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As filed with the Securities and Exchange Commission on August 13, 2001
Registration No. 333-____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
ICN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 2834 33-0628076
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification
Incorporation Classification Number)
or Organization) Code Number)
3300 Hyland Avenue
Costa Mesa, CA 92626
(714) 545-0100
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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Gregory Keever, Esq.
Executive Vice President,
General Counsel and
Corporate Secretary
ICN PHARMACEUTICALS, INC.
3300 Hyland Avenue
Costa Mesa, CA 92626
(714) 545-0100
(Name, address, including zip code, and telephone number,
including area code, of Agent for Service)
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Copies to:
Jeffrey Bagner, Esq.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
One New York Plaza
New York, New York 10004
(212) 859-8000
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. | |
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. | |
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. | |
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. | |
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Aggregate Price Per Aggregate Offering Price Registration Fee
Note
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6 1/2% Convertible Subordinated $525,000,000 (1) 100% (2)(3) $525,000,000 (2) $131,250
Notes
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Common Stock, $.01 Par Value 15,326,010 - - (5)
===================================================================================================================================
(1) Represents the aggregate principal amount of the notes issued by the
Registrant.
(2) Estimated in accordance with Rule 457 of Regulation C under the
Securities Act of 1933, as amended, solely for the purpose of
determining the registration fee.
(3) Exclusive of accrued interest and distributions, if any.
(4) Represents the number of shares of common stock that are initially
issuable upon conversion of the notes and includes an additional
indeterminate number of shares of common stock issuable upon
conversion in the future pursuant to Rule 416 of the Securities Act.
(5) No additional consideration will be received for the common stock and
therefore no registration fee is required pursuant to Rule 457(i).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
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[RED HERRING]
The information in this prospectus is not complete and may be changed. The
selling securityholders may not sell their securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell the securities and it is
not soliciting an offer to buy the securities in any state where the offer
or sale is not permitted.
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SUBJECT TO COMPLETION, DATED AUGUST 13, 2001
PROSPECTUS
ICN PHARMACEUTICALS, INC.
$525,000,000 of 6 1/2% Convertible
Subordinated Notes due 2008 and 15,326,010
Shares of Common Stock Issuable upon Conversion
of the Notes
-----------------
This prospectus relates to 6 1/2 % convertible subordinated notes
due July 15, 2008 of ICN Pharmaceuticals, Inc., a Delaware corporation,
held by security holders who may offer for sale the notes and the shares of
our common stock into which the notes are convertible at any time at market
prices prevailing at the time of sale or at privately negotiated prices.
The selling security holders may sell the notes or the common stock
directly to purchasers or through underwriters, broker-dealers or agents,
who may receive compensation in the form of discounts, concessions or
commissions.
The holders of the notes may convert the notes into shares of our
common stock at any time at a conversion rate of 29.1924 shares per $1,000
principal amount of notes subject to adjustment in some circumstances. On
or after July 21, 2004, we may redeem the notes, in whole or in part, at
the redemption prices described in this prospectus, together with any
interest accrued through the redemption date. The notes are not entitled to
any sinking fund.
Subject to the receipt of required approvals and satisfaction of
other conditions, we intend to complete the initial public offering of our
wholly-owned subsidiary Ribapharm Inc. and/or to distribute our interest in
Ribapharm to our stockholders in a tax-free transaction we refer to as the
"spin-off." Upon the earlier to occur of the Ribapharm public offering or
the spin-off (if either occurs), Ribapharm will become jointly and
severally liable for the obligations under the notes, Ribapharm will have
the same obligation as we have to purchase notes upon a change of control
and we will be jointly and severally liable for this obligation,
Ribapharm's obligation to make payments on the notes will be subordinated
to the same extent as our obligations, and if required, Ribapharm will have
an obligation to file a registration statement relating to the resale of
the notes and, following the spin-off, the underlying Ribapharm common
stock.
If the spin-off occurs, a holder who converts notes following the
spin-off will receive, in addition to shares of our common stock, the same
number of shares of Ribapharm common stock that the holder would have
received had the holder converted the notes immediately prior to the record
date for the spin-off.
If we experience a change of control, we must offer to repurchase
the notes at 100% of their principal amount plus any interest accrued
through the repurchase date.
The notes will be junior to all of our existing and future senior
indebtedness and will be structurally subordinated to all existing and
future liabilities of our subsidiaries, including trade payables. As of
March 31, 2001, we and our subsidiaries had approximately $511,467,000 of
consolidated indebtedness effectively ranking senior to the notes.
On August 8, 2001 the last reported sale price of our common
stock, listed under the symbol "ICN", on the New York Stock Exchange
("NYSE") was $32.85 per share. Our 6 1/2 % Convertible Subordinated Notes
are currently eligible for trading on the PORTAL Market of the Nasdaq Stock
Market.
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INVESTING IN OUR COMMON STOCK OR OUR CONVERTIBLE SUBORDINATED
NOTES INVOLVES RISK. PLEASE CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING
ON PAGE 11 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS _____, 2001
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SUMMARY
This summary highlights selected information from this
prospectus. It does not contain all the information that is important to
understanding this offering or the terms of the notes. You should read
carefully the entire prospectus and the documents incorporated by
reference, including our consolidated financial statements and their
related notes. Unless the context otherwise requires, references to "we,"
"our" or "us" refer to ICN Pharmaceuticals, Inc. and its subsidiaries,
including Ribapharm Inc., references to "ICN" refer to ICN Pharmaceuticals,
Inc. without its subsidiaries and references to "Ribapharm" refer to
Ribapharm Inc. Any references in this prospectus to our aggregate pro forma
indebtedness as of March 31, 2001 is on a pro forma basis to reflect the
issuance of the 6 1/2% convertible subordinated notes due 2008 and
redemption of the 9 1/4% senior notes due 2005.
OUR COMPANY
OVERVIEW
We are a global, research-based pharmaceutical company that
develops, manufactures, distributes and sells pharmaceutical, research and
diagnostic products. In 2000, we had revenues of $800.3 million and net
income of $90.2 million. In the first six months of 2001, we had revenues
of approximately $405 million and net income of approximately $42 million.
We distribute and sell a broad range of prescription and
over-the-counter pharmaceutical and nutritional products in over 90
countries. These pharmaceutical products treat viral and bacterial
infections, diseases of the skin, neuromuscular disorders, cancer,
cardiovascular disease, diabetes and psychiatric disorders.
Our strategy includes:
o the acquisition of high margin products that complement existing
product lines and can be introduced into new markets to meet the
specific needs of those markets;
o the creation of a pipeline of new products through internal
research and development, as well as strategic partnerships,
licensing arrangements and acquisitions; and
o the consolidation of our industry leadership position in Central
and Eastern Europe, including Russia.
RESTRUCTURING
In February 2000, we retained UBS Warburg to advise us regarding
possible strategic alternatives. On June 15, 2000, we publicly announced a
restructuring plan to split our business into three separate publicly
traded companies:
o Ribapharm Inc., to be comprised of our U.S. research and
development operations and, subject to the receipt of certain
approvals, our license agreement with Schering-Plough Ltd. and
the royalties payable by Schering-Plough thereunder in respect of
sales of ribavirin;
o ICN International AG, to be comprised of our operations in
Western Europe, Central and Eastern Europe and Asia, Africa and
Australia; and
o ICN Americas, to be comprised of our operations in North, Central
and South America and our biomedicals operations.
We believe that the restructuring will result in the following
benefits:
o Greater strategic focus. As a result of each of our three core
businesses having its own board of directors and separate
management team, we expect the businesses will be better able to
focus on their respective corporate and strategic opportunities.
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o Equity currency more directly linked to each business. As a
result of the restructuring, each of our core businesses will
have its own equity currency. We expect that this will result in
better incentives for, and greater accountability of, employees
by allowing incentive compensation to be more closely linked with
the market performance of the stock of each of the businesses. In
addition, we believe that equity currency that is more closely
linked to each business may be a more attractive consideration
for future acquisitions.
RIBAPHARM
GENERAL
Ribapharm, which is currently one of our wholly-owned
subsidiaries, is a biotechnology company that seeks to discover, develop
and commercialize innovative products for the treatment of significant
unmet medical needs, principally in the antiviral and anticancer areas.
Ribapharm's product ribavirin is an antiviral drug that Schering-Plough
Ltd. markets under license from us. In connection with the restructuring,
we transferred to Ribapharm our U.S. research and development operations
and, subject to the approval of the holders of our existing outstanding
debt securities or the repayment of or defeasance of such debt, the
Schering-Plough license. In addition, we may seek approval from our
stockholders for this transfer. Schering-Plough markets ribavirin in
combination with Schering-Plough's interferon alfa-2b under the trade name
Rebetron as a therapy for the treatment of hepatitis C. Our royalties from
sales of ribavirin by Schering-Plough were $110 million in 1999, $155
million in 2000 and $59 million for the six months ended June 30, 2001.
Until the conditions to the transfer of the Schering-Plough license to
Ribapharm are satisfied, Ribapharm will not be entitled to royalty payments
under the Schering-Plough license and therefore will have no revenues
derived from commercialized products.
Ribavirin came from Ribapharm's extensive library of chemical
compounds. At least 3,500 of these compounds are nucleoside analog
compounds. Nucleoside analogs are small molecule-type chemicals that
resemble the natural building blocks of human and viral genetic material.
This genetic material is commonly known as DNA and RNA. We transferred this
library to Ribapharm in connection with the restructuring. We believe that
the library contains one of the largest collections of nucleoside analogs
in the world. Ribapharm intends to combine its scientific expertise with
advanced drug screening techniques in an effort to discover and develop new
product candidates from the nucleoside analog library. To date, ribavirin
is the only compound that has been commercialized from the library.
In June 2001, Ribapharm licensed Levovirin(TM), a compound that
is currently in Phase I clinical trials for the treatment of hepatitis C,
to F. Hoffmann-La Roche. Ribapharm will receive a one time licensing fee
and will be eligible to receive milestone payments. Roche will be
responsible for all future developmental costs of Levovirin. If Levovirin
is successfully developed and receives regulatory approval, Ribapharm will
be entitled to receive royalty payments. In that case, it is expected that
Levovirin will be used in combination therapy with Pegasys, Roche's
pegylated version of interferon alpha 2a. In addition, Roche licensed to us a
compound that is at a similar stage of development. We will be responsible
for the development costs of this compound, milestone payments and royalties if
the compound is successfully developed. See "Risk factors--Our flexibility in
maximizing commercialization opportunities for our compounds may be limited by
our obligations to Schering-Plough."
Ribapharm has filed a trademark registration application with the
U.S. Patent and Trademark Office for the mark RIBAPHARM. Ribapharm received
an unfavorable office action with respect to the application and has filed
an opposition to that office action. If Ribapharm cannot register that
mark, it may choose a different mark. We also reserve the right to change
the company name for Ribapharm.
