purposes of:

 

•

clauses (2), (4) (but only in the event of an adjustment thereunder not relating to a spin-off) and (5) above, the “current market price” of our ADSs is the average VWAP per ADS over the five consecutive trading day period ending on the trading day before the ex-date (as defined below) with respect to the issuance or distribution requiring such computation;

 

•

clause (4) above in the event of an adjustment thereunder relating to a spin-off, the “current market price” of our ADSs or unit of share capital or equity interest, as applicable, is the average VWAP per ADS (or per unit of share capital or equity interests of the subsidiary or other business unit being distributed, as applicable) over the first 10 consecutive trading days commencing on and including the fifth trading day following the effective date of such distribution; and

 

•

clause (6) above, the “current market price” of our ADSs is the average VWAP per ADS over the 10 consecutive trading day period commencing on, and including, the trading day following the expiration date of the tender or exchange offer.

The term “ex-date,” when used with respect to any issuance or distribution, means the first date on which our ADSs trade without the right to receive such issuance or distribution.

In addition, we may make such increases in each fixed conversion rate as we deem advisable in order to avoid or diminish any income tax to holders of our ordinary shares or ADSs resulting from any dividend or distribution of our ordinary shares (or issuance of rights or warrants to acquire our ordinary shares) or from any event treated as such for income tax purposes or for any other reason. We may only make such a discretionary adjustment if we make the same proportionate adjustment to each fixed conversion rate.

 

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In the event of a taxable distribution to holders of our ordinary shares that results in an adjustment of each fixed conversion rate or an increase in each fixed conversion rate in our discretion, holders of the Mandatory Convertible Preferred Shares may, in certain circumstances, be deemed to have received a distribution subject to U.S. Federal income tax as a dividend. See “Material United States Federal Income Tax Considerations.”

Adjustments to the fixed conversion rates will be calculated to the nearest 1/10,000th of an ADS. Prior to the mandatory conversion date, no adjustment in a fixed conversion rate will be required unless the adjustment would require an increase or decrease of at least one percent in such fixed conversion rate. If any such adjustment is not required to be made because it would not change the fixed conversion rates by at least one percent, then the adjustment will be carried forward and taken into account in any subsequent adjustment; provided, however, that on the earlier of the mandatory conversion date, an early conversion date and the fundamental change effective date, adjustments to the fixed conversion rates will be made with respect to any such adjustment carried forward that has not been taken into account before such date.

No adjustment to the fixed conversion rates will be made if holders may participate, at the same time, upon the same terms and otherwise on the same basis as holders of our ordinary shares or ADSs and solely as a result of holding Mandatory Convertible Preferred Shares, in the transaction that would otherwise give rise to such adjustment as if they held, for each of the Mandatory Convertible Preferred Share, ADSs representing a number of our ordinary shares equal to the maximum conversion rate then in effect.

In addition, the fixed conversion rates will not be adjusted:

 

(a)

upon the issuance of any of our ordinary shares or ADSs pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on our securities and the investment of additional optional amounts in ordinary shares or ADSs under any plan;

 

(b)

upon the issuance of any of our ordinary shares or ADSs or rights or warrants to purchase those shares pursuant to any present or future benefit or other incentive plan or program of or assumed by us or any of our subsidiar