RESTRUCTURING
We intend for Ribapharm to become a separate publicly traded
company. To achieve this objective, we may sell a minority of Ribapharm's
common stock to the public in an initial public offering. The shares to be
sold in the Ribapharm public offering will either be already-outstanding
shares held by ICN or new shares issued by Ribapharm. If ICN were to sell
Ribapharm common shares in the Ribapharm offering, it would recognize
taxable income on the proceeds it receives, which may be offset against
ICN's net operating loss carryforwards. We would then distribute our
remaining interest in Ribapharm to our stockholders; provided, however,
that if specific conditions are met, we may retain shares of Ribapharm
common stock to deliver upon conversion of the notes. We
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refer to this distribution as the "spin-off." See "Certain United States
federal tax consequences--Certain tax consequences to us and Ribapharm."
In order for the spin-off to be tax-free to ICN stockholders, ICN
must distribute to its stockholders at least 80% of the issued and
outstanding common stock of Ribapharm. This requirement may limit the
number of shares of Ribapharm common stock that can be sold in the
Ribapharm public offering. The number of shares of Ribapharm common stock
available to be sold in the Ribapharm public offering may be further
limited for a number of reasons.
For example, if shares of Ribapharm common stock received upon
conversion of notes are provided by ICN rather than issued by Ribapharm,
the number of shares of Ribapharm common stock available to be sold in the
offering will be reduced. We may elect to have ICN provide shares of
Ribapharm common stock receivable upon conversion of notes if certain
conditions are met, including receipt by ICN of a ruling from the IRS or an
opinion of counsel that ICN's retention of shares of Ribapharm common stock
in the spin-off will not jeopardize the tax-free nature of the spin-off.
Additionally, we have had discussions with Roche Capital
Corporation, an affiliate of F. Hoffmann-La Roche, regarding the possible
exchange of a portion of its shares of ICN common stock for shares of
Ribapharm common stock at the time of Ribapharm's contemplated initial
public offering and/or the time of the spin-off. If the exchange with Roche
occurs at the time of the public offering, the number of shares that can be
sold in a Ribapharm public offering may be reduced. There is no assurance
that we will reach any definitive agreement with Roche regarding this
exchange.
We may effect the Ribapharm spin-off without a Ribapharm public
offering if the maximum number of shares that could be sold in the Ribapharm
public offering, taking into account the limitations described above, would not
provide a sufficiently liquid market for those shares or if we conclude that,
taking into account the funds that we received from the private placement of the
notes, cash on hand and other financings, an additional equity financing would
not be necessary to repurchase all of our outstanding 8 3/4% senior notes due
2008 and provide for our working capital requirements. Furthermore, if we
consummate a Ribapharm public offering or consummate an exchange of Ribapharm
common stock for ICN common stock with Roche, the holders of our common stock
and holders who convert notes would own a smaller percentage of Ribapharm common
stock and, in the case of the Roche exchange, a larger percentage of our common
stock than would be the case if that exchange does not occur.
In connection with the restructuring ICN has contributed to
Ribapharm:
o ICN's building in Costa Mesa, California, including all fixtures
and real property associated with the building;
o subject to the approval of the holders of ICN's existing
outstanding debt securities, ICN's right, title and interest
under the Schering-Plough license, which would entitle Ribapharm
to receive all of the royalties from Schering-Plough in
connection with the sale of oral forms of ribavirin at the time
Ribapharm becomes a separate publicly traded company;
o all the chemical compounds contained in ICN's chemical compound
library, along with all associated records, journals and data;
o all intellectual property rights, including all patents,
copyrights and trademarks, related to Ribapharm's business,
including all intellectual property rights held by ICN in
ribavirin, Tiazole(TM), Adenazole(TM), Levovirin(TM),
Viramidine(TM) and the chemical compounds in our nucleoside
analog library;
o all of the equipment and furniture contained in, and personnel
employed in, Ribapharm's research and development department in
the Costa Mesa facility; and
o all other assets used in the conduct of Ribapharm's business.
However, ICN will retain perpetual, exclusive and royalty-free
rights to all indications for ribavirin in a given jurisdiction to the
extent currently approved in that jurisdiction, but not in other
jurisdictions where that
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indication is not currently approved. This license excludes all indications
and forms of ribavirin licensed to Schering-Plough. ICN will also retain
perpetual, exclusive and royalty-free rights with respect to the use of
ribavirin in aerosol form for the treatment of bone marrow transplant
patients with respiratory syncytial virus. In addition, ICN will retain all
equipment forming our AS-400 mainframe computer system and all equipment
related to ICN's dosimetry services operations.
Upon the earlier of the Ribapharm public offering or the
spin-off, Ribapharm will become jointly and severally liable for the
obligations under the notes. ICN and Ribapharm have agreed that, as between
ICN and Ribapharm, ICN will be responsible for all payments of principal
and interest under the notes, including Ribapharm's obligation to make an
offer to repurchase the notes upon a change of control of Ribapharm
(neither the Ribapharm public offering nor the spin-off will be deemed to
constitute a change of control of Ribapharm for these purposes). However,
ICN will not be responsible for the payment of additional interest in the
form of liquidated damages if the obligation to make payments is caused by
Ribapharm's failure to comply with its obligations to file and maintain an
effective registration statement under the registration rights agreement.
This agreement will not preclude any holder of notes from enforcing the
obligations on the notes against Ribapharm following the Ribapharm public
offering or the spin-off. ICN and Ribapharm reserve the right, however, to
change the terms of this agreement so that Ribapharm may become liable, as
between ICN and Ribapharm, for all or part of the obligations under the
notes. In addition, after the spin-off, upon conversion of a note, a holder
will receive, in addition to shares of ICN's common stock, the same number
of shares of Ribapharm common stock as the holder would have received had
the holder converted the notes immediately prior to the record date for the
spin-off.
There is no assurance that we will effect the Ribapharm public
offering or the spin-off. The Ribapharm public offering and the spin-off:
o may be subject to the approval of ICN's stockholders;
o will be subject to obtaining approval by the holders of ICN's
outstanding senior notes or our repayment of or defeasance of
that debt; and
o will be subject to the consent of Schering-Plough, which
Schering-Plough has preliminarily advised us it intends to give.
The spin-off is also subject to:
o obtaining a ruling from the IRS or an opinion of our counsel that
the spin-off will qualify as a tax-free spin-off under U.S. tax
laws; and
o compliance with all applicable laws, including the regulations of
the SEC and Delaware General Corporation Law provisions regarding
the payment of dividends.
ICN AMERICAS
ICN Americas will be comprised of our pharmaceutical operations
in North, Central and South America, as well as our biomedical operations
worldwide and our NLite(TM) product. In addition, ICN Americas will hold
the remaining interests in ICN International and Ribapharm until these
interests are disposed of as discussed elsewhere in this summary.
Pharmaceutical operations within the ICN Americas geographical
region include the development, manufacture and sale of a broad range of
prescription and over-the-counter branded pharmaceutical products,
particularly in the area of dermatology. ICN Americas' top selling
dermatology product is Efudix(R), which is used to treat pre-cancerous skin
lesions.
The biomedical operations of ICN Americas will consist of three
separate product lines:
o Research chemicals. ICN Americas sells a wide range of chemicals
used by medical and scientific researchers, primarily through a
catalog sales operation. ICN Americas sources a majority of these
products
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from third-party suppliers.
o Diagnostic products. ICN Americas manufactures and sells reagents
and test kits used to diagnose a variety of disease conditions.
o Dosimetry. ICN Americas provides monitoring services to
physicians, dentists, hospitals, universities, nuclear power
plants, government institutions and others to detect personal
occupational exposure to radiation, primarily in the United
States. ICN Americas' dosimetry services include the manufacture,
distribution, and analysis of radiation detection badges, and
generation of exposure reports.
ICN INTERNATIONAL
ICN International develops, manufactures and sells prescription
and over-the-counter branded pharmaceutical products throughout Europe,
Asia, Africa and Australia. From time to time, ICN International reviews
the possible acquisition or licensing of intellectual property from third
parties. We are currently considering granting ICN International licenses
concerning products of ICN Americas or Ribapharm. It is intended that up to
a 40% interest in ICN International will be sold in an offering outside the
United States, although it is possible that a portion of the offering will
be sold in the United States in a private placement. Subject to the receipt
of all required legal and regulatory approvals, we intend to list the
shares of ICN International on the Budapest Stock Exchange and global
depositary receipts representing the shares on the London Stock Exchange.
Subject to market conditions and regulatory approvals, we expect to
complete the offering of ICN International as soon as practicable. We
believe that this sale will not require the consent of our existing
noteholders. It is our longer term intention to sell our remaining interest
in ICN International, subject to market conditions and regulatory
requirements.
PROXY CONTEST
At ICN's annual meeting of stockholders on May 30, 2001, three
persons nominated by a group of dissident stockholders calling themselves
the ICN Committee to Maximize Shareholder Value were elected to ICN's board
of directors. Nine other of ICN's directors remain in office. The terms of
office for six of these directors expire at the 2002 annual meeting and the
terms of office for three of these directors expire at the 2003 annual
meeting. Under ICN's bylaws and an agreement between ICN and SSP-Special
Situations Partners Inc., a member of the ICN Committee to Maximize
Shareholder Value, only three directors will be elected at the 2002 annual
meeting, so that after the 2002 annual meeting, ICN's board will be
comprised of nine directors. If the dissident group or any other
stockholder were to elect three additional nominees at ICN's 2002 annual
meeting, then two-thirds of ICN's Board of Directors would be different
from ICN's Board of Directors as it existed prior to ICN's 2001 annual
meeting. See "Risk factors--If we experience a change of control, it would
accelerate repayment obligations under our existing indebtedness and
obligate us to make payments under some compensation arrangements and,
under more limited circumstances, the notes."
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Our principal executive offices are located at 3300 Hyland
Avenue, Costa Mesa, California, and our telephone number is (714) 545-0100.
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THE OFFERING
Issuer................................ICN Pharmaceuticals, Inc.
Securities offered....................$525,000,000 aggregate principal
amount of 6 1/2% convertible
subordinated notes due 2008 (and
15,326,010 shares of common stock
issuable upon conversion of the
notes) by selling security holders.
Conversion............................The notes are convertible into
29.1924 shares of our common stock,
par value $.01 per share, per $1,000
principal amount of notes, subject to
adjustment. This is equivalent to an
initial conversion price of
approximately $34.25 per share.
Interest payment dates................We will pay interest on the notes
semi-annually in arrears on January
15 and July 15 of each year, starting
on January 15, 2002.
Maturity..............................The notes will mature on July 15, 2008.
Optional redemption...................On or after July 21, 2004, we may at
our option redeem the notes, in whole
or in part, at the redemption prices
described herein, together with any
interest accrued through the
redemption date. The notes are not
entitled to any mandatory redemption
or sinking fund.
Change in control.....................If we experience a change of control,
we must offer to repurchase the notes
at 100% of the principal amount plus
any interest accrued through the
repurchase date.
Ranking...............................The notes are:
o unsecured;
o junior to all of our existing and
future senior indebtedness; and
o structurally subordinated to all
existing and future liabilities
of our subsidiaries, including
trade payables, except that
following a Ribapharm public
offering or a Ribapharm spin-off,
Ribapharm will be jointly and
severally liable for the
obligations under the notes.
As of March 31, 2001, we and our
subsidiaries had approximately
$511,467,000 of consolidated
indebtedness effectively ranking
senior to the notes. The indenture
under which the notes were issued
does not restrict our or our
subsidiaries' ability to incur
additional senior or other
indebtedness.
Use of proceeds.......................We will not receive any proceeds from
the sale of the notes or the shares
of common stock offered in this
prospectus. See "Selling Security
Holders."
Ribapharm initial public
offering and spin-off.................Upon the earlier to occur of the
Ribapharm public offering or the
spin-off (if either occurs):
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o Ribapharm will become jointly and
severally liable for the
obligations under the notes;
o Ribapharm will have the same
obligation as we have to purchase
notes upon a change of control
and we will be jointly and
severally liable for this
obligation;
o Ribapharm's obligation to make
payments on the notes will be
subordinated to the same extent
as our obligations; and
o If required, Ribapharm will have
an obligation to file a
registration statement relating
to the resale of the notes and,
following the spin-off, the
underlying Ribapharm common
stock.
If the spin-off occurs:
o A holder who converts notes
following the spin-off will
receive, in addition to shares of
our common stock, the same number
of shares of Ribapharm common
stock that the holder would have
received had the holder converted
the notes immediately prior to
the record date for the spin-off.
Holders will receive the shares
of Ribapharm stock from either
Ribapharm or us.
Risk factors..........................In analyzing an investment in the
notes offered by this prospectus,
prospective investors should
carefully consider, along with other
matters referred to in this
prospectus or incorporated by
reference herein, the information set
forth under "Risk factors."
For a more complete description of the terms of the notes, see
"Description of notes." For a more complete description of our common stock, see
"Description of common stock."
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SUMMARY SELECTED FINANCIAL DATA
The following table sets forth our summary selected historical
and other financial data on a consolidated basis for each of the years in
the three year period ended December 31, 2000 and for the three months
ended March 31, 2000 and 2001. The summary selected historical and other
financial data for each of the years in the three year period ended
December 31, 2000 were derived from our audited consolidated financial
statements. The statement of operations data and balance sheet data for the
quarters ended March 31, 2000 and 2001 were derived from our unaudited
financial statements which, in the opinion of management, include the
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of our results of operations and financial position for such
periods. The results of operations for the quarter ended March 31, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001 or any other period. The trends in our sales and
net income are affected by several business combinations completed in the
fiscal years 1998 through 2000. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our historical
consolidated financial statements, including the notes thereto,
incorporated by reference into this prospectus.
THREE MONTHS ENDED
-----------------------
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------------
STATEMENTS OF OPERATIONS-CONSOLIDATED 1998 1999 2000 2000 2001
------------------------------------- ------------------------------------ -------------------------
(IN THOUSANDS)
Product sales...................................... $800,639 $638,475 $645,190 $159,340 $171,419
Royalties.......................................... 37,425 108,937 155,114 33,000 27,550
Total revenues..................................... 838,064 747,412 800,304 192,340 198,969
Gross profit--product sales........................ 447,039 382,329 382,372 98,574 101,645
Income (loss) from operations(1)................... (289,568) 198,857 183,955 52,565 41,198
Interest expense................................... 38,069 55,943 60,356 15,221 13,017
Extraordinary loss(2).............................. -- -- 3,225 -- --
Net income (loss)(1)............................... (352,074) 118,626 90,180 27,399 21,022
OTHER DATA-CONSOLIDATED
-----------------------
(IN THOUSANDS)
Depreciation and amortization...................... $51,096 $65,502 $64,540 $15,885 $18,064
Cash flows provided by (used in):
Operating activities............................. 9,624 87,123 181,684 52,981 54,887
Investing activities............................. (295,046) (50,360) (90,795) (10,485) (35,835)
Financing activities............................. 186,019 36,399 (112,765) (4,790) (5,031)
Ratio of earnings to fixed charges(3)(4)(5)........ -- 3.5x 3.1x 3.5x 3.3x
MARCH 31, 2001
BALANCE SHEET DATA ACTUAL PRO FORMA (6)
------------------ ---------------- -----------------
(IN THOUSANDS)
Working capital $ 385,305 $ 698,558
Total assets 1,467,100 1,789,053
Total debt 511,467 845,822
Stockholders' equity 758,050 750,113
NOTES TO SUMMARY SELECTED FINANCIAL DATA:
(1) As a result of political and economic events in Eastern Europe,
including the Yugoslavian government's seizure of our Yugoslavian
operations effective November 26, 1998, we recorded charges totaling
$451.0 million in the year ended December 31, 1998. Of this amount,
$440.8 million is included in operating expenses, representing the
write-off of our investment in Yugoslavia and related assets ($235.3
million), provisions for losses on accounts and notes receivable
(including accounts and notes receivable from the Yugoslavian
government) ($203.5 million) and the write-off of other investments
($2.0 million). The losses related to Eastern Europe also include
reductions in the value of inventories ($6.1 million) included in cost
of product sales and a charge against interest ($4.1 million). As a
result of the seizure of our Yugoslavian
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operations, we deconsolidated
the financial statements of ICN Yugoslavia and are currently accounting
for our ongoing investments using the cost method. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Foreign Operations" incorporated by reference into this
prospectus.
(2) During 2000, we repurchased $84.4 million of our outstanding 9 1/4%
senior notes and $12.8 million of our outstanding 8 3/4% senior notes.
These repurchases generated an extraordinary loss on early
extinguishment of debt of $3.2 million, net of an income tax benefit of
$1.7 million.
(3) Fixed charges consist of interest expense and capitalized interest.
(4) For purposes of determining the ratio of earnings to fixed charges,
earnings consist of income before extraordinary loss, minority
interests, provision (benefit) for income taxes and interest expense.
(5) For the year ended December 31, 1998, we had a deficiency of earnings
compared to our fixed charges of $398.6 million.
(6) Pro forma reflects the issuance of $525,000,000 of 6 1/2% convertible
subordinated notes due 2008 in July 2001, redemption of the 9 1/4%
senior notes due 2005 (which is scheduled to occur on August 17, 2001
pursuant to a notice of redemption mailed on July 18, 2001) and the
extraordinary loss, net of tax, of $7.9 million as a result of the
redemption of the 9 1/4% senior notes outstanding as of March 31, 2001.
See "Capitalization."
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RECENT DEVELOPMENTS
2001 EARNINGS RELEASE
On August 2, 2001, we announced unaudited financial results for
the second quarter of 2001.
o Earnings per diluted share for the second quarter were $0.26
compared to $0.38 cents in the same period of 2000.
o Total revenue increased to $206 million from $191
million, an increase of 7 percent. Second quarter
performance was led by strong growth in North America and
Western Europe. Excluding royalties, our revenue increased in
the quarter to $174 million from $148 million, an increase of
18 percent.
o Operating income was $43 million compared to $48 million in
the second quarter of last year, which includes a decline in
royalties of $12 million. Earnings before interest, taxes,
depreciation and amortization (EBITDA) were $65 million.
Pre-tax income (income before taxes, minority interests, and
extraordinary loss) was $37 million versus $34 million last
year. Net income was $21 million compared to $31 million in
the second quarter of 2000.
o For the first six months, revenue increased to $405 million
from $384 million a year ago, an increase of 5 percent.
Operating income was $84 million versus $101 million in last
year's first half, which includes a decline in royalties of
$17 million. Earnings before interest, taxes, depreciation
and amortization were $124 million. Pre-tax income was $67
million versus $72 million last year. Net income for the
first six months was $42 million versus $58 million a year
ago. Earnings per share were $0.51 per diluted share in the
first six months versus $0.72 per share in the 2000 period.
o Royalties from Schering-Plough's sales of REBETRON((TM))
combination therapy for chronic hepatitis C were $31 million
in the quarter compared to $43 million last year. Royalty
revenues for the year's first half were $59 million compared
to $76 million in 2000.
In July and August 2001, ICN repurchased $114,221,000 principal
amount of its 8 3/4% senior notes due 2008. In connection with the
repurchase of the 8 3/4% senior notes, ICN will record an extraordinary
loss on extinguishment of debt of $13.2 million, net of tax, in the third
quarter of 2001.
U.S. FOOD AND DRUG ADMINISTRATION APPROVAL
On July 26, 2001, Schering-Plough announced that the U.S. Food
and Drug Administration (FDA) granted Schering-Plough marketing approval
for Rebetol(R) (ribavirin, USP) Capsules as a separately marketed product
for use only in combination with Intron(R) A (interferon alfa-2b,
recombinant) Injection for the treatment of chronic hepatitis C in patients
with compensated liver disease previously untreated with alpha interferon
or who have relapsed following alpha interferon therapy.
On August 8, 2001, Schering-Plough announced that the FDA also
granted Schering-Plough approval for Peg-Intron((TM)) (peginterferon
alfa-2b), a longer lasting form of Intron(R) A, for use in combination
therapy with Rebetol(R) for the treatment of chronic hepatitis C in
patients with compensated liver disease previously untreated with alpha
interferon and who are at least 18 years of age.
LICENSING
On June 29, 2001, F. Hoffmann-La Roche Inc. and F. Hoffmann-La
Roche Ltd. licensed from us the rights to the developmental compound
Levovirin(TM), which is in Phase I clinical trials as a potential treatment for
hepatitis C. The transaction includes a one-time licensing fee, milestone
payments, and future royalties after successful development and regulatory
approval of the compound. Roche will be responsible for all future developmental
costs of Levoririn. At the same time, we licensed the rights to a
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developmental compound from Roche. We will be responsible for the
development costs of this compound, milestone payments and royalties if the
compound is successfully developed.
SCHERING-PLOUGH/ROCHE AGREEMENT
On August 13, 2001, Schering-Plough announced that it entered into a
licensing agreement with F. Hoffmann-La Roche Ltd. and F. Hoffmann-La Roche Inc.
that settles all patent disputes relative to their respective peginterferon
products. In addition, Schering-Plough and Roche will each license to the other
its patents applicable to peginterferon as a combination therapy with ribavirin.
The announcement said that Schering-Plough will cooperate should Roche wish to
acquire a license from us under patent rights to oral ribavirin for use in
combination with Roche's peginterferon product. The announcement also said that
the Schering-Plough/Roche agreement is subject to dismissal of the relevant
lawsuits by the courts in the United States and Europe. We are currently
evaluating the implications of this agreement on us.
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RISK FACTORS
RISKS RELATING TO THE NOTES AND THE UNDERLYING COMMON STOCK
THE NOTES WILL BE SUBORDINATED TO OUR SENIOR INDEBTEDNESS AND BE
STRUCTURALLY SUBORDINATED TO ALL LIABILITIES OF OUR SUBSIDIARIES, EXCEPT
THAT, IF THE RIBAPHARM PUBLIC OFFERING OR SPIN-OFF OCCURS, RIBAPHARM WILL
BECOME JOINTLY AND SEVERALLY OBLIGATED ON THE NOTES.
The notes are junior in right of payment to all of our existing
and future senior indebtedness, and are structurally subordinated to all
liabilities of our subsidiaries, including trade payables. As of March 31,
2001, we and our subsidiaries had approximately $511,467,000 of
consolidated indebtedness effectively ranking senior to the notes. The
indenture governing the notes does not restrict the incurrence of senior
indebtedness or other debt by us or our subsidiaries. By reason of such
subordination, in the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of our business, our assets will
be available to pay the amounts due on the notes only after all of our
senior indebtedness has been paid in full, and, therefore, there may not be
sufficient assets remaining to pay amounts due on any or all of the notes
then outstanding. See "Description of notes--Subordination of notes."
A significant amount of our operations are conducted through
subsidiaries. Except as described in the following sentence, none of our
subsidiaries have guaranteed or otherwise become obligated with respect to
the notes and, as a result, the notes will be structurally subordinated to
all indebtedness and other obligations of our subsidiaries with respect to
the subsidiaries' assets. However, if the Ribapharm public offering or the
spin-off occurs, Ribapharm will become jointly and severally liable for the
obligations under the notes. Claims of creditors of our subsidiaries,
including trade creditors, will generally have priority as to the assets of
our subsidiaries over our claims and claims of the holders of our
indebtedness, including the notes.
OUR RESTRUCTURING, IF IT OCCURS, MAY HAVE UNINTENDED CONSEQUENCES THAT MAY
ADVERSELY AFFECT OUR PROFITABILITY AND OUR ABILITY TO SATISFY OUR OBLIGATIONS
UNDER THE NOTES.
We intend to separate our business into three separate publicly
traded companies. We have not finalized our plans for this restructuring
and our plans may change or the restructuring may not occur at all. We
cannot anticipate the effect that the restructuring plan will have on our
company. The restructuring may require the creation of new management
systems, the relocation of employees, the incurrence of additional expenses
and other actions that may adversely affect our business. It may also
negatively impact some synergies and economies of scale that currently
benefit our business. The restructuring may also put additional strain on
our management's time and attention. Since we are dividing our company into
three separate companies, we may not have sufficient management depth to
manage all three of these businesses separately. Therefore, we may need to
attract additional management from outside the company. Our inability to do
so may adversely affect one or more of the separate companies. We cannot
anticipate all the consequences of the restructuring and some of the
consequences may adversely affect our profitability and our ability to
satisfy our obligations under the notes. See "--Ribapharm will only become
an obligor on the notes if we effect the Ribapharm public offering or the
spin-off and the notes will only be convertible into Ribapharm common stock
if we effect the spin-off."
OUR PROPOSED DIVESTITURE OF OUR INTEREST IN ICN INTERNATIONAL MAY NEGATIVELY
AFFECT OUR ABILITY TO PAY AMOUNTS DUE UNDER THE NOTES AND OUR OTHER
INDEBTEDNESS.
Our restructuring contemplates the initial sale of up to 40% of
the stock of ICN International. This sale will likely limit our ability to
obtain cash, in the form of dividends or otherwise, from the businesses
comprising ICN International, which cash would otherwise be available to us
to pay our obligations under the notes. In addition, this sale, by limiting
our ability to receive cash from ICN International and creating a minority
interest, could have a material adverse effect on our ability to comply
with financial and other restrictive covenants in our existing outstanding
indebtedness, which, among other things, limit our ability to incur debt
and sell assets. Our failure to
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comply with some or all of these covenants could result in an event of
default that, if not cured or waived, could have a material adverse effect
on our business or prospects.
AS A RESULT OF OUR RESTRUCTURING, WE MAY CHANGE OUR DIVIDEND POLICY.
If the Ribapharm public offering or the Ribapharm spin-off
occurs, Ribapharm, instead of us, will be entitled to receive the royalty
payments from our license agreement with Schering-Plough. After the
Ribapharm public offering, we will not have the ability to cause Ribapharm
to pay any dividends. After the Ribapharm spin-off, our revenue will
decrease significantly from current levels. Although we have paid dividends
in the past, our board of directors has made no decision whether to
continue to pay dividends in the future and, if any dividends are paid, the
amount of such dividends. In addition, Ribapharm does not anticipate paying
dividends for the foreseeable future.
OUR SUBSTANTIAL CURRENT AND FUTURE INDEBTEDNESS COULD RESTRICT OUR OPERATIONS,
MAKE US MORE VULNERABLE TO ADVERSE ECONOMIC CONDITIONS AND MAKE IT MORE
DIFFICULT FOR US TO MAKE PAYMENTS ON THE NOTES.
On March 31, 2001, we and our subsidiaries had approximately
$845,822,000 of consolidated pro forma indebtedness, after giving effect to
the issuance of the notes and the redemption of our 9 1/4% senior notes due
2005. On July 18, 2001 we mailed a notice to the holders of our 9 1/4%
senior notes, that we will redeem all of the $188,978,000 principal amount
of outstanding 9 1/4% senior notes on August 17, 2001 at a redemption price
of 104.625% of the principal amount plus accrued and unpaid interest. We
may incur additional indebtedness in the future. Our level of indebtedness
will have several important effects on our future operations, including,
without limitation:
o we anticipate that approximately $65 million of cash flow from
operations will be required to discharge our annual obligations
on our indebtedness, after giving effect to the repayment of the
9 1/4% senior notes;
o our outstanding indebtedness and leverage may increase the impact
on our business of negative changes in general economic and
industry conditions, as well as competitive pressures; and
o the level of our outstanding debt may affect our ability to
obtain additional financing for working capital, capital
expenditures or general corporate purposes.
General economic conditions, industry cycles and financial,
business and other factors affecting our operations, many of which are
beyond our control, may affect our future performance. As a result, these
and other factors may affect our ability to make principal and interest
payments on our indebtedness, including the notes. Our business might not
continue to generate cash flow at or above current levels. If we cannot
generate sufficient cash flow from operations in the future to service our
debt, we may, among other things:
o seek additional financing in the debt or equity markets;
o refinance or restructure all or a portion of our indebtedness;
o sell selected assets; or
o reduce or delay planned capital expenditures.
These measures might not be sufficient to enable us to service
our debt, including the notes. In addition, any financing, refinancing or
sale of assets might not be available on economically favorable terms, if
at all.
RIBAPHARM WILL ONLY BECOME AN OBLIGOR ON THE NOTES IF WE EFFECT THE RIBAPHARM
PUBLIC OFFERING OR THE SPIN-OFF AND THE NOTES WILL ONLY BE CONVERTIBLE INTO
RIBAPHARM COMMON STOCK IF WE EFFECT THE SPIN-OFF.
We currently intend to effect the Ribapharm public offering
and/or the Ribapharm spin-off. However, our ability to complete the
Ribapharm public offering and/or the spin-off:
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o may be subject to the approval of the ICN stockholders;
o will be subject to obtaining approval by the holders of our
outstanding senior notes or our repayment of or defeasance of
such debt; and
o will be subject to the consent of Schering-Plough, which
Schering-Plough has preliminarily advised us it intends to give.
The spin-off is also subject to:
o obtaining a ruling from the IRS or an opinion of our counsel that
the distribution will qualify as a tax-free spin-off under U.S.
tax laws; and
o compliance with all applicable laws, including the regulations of
the SEC and the Delaware General Corporation Law provisions
regarding the payment of dividends.
Typically, it takes four to six months from the date of
submission of a ruling request for the IRS to make a determination, but
there can be no assurance that it will not take longer. We cannot give any
assurance that we will be able to obtain all the consents and approvals
that are necessary in order for us to effect the Ribapharm public offering
or the spin-off. If we do not effect a spin-off of Ribapharm, holders of
notes will not receive Ribapharm stock upon conversion of the notes.
OWNING RIBAPHARM COMMON STOCK INVOLVES RISKS THAT ARE DIFFERENT FROM OUR RISKS.
If the spin-off occurs and a holder converts notes into common
stock, owning Ribapharm common stock will involve numerous risks,
including:
o Ribapharm's financial condition and results of operations will be
substantially dependent on royalties from the license agreement
with Schering-Plough;
o because Ribapharm's expenses as an independent company may be
significantly higher than its expenses while one of our
subsidiaries, Ribapharm's historical financial information may
not be representative of its future results;
o if Ribapharm acquires excess cash from its operations, federal
securities laws may limit the types of investments in which
Ribapharm may be able to invest that cash;
o if Ribapharm does not develop its own manufacturing, sales,
marketing and distribution capabilities, it will remain dependent
on third parties to manufacture and commercialize its products;
o if Ribapharm fails to manage its expansion, its business could be
impaired; and
o anti-takeover provisions in Ribapharm's charter documents and
under Delaware law could provide its management or board of
directors with the ability to delay or prevent a change in
control of Ribapharm, including transactions in which
stockholders might otherwise receive a premium for their shares
over then current market prices.
A NUMBER OF INTERNAL AND EXTERNAL FACTORS HAVE CAUSED AND MAY CONTINUE TO CAUSE
THE MARKET PRICE OF OUR STOCK TO BE VOLATILE.
The market prices for securities of companies engaged in
pharmaceutical development, including us, have been volatile. Many factors,
including many over which we have no control, may have a significant impact
on the market price of our common stock and the common stock of Ribapharm
if it becomes a public company, including without limitation:
o our competitors' announcement of technological innovations or new
commercial products;
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o changes in governmental regulation;
o our competitors' receipt of regulatory approvals;
o our competitors' developments relating to patents or proprietary
rights;
o publicity regarding actual or potential medical results for
products that we or our competitors have under development; and
o period-to-period changes in financial results.
The liquidity of any market for the notes will depend on the
number of holders of the notes, the interest of securities dealers in
making a market in the notes and other factors. Accordingly, we cannot
assure you as to the development or liquidity of any market for the notes.
YOU MAY BE UNABLE TO SELL YOUR NOTES IF A TRADING MARKET FOR THE NOTES DOES
NOT DEVELOP.
If a public trading market develops for the notes, future trading
prices of the notes will depend on many factors, including:
o the price of the common stock into which the notes are
convertible;
o whether the Ribapharm public offering has been completed or is
likely to be completed;
o whether Ribapharm has been spun-off or is likely to be spun-off;
o prevailing interest rates;
o the market for similar securities; and
o our operating results and financial condition.
If a trading market does not develop or is not maintained,
holders of the notes may experience difficulty in reselling, or be unable
to sell, the notes.
RISKS RELATING TO ICN, INCLUDING RIBAPHARM
IF OUR ROYALTIES FROM SCHERING-PLOUGH DECLINE SIGNIFICANTLY IN THE FUTURE, WE
WILL HAVE SIGNIFICANTLY LESS FUNDS WITH WHICH TO OPERATE OUR BUSINESS.
We are, and if Ribapharm becomes a public company, Ribapharm will
be, dependent upon royalties from our license with Schering-Plough to fund
our and its research and development program. Schering-Plough's exclusive
license under the license agreement expires in September 2010. After the
expiration of exclusivity, Schering-Plough will have a perpetual
non-exclusive license to oral forms of ribavirin. Pursuant to the license
agreement, Schering-Plough can terminate the license agreement at any time
upon giving prior written notice to us. If Schering-Plough were to
terminate the license agreement pursuant to this provision, our license to
Schering-Plough would become a perpetual non-exclusive license. We would be
free to license oral forms of ribavirin to third parties. However, if
Schering-Plough terminates the license agreement pursuant to this
provision, Schering-Plough would not be relieved from its obligation to pay
us royalties on its sales of ribavirin if any. In addition, Schering-Plough
has sole discretion to determine the pricing of ribavirin and the amount
and timing of resources devoted to the marketing of ribavirin. Any
significant decrease in royalties from this license could require us or
Ribapharm, as the case may be, to reduce research and development
expenditures and other activities. We or Ribapharm, as the case may be,
also may not be able to repay any borrowings incurred in anticipation of
receiving these royalties.
Schering-Plough has informed us that it believes royalties for
the first quarter of 2001 and the fourth quarter of 2000 should not include
royalties of approximately $1,200,000 and $1,800,000, respectively, on
products
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distributed as part of an indigent patient marketing program. It
also informed us that amounts that had previously been paid under this
program, which they estimate to be approximately $11,900,000, should be
returned to Schering-Plough. In raising the dispute, Schering-Plough has
not clearly articulated to us a contractual basis for the nonpayment of
royalties. Rather it has based its arguments on primarily moral or
humanitarian grounds, essentially equitable arguments, indicating that they
believe they should not have an obligation to pay royalties on product
given to indigent patients. We have not been provided with appropriate
information or documentation, and do not agree with such adjustment as the
license agreement articulates those programs for which royalties would not
be due. Should Schering-Plough successfully apply this adjustment
retroactively, it could have an impact on our results of operations.
Further, if Schering-Plough were to apply the proposed adjustment to future
royalty payments, royalties could be reduced in approximately the same
proportion as the proposed historical adjustment.
Royalties received from the sale of ribavirin by Schering-Plough
could also decline in the future for a variety of other reasons, including:
o reductions in the pricing of ribavirin by Schering-Plough or in
reimbursement by health care payors;
o the expiration or invalidation of the patents related to
ribavirin;
o a decrease in Schering-Plough's marketing efforts;
o quarterly or yearly fluctuations in the prevalence of hepatitis
C;
o fluctuations in foreign currency exchange rates;
o an increase in the severity or frequency of side effects
associated with ribavirin, the combination therapy, or interferon
alfa-2b or the discovery of other harmful effects attributable to
these drugs and therapy; and
o the suspension or withdrawal of the FDA's approval of ribavirin
marketed by Schering-Plough or changes in the terms of such
approval, the approved labeling for ribavirin, or any FDA or
court imposed restrictions on the manner in which ribavirin is
promoted, or any reduction in supplies due to a natural or
accidental disaster or regulatory concerns such as Good
Manufacturing Practices compliance.
In addition, future royalties from Schering-Plough may also
decrease if competing therapies are developed for the treatment of
hepatitis C. Competing therapies may include:
o pegylated interferon developed by Schering-Plough and F.
Hoffmann-La Roche;
o Infergen being developed by Amgen, Inc.;
o Albuferon being developed by Human Genome Sciences, Inc.; and
o protease inhibitors being developed by Eli Lilly and Company,
Vertex Pharmaceuticals Incorporated, Viropharma Incorporated,
American Home Products Corporation and Gilead Sciences, Inc.
Other companies that engage in research activities similar to our
and Ribapharm's research activities include Abbott Laboratories, Pfizer
Inc., GlaxoSmithKlein plc, Merck & Co. Inc. and Novartis AG. In particular,
on May 10, 2001, Novartis announced that the FDA approved its drug Gleevec,
which may compete with our product candidate Tiazole.
WE GENERATE SIGNIFICANT REVENUE FROM OPERATIONS IN EMERGING MARKETS IN WHICH
POLITICAL AND ECONOMIC INSTABILITY AND FOREIGN CURRENCY RISK PRESENT NUMEROUS
RISKS FOR OUR BUSINESS.
Approximately 63% and 62% of our revenues for 2000 and for the
first six months of 2001, respectively, were generated from operations
outside the United States. We operate both directly and through
distributors in North America, Latin America (principally Mexico), Western
Europe (including Poland, Hungary and the Czech Republic) and Russia and
through distributors elsewhere in the world.
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A large portion of our foreign operations are conducted in emerging
markets. Businesses operating in emerging markets are subject to greater
economic, commercial and political risks, including the risk of civil unrest or
war, than those operating in more developed markets. These risks include, among
others, the nationalization or expropriation of assets or businesses, price and
exchange controls, exchange rate risks (including devaluation of currency), high
rates of inflation, limitations on participation in local enterprises, political
and economic instability, changes in regulations, restrictive governmental
actions, lack of enforcement of legal rights, corruption and inefficient and
restrictive banking systems. For example, if the government of a territory in
which we conduct business decides to nationalize or expropriate some or all of
our assets, we may not receive adequate compensation, our cash flow may be
significantly affected and our business, financial condition and results of
operations may be materially adversely affected. See "--We are involved in
various legal proceedings that could adversely affect us."
Even in those countries which have enacted legislation to protect
foreign investment and other property against expropriation and
nationalization, there can be no certainty that such protections will be
enforced. This uncertainty is due to several factors, including: (i) the
lack of budgetary resources; (ii) the apparent lack of political will to
enforce legislation to protect property against expropriation and
nationalization; (iii) the lack of an independent judiciary and sufficient
mechanisms to enforce judgments; and (iv) corruption among government
officials. Any such failure to enforce such protections may have a material
adverse effect on our business, financial condition and results of
operations.
We have received letters from some authorities of Russian regions
inquiring as to whether we have complied with all of our commitments that
we made when we acquired businesses in Russia. While we believe we have
complied with these commitments in all material respects, we cannot predict
what actions these authorities might take if they conclude otherwise. In
addition, in 1998 our operations in Yugoslavia were seized by an agency of
the Yugoslavian government. See "-- We are involved in various legal
proceedings that could adversely affect us."
We sell products in many countries that are susceptible to
significant foreign currency risk. We generally sell products in these
countries for United States dollars. While this eliminates our direct
currency risk, it increases our credit risk because if a local currency is
devalued significantly it becomes more expensive for customers in that
market to purchase our products in United States dollars. Acquisitions we
are currently evaluating or pursuing may increase our foreign currency risk
and the other risks identified above. We currently do not have a hedging
program to protect against foreign currency exposure and, in some of the
countries in which we operate, no effective hedging program is available.
Furthermore, the success of our operations in Russia and central
Europe depends on our ability to attract and retain qualified management in
these countries who are familiar not only with our business and industry
but also with the commercial practices and economic and political
environments in these countries.
IF WE EXPERIENCE A CHANGE OF CONTROL, IT WOULD ACCELERATE REPAYMENT
OBLIGATIONS UNDER OUR EXISTING INDEBTEDNESS AND OBLIGATE US TO MAKE
PAYMENTS UNDER SOME COMPENSATION ARRANGEMENTS AND, UNDER MORE LIMITED
CIRCUMSTANCES, THE NOTES.
At ICN's annual meeting of stockholders on May 31, 2001, three
persons nominated by a group of dissident stockholders calling themselves
the ICN Committee to Maximize Shareholder Value were elected to ICN's Board
of Directors. If the dissident group or any other stockholder were to elect
three additional nominees at ICN's 2002 annual meeting, then two-thirds of
ICN's Board of Directors would be different from ICN's Board of Directors
as it existed prior to ICN's 2001 annual meeting. This would trigger change
of control provisions in ICN's existing debt instruments and some
compensation arrangements, but not under the notes offered by this
prospectus. If this were to occur, ICN would be required to redeem, at a
purchase price equal to 101% of the principal amount thereof plus accrued
interest, all outstanding 8 3/4% senior notes due 2008, which will remain
outstanding after this offering, and all outstanding 9 1/4% senior notes
due 2005, which ICN will redeem with the proceeds of this offering. At
August 7, 2001, $194,611,000 aggregate principal amount of ICN's 8 3/4%
senior notes due 2008 was outstanding. If we experience a change of control
under the indenture governing the 6 1/2% convertible subordinated notes, we
would be required to redeem all of these notes at a purchase price equal to
100% of the principal amount plus accrued interest.
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If, after the Ribapharm public offering or the Ribapharm
spin-off, Ribapharm experiences a change of control, it will be required to
purchase all of these notes at a purchase price equal to 100% of the
principal amount plus accrued interest. We will be jointly and severally
liable for this obligation.
In addition, if we experienced a change of control under
employment agreements with our Chairman and several key senior executive
officers, we would be obligated under these agreements to pay amounts
totaling approximately $27,800,000, based upon present compensation. In
addition, the vesting of options granted to our Chairman and several key
senior executive officers would be accelerated. The value of the
accelerated options would depend upon the market price of shares of our
common stock at that time.
We cannot give any assurances that we or Ribapharm will have
sufficient funds available for any required repurchases under the notes or
other indebtedness if we or Ribapharm experience a change in control. If we
fail or Ribapharm fails, as the case may be, to repurchase any existing
indebtedness, including the notes, as required, then we or Ribapharm, as
the case may be, would be in default under the indentures governing such
indebtedness.
WE ARE INVOLVED IN VARIOUS LEGAL PROCEEDINGS THAT COULD ADVERSELY AFFECT US.
On August 11, 1999, the United States Securities and Exchange
Commission filed a complaint in the United States District Court for the
Central District of California captioned Securities and Exchange Commission
v. ICN Pharmaceuticals, Inc., Milan Panic, Nils O. Johannesson and David C.
Watt, Civil Action No. SACV 99-1016 DOC (ANx). The SEC complaint alleges
that we and the individual named defendants made untrue statements of
material fact or omitted to state material facts necessary in order to make
the statements made, in the light of the circumstances under which they
were made, not misleading, and engaged in acts, practices, and courses of
business which operated as a fraud and deceit upon other persons in
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. The SEC complaint concerns the status and
disposition of our 1994 new drug application for ribavirin as a monotherapy
treatment for chronic hepatitis C. The SEC complaint seeks injunctive
relief, unspecified civil penalties, and an order barring Mr. Panic from
acting as an officer or director of any publicly-traded company. A
pre-trial schedule has been set which requires the submission of summary
judgment motions in late 2002, the end of discovery by March 17, 2003, and
the commencement of trial on May 6, 2003. We and the SEC are engaged in
discussions in an effort to determine whether the litigation can be
resolved by settlement agreement.
Beginning in 1996, we received subpoenas from a grand jury in the
United States District Court for the Central District of California
requesting the production of documents covering a broad range of matters
over various time periods. We understood that we, Mr. Panic, two current
senior executive officers, a former senior officer, a current employee, and
a former employee of the company were targets of an investigation. We also
understood that a senior executive officer and a director were subjects of
the investigation. The United States Attorney for the Central District of
California advised our counsel that the areas of its investigation included
disclosures made and not made to the public and third parties concerning
the 1994 hepatitis C monotherapy new drug application; stock sales for the
benefit of Mr. Panic following receipt on November 28, 1994 of a letter
from the FDA informing us that the 1994 hepatitis C monotherapy new drug
application had been found not approvable; possible violations of the
economic embargo imposed by the United States upon the Federal Republic of
Yugoslavia, based upon alleged sales by us and Mr. Panic of stock belonging
to our employees; and, with respect to Mr. Panic, the personal disposition
of assets of entities associated with Yugoslavia, including possible
misstatements and/or omissions in federal tax filings. We have cooperated,
and continue to cooperate, in the grand jury investigation. A number of our
current and former officers and employees were interviewed by the
government in connection with the investigation. The United States Attorney
issued subpoenas requiring various of our current and former officers and
employees to testify before the grand jury. Certain current and former
officers and employees testified before the grand jury beginning in July
1998.
On March 15, 2001, we were notified by the United States Attorney
that a decision had been made not to prosecute the individual targets and
subjects of the grand jury investigation. At the same time, we were also
notified that the United States Attorney had authorized an indictment of us
based upon alleged false and misleading misrepresentations concerning the
1994 hepatitis C monotherapy new drug application. We and the United States
Attorney are engaged in discussions in an effort to determine whether the
matter can be settled by plea bargain, which could include a plea by us to
one felony count.
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In connection with the grand jury investigation and SEC
litigation, we have recorded a reserve in the fourth quarter of 2000 of
$9,250,000 to cover the potential combined settlement liability and all
other related costs. Our estimate of the fourth quarter reserve was based
upon the nature and amounts noted during settlement discussions with the
SEC and the United States Attorney. We believe that additional loss in
settling these matters, based upon discussions to date, is not reasonably
possible. There can, of course, be no assurance that the grand jury
investigation will be settled by plea agreement or that the SEC litigation
will be settled by mutual agreement or what the amount of any settlements
may ultimately be. In the event that a settlement of either matter is not
reached, we will vigorously defend any litigation.
On or about February 9, 1999, we commenced an action in the
United States District Court for the District of Columbia against the
Federal Republic of Yugoslavia, the Republic of Serbia and the State Health
Fund of Serbia seeking damages in the amount of at least $500,000,000 and
declaratory relief arising out of the Federal Republic of Yugoslavia's and
the Republic of Serbia's seizure of our majority ownership interest in ICN
Yugoslavia and the failure of the Republic of Serbia and the State Health
Fund to pay ICN Yugoslavia for goods sold and delivered. On or about March
9, 1999, the State Health Fund commenced an arbitration against us before
the International Chamber of Commerce for unquantified damages due to
alleged breaches of the agreement pursuant to which we acquired our
majority ownership interest in ICN Yugoslavia, and for unspecified
injunctive relief. We, in turn, counterclaimed against the State Health
Fund and commenced an arbitration against the Federal Republic of
Yugoslavia and the Republic of Serbia in the International Chamber of
Commerce arising out of the seizure of ICN Yugoslavia and the failure to
pay for goods sold and delivered, seeking damages and other relief. The
District Court stayed the action (while retaining jurisdiction) so that
issues of jurisdiction by and among the parties could be resolved at the
International Chamber of Commerce. On February 23, 2001, the arbitration
panel issued decisions holding that: (i) the State Health Fund is a proper
party to the arbitration; (ii) the issue of jurisdiction over the Republic
of Serbia in the arbitration will be joined to the merits of the case and
decided in conjunction therewith; and (iii) there is no jurisdiction over
the Federal Republic of Yugoslavia in the arbitration. A trial date has
been set for July 15, 2002. We intend to prosecute vigorously our claims
against the Federal Republic of Yugoslavia, the Republic of Serbia and the
State Health Fund, and to defend against the State Health Fund's claims
against us, which we believe to be meritless and filed solely as a response
to the action filed earlier by us in the District Court.
ICN is a party to a legal matter at one of its distribution companies
in Russia. The matter involves a claim relating to non-payment under a contract
entered into in January 1995, prior to ICN's acquisition of this Russian
distribution company. The claimant is seeking to recover $6.2 million in
damages, plus expenses. Due to the complex and changing legal environment in
Russia, we cannot estimate the range or amount of possible loss, if any, that
may be incurred. We intend to vigorously defend this matter, however, an adverse
decision could have a material effect on our results of operations.
We are a party to other pending lawsuits or subject to a number of
threatened lawsuits. While the ultimate outcome of pending and threatened
lawsuits and the grand jury investigation cannot be predicted with certainty,
and an unfavorable outcome could have a negative impact on us, at this time in
the opinion of management, the ultimate resolution of these matters will not
have a material effect on our consolidated financial position, results of
operations or liquidity.
IF WE CANNOT SUCCESSFULLY DEVELOP OR OBTAIN FUTURE PRODUCTS, OUR GROWTH MAY
BE DELAYED.
Our future growth will depend, in large part, upon our ability to
develop or obtain and commercialize new products and new formulations of or
indications for current products. We are engaged in an active research and
development program involving compounds owned by us or licensed from others
which we may commercially develop in the future. Although Schering-Plough
has received regulatory approvals for the sale of oral ribavirin for
treatment of chronic hepatitis C in combination with Schering-Plough's
alpha interferon and pegylated interferon, there can be no assurance that
we will be able to develop or acquire new products, obtain regulatory
approvals to use these products for proposed or new clinical indications,
manufacture our potential products in commercial volumes or gain market
acceptance for such products. It may be necessary for us to enter into
other licensing arrangements, similar to our arrangement with
Schering-Plough, with other pharmaceutical companies in order to market
effectively any new products or new indications for existing products.
There can be no assurance that we will be successful in entering into such
licensing arrangements on terms favorable to us or at all. We have granted
Schering-Plough an option or right of first/last refusal to license various
compounds we may develop.
In June 2001, Ribapharm licensed Levovirin(TM), a compound that is
currently in Phase I clinical trials for the treatment of hepatitis C, to F.
Hoffmann-La Roche. Ribapharm will receive a one time licensing fee and be
eligible to receive milestone payments. Roche will be responsible for all future
developmental costs of Levoririn. If Levovirin is successfully developed and
receives regulatory approval, Ribapharm will be entitled to receive royalty
payments. In that case, it is expected that Levovirin will be used in
combination therapy with Pegasys, Roche's pegylated version of interferon alpha
2a. In addition, Roche licensed to us a compound that is at a similar stage of
development. We will be
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responsible for the development costs of this compound, milestone payments
and royalties if the compound is successfully developed. See "-- Our
flexibility in maximizing commercialization opportunities for our compounds
may be limited by our obligations to Schering-Plough."
IF OUR INTELLECTUAL PROPERTY RIGHTS EXPIRE OR ARE NOT BROAD ENOUGH, THIRD
PARTIES MAY BE ABLE TO SELL GENERIC FORMS OF OUR PRODUCTS.
We depend, in part, on the protection afforded by our patents
relating to ribavirin for market exclusivity. In particular, if generic
forms of ribavirin are permitted to be sold, both the volume of sales and
the price Schering-Plough charges for the combination therapy may decrease
significantly. As a result, our royalty revenues may decrease.
Schering-Plough currently has regulatory protection under the
Waxman-Hatch Act in the United States for the treatment of hepatitis C
using the combination therapy. This protection means that the FDA cannot
approve an abbreviated application for a generic form of the combination
therapy until December 2001. Schering-Plough is currently conducting
pediatric studies for the use of the combination therapy that, if completed
in accordance with FDA requirements, may extend this regulatory protection
until June 2002. In addition, Schering-Plough obtained a U.S. patent
covering the combination therapy in January 2001 that may provide
additional protection against competition.
We also have three issued U.S. patents that relate to methods of
using ribavirin in dosages that can enhance a patient's immune system in a
manner that is particularly useful for treating hepatitis C in combination
with interferon alpha. We believe these protections may provide additional
patent protection for the combination therapy. These patents all expire in
January 2016.
We have patents in foreign countries relating to various
antiviral uses of ribavirin. Coverage and expiration of these patents vary,
with patents expiring at various times through June 2005. We have no, or
limited, patent rights relating to the antiviral use of ribavirin in
selected foreign countries where ribavirin is currently, or in the future
may be, approved for commercial sale. These include countries in the
European Union. However, the use of oral forms of ribavirin for the
combination therapy was granted a favorable review classification by the
European Union. This classification may make it more difficult for
competing drugs not previously approved to gain entry to the European
markets.
In addition, the expiration of U.S. patent rights relating to
Adenazole between May 2008 and December 2015, Tiazole in February 2005, and
any subsequently issued patents relating to Levovirin and Viramidine or
other products, may result in competition from other drug manufacturers.
The FDA has granted Tiazole orphan drug designation for treatment of the
late stages of a form of leukemia. In May 2001, Novartis announced that it
received FDA approval to market its product Gleevec for the treatment of
chronic myelgoneous leukemia, including the blast crisis stage. This
development could adversely affect our ability to obtain approval for this
indication.
Some of the compounds in our nucleoside analog library may have
been patented previously or otherwise disclosed to the public. This would
prevent us from obtaining patent protection for the compounds themselves.
In these cases, we intend to seek patent protection for our intended uses
of these compounds and/or for derivatives of these compounds.
You should be aware that the existence of a patent will not
necessarily protect us from competition. Competitors may successfully
challenge our patents, produce similar drugs that do not infringe our
patents or produce drugs in countries that do not respect our patents.
IF WE OR OUR STRATEGIC PARTNERS OR LICENSEES INFRINGE OR MISAPPROPRIATE THE
PROPRIETARY RIGHTS OF OTHERS, WE COULD BE PREVENTED FROM MAKING OR SELLING
OUR PRODUCTS.
Our success will depend, in part, on our ability and the ability
of any strategic partners and licensees, including Schering-Plough, to
operate without infringing on or misappropriating the proprietary rights of
others. In January 2000, F. Hoffmann-La Roche filed lawsuits against
Schering-Plough in the United States District Court in
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New Jersey and in France. These lawsuits allege that Schering-Plough's
pegylated interferon infringes F. Hoffmann-La Roche's patents on pegylated
interferon. If Schering-Plough loses either of these lawsuits, it may not
be able to market a combination therapy of pegylated interferon and
ribavirin.
BECAUSE OF AN ONGOING DISPUTE INVOLVING OUR INTEREST IN A YUGOSLAVIAN JOINT
VENTURE, OUR RIGHTS TO COMMERCIALIZE TIAZOLE AND ADENAZOLE MAY BE LIMITED.
In connection with the restructuring, we contributed to Ribapharm
our rights related to Tiazole and Adenazole. These are two of the four
compounds in Ribapharm's product development pipeline. However, we are
involved in litigation with the Republic of Serbia, the Federal Republic of
Yugoslavia and the State Health Fund of the Republic of Serbia that could
impact these rights. We have taken the position in this litigation that
rights related to Tiazole and Adenazole were previously validly transferred
to ICN Yugoslavia, a joint venture between us and Yugoslavian entities.
Depending on the resolution of this litigation, Ribapharm may not have
valid rights related to Tiazole and Adenazole. Ribapharm may be required to
obtain licenses from, or grant licenses to, third parties prior to any
effort by Ribapharm to commercialize these products. It may be difficult
for Ribapharm to license Tiazole and Adenazole to third parties for
commercialization if rights related to these compounds remain unclear.
As a result of the changing political environment in Yugoslavia,
we are attempting to regain control of ICN Yugoslavia. There can be no
assurance that we will be successful in our efforts. See "-- We generate
significant revenue from operations in emerging markets in which political
and economic instability and foreign currency risk present numerous risks
for our business."
OBTAINING NECESSARY GOVERNMENT APPROVALS IS TIME CONSUMING AND NOT ASSURED.
FDA approval must be obtained in the United States and approval
must be obtained from comparable agencies in other countries prior to
marketing or manufacturing new pharmaceutical products for use by humans.
Obtaining FDA approval for new products and manufacturing processes can
take a number of years and involves the expenditure of substantial
resources. Numerous requirements must be satisfied, including preliminary
testing programs on animals and subsequent clinical testing programs on
humans, to establish product safety and efficacy. No assurance can be given
that authorization of the commercial sale of any new drugs or compounds by
either of us for any application, or of existing drugs or compounds for new
applications, will be secured in the United States or any other country, or
that, if such authorization is secured, the approved labeling will not have
significant labeling limitations that could affect profitability or those
drugs or compounds will be commercially successful.
The FDA and other regulatory agencies in other countries also
periodically inspect manufacturing facilities. Failure to comply with
applicable regulatory requirements can result in, among other things,
sanctions, fines, delays or suspensions of approvals, seizures or recalls
of products, operating restrictions, manufacturing interruptions, costly
corrective actions, injunctions, adverse publicity against us and our
products and criminal prosecutions. Furthermore, changes in existing
regulations or adoption of new regulations could prevent or delay us from
obtaining future regulatory approvals or jeopardize existing approvals.
We are subject to price control restrictions on our
pharmaceutical products in the majority of countries in which we operate.
To date, we have been affected by pricing adjustments in Spain and by the
lag in allowed price increases in Russia and Mexico, which have impacted
sales in United States dollars and reduced gross profit. Our future sales
and gross profit could be materially affected if we are unable to obtain
price increases commensurate with the levels of inflation.
BECAUSE OUR EFFORTS TO DISCOVER, DEVELOP AND COMMERCIALIZE NEW PRODUCT
CANDIDATES FROM OUR NUCLEOSIDE ANALOG LIBRARY ARE IN A VERY EARLY STAGE,
THESE EFFORTS ARE SUBJECT TO HIGH RISK OF FAILURE.
A key component of our strategy is to discover, develop and
commercialize new product candidates using our nucleoside analog library.
The process of successfully commercializing product candidates is very time
consuming, expensive and unpredictable. We have only recently begun to
direct significant efforts toward the expansion of our scientific staff and
research capabilities in order to pursue this strategy.
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We may not identify any additional compounds from the library
that we believe have sufficient commercial promise to warrant further
development. Furthermore, compounds selected from the library for
development may not be patentable. Also, our development work may not
identify patentable uses.
Clinical trials may not demonstrate that our products are safe or
effective. Even if we successfully complete clinical trials, we may not be
able to obtain the required regulatory approvals to commercialize any
product candidate or the approval may impose labelling or marketing
restrictions which could materially impact potential profitability. For
example, prior to its approval as part of the combination therapy to treat
hepatitis C patients, the FDA denied our request for regulatory approval to
market ribavirin as a monotherapy to treat hepatitis C. If we gain
regulatory approval for a product, the approval will be limited to those
diseases for which our clinical trials demonstrate the product is safe and
effective. To date, ribavirin is our only internally discovered product
that has received regulatory approval for commercial sale.
IF OUR PRODUCTS ARE ALLEGED TO BE HARMFUL, WE MAY NOT BE ABLE TO SELL THEM
AND WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE.
The nature of our business exposes us to potential liability
risks inherent in the testing, manufacturing and marketing of
pharmaceutical products. Using our drug candidates in clinical trials may
expose us to product liability claims. These risks will expand with respect
to drugs, if any, that receive regulatory approval for commercial sale.
Even if a drug were approved for commercial use by an appropriate
governmental agency, there can be no assurance that users will not claim
that effects other than those intended may result from our products. We
generally self-insure against potential product liability exposure with
respect to our marketed products, including ribavirin. While to date no
material adverse claim for personal injury resulting from allegedly
defective products, including ribavirin, has been successfully maintained
against us, a substantial claim, if successful, could have a negative
impact on us.
In the event that anyone alleges that any of our products are
harmful, we may experience reduced consumer demand for our products or our
products may be recalled from the market. In addition, we may be forced to
defend lawsuits and, if unsuccessful, to pay a substantial amount in
damages. We do not currently have insurance against product liability
risks. Insurance is expensive and, if we seek insurance in the future, it
may not be available on acceptable terms. Even if obtained, insurance may
not fully protect us against potential product liability claims.
We and each of our subsidiaries, including Ribapharm, maintains
insurance covering normal business operations, including fire, property and
casualty protection. Additionally, we carry a blanket insurance policy that
provides protection against loss not covered by local insurance policies.
We do not carry insurance that covers political risk, nationalization, or
losses resulting from anti-government violence.
In addition, our research and development activities involve the
controlled use of potentially harmful biological materials as well as
hazardous materials, chemicals and various radioactive compounds. We cannot
completely eliminate the risk of accidental contamination or injury from
the use, storage, handling or disposal of these materials. In the event of
contamination or injury, we could be held liable for damages that result.
Any liability could exceed our resources. We are subject to federal, state
and local laws and regulations governing the use, storage, handling and
disposal of these materials and specified waste products. The cost of
compliance with, or any potential violation of, these laws and regulations
could be significant. Any insurance we maintain may not be adequate to
cover our losses.
OUR FLEXIBILITY IN MAXIMIZING COMMERCIALIZATION OPPORTUNITIES FOR OUR
COMPOUNDS MAY BE LIMITED BY OUR OBLIGATIONS TO SCHERING-PLOUGH.
In November 2000, we entered into an agreement that provides
Schering-Plough with an option or right of first/last refusal to license
various compounds we may develop. This agreement was entered into as part
of a resolution of claims asserted by Schering-Plough against us regarding
our alleged improper hiring of several former Schering-Plough research and
development personnel and claims that our license agreement with
Schering-Plough precluded us from conducting hepatitis C research. We have
complied with the terms of this agreement. The interest of potential
collaborators in obtaining rights to our compounds or the terms of any
agreements we ultimately enter into for these rights may be impacted by
this agreement. Furthermore, a commercialization partner other than
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Schering-Plough might have otherwise been preferable due to that potential
partner's strength in a given disease area or geographic region or for
other reasons.
In June 2001, Ribapharm licensed Levovirin to F. Hoffmann-La
Roche. Our agreement with Schering-Plough granted Schering-Plough a right
of first/last refusal to license Levovirin. Although we believe we have
complied with our obligations under the right of first/last refusal,
Schering-Plough may allege that we have not complied with these obligations
as to Levovirin.
WE ARE SUBJECT TO UNCERTAINTY RELATED TO HEALTH CARE REFORM MEASURES AND
REIMBURSEMENT POLICIES.
The levels at which government authorities, private health
insurers, HMOs and other organizations reimburse the costs of drugs and
treatments related to those drugs will have an effect on the successful
commercialization of our drug candidates. We cannot be sure that
reimbursement in the United States or elsewhere will be available for any
drugs we may develop or, if already available, will not be decreased in the
future. Also, we cannot be sure that reimbursement amounts will not reduce
the demand for, or the price of, our drugs. If reimbursement is not
available or is available only to limited levels, we may not be able to
obtain a satisfactory financial return on the manufacture and
commercialization of any future drugs. In addition, as a result of the
trend towards managed health care in the United States, as well as
legislative proposals to reduce government insurance programs, third party
payors are increasingly attempting to contain health care costs by limiting
both coverage and the level of reimbursement of new drug products.
Consequently, significant uncertainty exists as to the reimbursement status
of newly-approved health care products. Third-party payors may not
establish and maintain price levels sufficient for us to realize an
appropriate return on our investment in product development.
IF OUR NUCLEOSIDE ANALOG LIBRARY IS DESTROYED BECAUSE OF AN EARTHQUAKE OR
OTHER DISASTER, OUR RESEARCH AND DEVELOPMENT PROGRAM WILL BE SERIOUSLY
HARMED.
The laboratory books and the compounds that comprise our
nucleoside analog library are all located at our headquarters in Costa
Mesa, California, near areas where earthquakes have occurred in the past.
There are no duplicate copies off-premises and there are no backup copies
of the product candidates we are currently developing. No duplicate copies
of our nucleoside analog library exist because making copies would be
prohibitively expensive and the library has not been moved off-site because
our scientific staff is currently in the process of screening it. Our
ability to develop potential product candidates from our nucleoside analog
library would be significantly impaired if these records were destroyed in
an earthquake or other disaster. Any insurance we maintain may not be
adequate to cover our losses.
CALIFORNIA'S ENERGY CRISIS COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS.
California has recently experienced an energy crisis that if continues
could disrupt our operations and increase our expenses. When power reserves for
California become low, the state has on some occasions, implemented, and may in
the future continue to implement, rolling blackouts throughout the state.
Although we have emergency backup power generators, if blackouts interrupt our
power supply, we may temporarily be unable to operate our headquarters facility,
including the Ribapharm research facilities. Any such interruption in our
ability to continue operations could damage our reputation and could result in
lost revenue, either of which could substantially harm our business and results
of operations. In addition, the shortages in wholesale electricity supplies have
caused power prices to increase significantly in California. If wholesale prices
continue to increase, our operating expenses will likely increase.
OUR EXISTING INDEBTEDNESS RESTRICTS MANY OF OUR CORPORATE ACTIVITIES,
INCLUDING OUR ABILITY TO OBTAIN FINANCING IN THE FUTURE.
As of March 31, 2001, we and our subsidiaries had approximately
$845,822,000 of consolidated pro forma indebtedness. Subject to
restrictions in our existing indebtedness, we may incur additional
indebtedness from time to time to finance working capital needs,
acquisitions, capital expenditures or for other purposes. There can be no
assurance that financing will continue to be available on terms acceptable
to us or at all. In the absence of such
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financing, our ability to respond to changing business and economic
conditions, to fund scheduled investments and capital expenditures, to make
future acquisitions and to absorb negative operating results may be
adversely affected.
Agreements and instruments governing our existing indebtedness
contain, and future debt instruments may contain, a number of significant
covenants that, among other things, restrict our ability to dispose of
assets, incur additional indebtedness, repay other indebtedness, amend
other debt instruments, pay dividends, create liens on assets, make
investments or acquisitions, engage in mergers or consolidations, make
capital expenditures or engage in certain transactions with subsidiaries
and affiliates, and otherwise restrict certain corporate activities. To the
extent our existing indebtedness is not repaid or the instruments governing
that indebtedness modified, we may be prevented from taking actions that we
otherwise would.
In addition, our ability to comply with the covenants contained
in our existing debt instruments may be affected by events beyond our
control, including prevailing economic, financial and industry conditions.
The breach of any of these covenants or restrictions could result in a
default under our existing debt instruments, which could permit such other
lenders to declare all borrowed amounts due and payable, together with
accrued and unpaid interest. Also, any commitments of the other lenders to
make further extensions of credit could be terminated.
NOTES CONVERTED INTO RIBAPHARM STOCK SUBSEQUENT TO A RIBAPHARM SPIN-OFF COULD
CREATE A SIGNIFICANT TAX LIABILITY FOR US.
Subsequent to a Ribapharm spin-off, the debt discharged upon
conversion of a note into Ribapharm stock may be taxable income to us.
Depending upon the amount of debt that is converted after the spin-off, we
could be required to pay as much as approximately $200 million in U.S.
federal income taxes.
DIFFICULTIES WITH ACQUISITIONS COULD MATERIALLY IMPACT OUR FUTURE GROWTH.
We intend to continue our strategy of targeted expansion through
the acquisition of compatible businesses and product lines and the
formation of strategic alliances, joint ventures and other business
combinations. There can be no assurance that we will successfully complete
or finance any future acquisition or investment. The success or failure in
integrating the operations of companies that we have acquired or may
acquire in the future may have a material impact on our future growth and
success.
DEPENDENCE ON KEY PERSONNEL LEAVES US VULNERABLE TO A NEGATIVE IMPACT IF THEY
LEAVE.
We believe that our continued success will depend to a
significant extent upon the efforts and abilities of the key members of
management. The loss of their services could have a negative impact on us.
We cannot predict what effect, if any, the SEC and the grand jury
investigations of us and Mr. Panic may have on Mr. Panic's ability to
continue to devote services on a full time basis to us. In addition, Mr.
Panic, who served as Prime Minister of Yugoslavia from July 1992 to March
1993, remains active in Yugoslavian politics and may again be asked to
serve in public office in Yugoslavia in the future. There is a risk that in
the future Mr. Panic's political activities may result in a change in
government policy that would be detrimental to our future business
activities, if any, in Yugoslavia. See "-- We are involved in various legal
proceedings that could adversely affect us."
In addition, Ribapharm depends upon the principal members of its
scientific staff, including Dr. Johnson Y.N. Lau. Although Ribapharm will
have employment agreements with some of these individuals, including Dr.
Lau, the loss of services of any of these persons could delay or reduce
Ribapharm's product development and commercialization efforts. Ribapharm's
success depends upon its ability to attract, train, motivate and retain
qualified scientific personnel. Qualified personnel are in great demand
throughout the biotechnology and pharmaceutical industries. Ribapharm
currently plans to expand its research team from 18 scientists on March 1,
2000 to over 120 scientists by the end of 2002. However, Ribapharm may not
be able to attract additional personnel or retain existing employees.
OUR THIRD PARTY MANUFACTURERS' FAILURE TO COMPLY WITH FDA REGULATIONS COULD
CAUSE INTERRUPTION OF THE MANUFACTURE OF OUR PRODUCTS.
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Schering-Plough manufactures the ribavirin sold under license
from us. Our manufacturers are required to adhere to regulations enforced
by the FDA. Our dependence upon others to manufacture our products may
adversely affect our profit margins and our ability to develop and
commercialize products on a timely and competitive basis. Delays or
difficulties with contract manufacturers in producing, packaging or
distributing our products could adversely affect the sales of ribavirin or
introduction of other products.
In February 2001, Schering-Plough announced that the FDA has been
conducting inspections of Schering-Plough's manufacturing facility in Las
Piedras, Puerto Rico that manufactures ribavirin, and has issued reports
citing deficiencies concerning compliance with current Good Manufacturing
Practices, primarily relating to production processes, controls and
procedures. In June 2001, Schering-Plough announced that FDA inspections at
this and one other Schering-Plough facility in May and June 2001 cited
continuing and additional deficiencies in manufacturing practices. While
Schering-Plough has advised us that the deficiencies were not specifically
applicable to the production of ribavirin, any deviations from Good
Manufacturing Practices can affect overall production at that facility.
Schering-Plough's ability to manufacture and ship ribavirin could be
affected by temporary interruption of some production lines to install
system upgrades and further enhance compliance, and other technical
production and equipment qualification issues.
If the FDA is not satisfied with Schering-Plough's responses and
proposed corrective action, the FDA could take regulatory actions against
Schering-Plough, including the seizure of products, an injunction against
further manufacture, a product recall or other actions that could interrupt
production of ribavirin. Interruption of ribavirin production for a
sustained period of time could materially reduce our royalty payments.
IF COMPETITORS DEVELOP MORE EFFECTIVE OR LESS COSTLY DRUGS FOR OUR TARGET
INDICATIONS, OUR BUSINESS COULD BE SERIOUSLY HARMED.
The biotechnology and pharmaceutical industries are intensely
competitive and subject to rapid and significant technological change.
Ribavirin and many of the drugs that we are attempting to discover will be
competing with new and existing therapies. Many companies in the United
States and abroad are pursuing the development of pharmaceuticals that
target the same diseases and conditions that we are targeting. We believe
that a significant number of drugs are currently under development and may
become available in the future for the treatment of hepatitis C, hepatitis
B, HIV and cancer. For example, each of Schering-Plough and F. Hoffmann-La
Roche developed a modified form of interferon, called pegylated interferon,
for the treatment of hepatitis C. In addition, Human Genome Sciences, Inc.
submitted an investigational new drug application with the FDA in October
2000 to initiate phase I human clinical trials of Albuferon for treatment
of hepatitis C. If pegylated interferon, Albuferon or other therapies prove
to be a more effective treatment for hepatitis C than the combination
therapy, then our royalty revenues from Schering-Plough could significantly
decrease.
Many of our competitors, particularly large pharmaceutical
companies, have substantially greater financial, technical and human
resources than we do. We believe that many of our competitors spend
significantly more on research and development related activities than us.
Others may succeed in developing products that are more effective than
those presently marketed or proposed for development by us. Progress by
other researchers in areas similar to those being explored by us may result
in further competitive challenges. We may also face increased competition
from manufacturers of generic pharmaceutical products when the patents
covering some of our currently marketed products expire. In addition,
academic institutions, government agencies, and other public and private
organizations conducting research may seek patent protection with respect
to potentially competitive products. They may also establish exclusive
collaborative or licensing relationships with our competitors.
OUR STOCKHOLDER RIGHTS PLAN AND ANTI-TAKEOVER PROVISIONS OF OUR CHARTER
DOCUMENTS COULD PROVIDE OUR MANAGEMENT OR BOARD OF DIRECTORS WITH THE
ABILITY TO DELAY OR PREVENT A CHANGE IN CONTROL OF US.
Our stockholder rights plan, provisions of our certificate of
incorporation and provisions of the Delaware General Corporation Law could
provide our management or board of directors with the ability to deter
hostile takeovers or delay, deter or prevent a change in control of us,
including transactions in which stockholders might otherwise receive a
premium for their shares over then current market prices.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or
the shares of common stock offered hereby. See "Selling Security Holders."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock trades on the New York Stock Exchange under the
symbol "ICN." The following table sets forth the high and low sale prices
as reported by the New York Stock Exchange during each of the periods
below.
HIGH LOW
---- ---
YEAR ENDING DECEMBER 31, 2001
First Quarter.................................... $ 30 13/16 $ 20 11/16
Second Quarter................................... 34 47/64 23 1/4
Third Quarter through August 8, 2001............. 33 57/64 27
YEAR ENDED DECEMBER 31, 2000
First Quarter.................................... $ 30 $ 18 7/16
Second Quarter................................... 35 13/16 22 5/8
Third Quarter.................................... 34 7/16 22 7/8
Fourth Quarter................................... 41 3/4 25 11/16
YEAR ENDED DECEMBER 31, 1999
First Quarter.................................... $ 27 5/8 $ 20 1/8
Second Quarter................................... 36 3/8 24 1/4
Third Quarter.................................... 33 5/16 16 9/16
Fourth Quarter................................... 27 16 5/8
As of July 31, 2001, there were 7,136 holders of record of our
common stock.
In March 1999, we increased our quarterly per share cash dividend
to 7 cents per share. In April 2000, we increased our quarterly per share
dividend to 7.25 cents per share. In June 2001, we increased our quarterly
per share dividend to 7.5 cents per share.
Our Board of Directors will continue to review our dividend
policy. The amount and timing of any future dividends will depend upon our
financial condition and profitability, the need to retain earnings for use
in the development of our business, contractual restrictions and other
factors. See "Risk Factors - As a result of our restructuring, we may
change our dividend policy."
During 1999, we repurchased through open-market purchases an
aggregate of 614,167 shares of our common stock under our Stock Repurchase
Program for $15,304,000.
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CAPITALIZATION
The following table presents our actual consolidated
capitalization and our actual consolidated capitalization on a pro forma
basis giving effect to the issuance of our 6 1/2% convertible subordinate
notes due 2008 and the redemption of our 9 1/4% senior notes due 2005. On
July 18, 2001, we mailed a notice of redemption with respect to the entire
aggregate principal amount outstanding of our 9 1/4% senior notes due 2005.
Pursuant to the notice, we will redeem our 9 1/4% senior notes on August
17, 2001 at a redemption price of 104.625% of the principal amount thereof,
plus accrued and unpaid interest. On July 18, 2001, we deposited with the
trustee for the indenture under which 9 1/4% senior notes were issued
proceeds sufficient to complete the redemption. This table should be read
in conjunction with our consolidated financial statements and the related
notes incorporated by reference into this prospectus.
AS OF MARCH 31, 2001
----------------------------------
ACTUAL PRO FORMA (4)
------------- -------------------
(in thousands)
Total debt:
8 3/4% Senior Notes due 2008 (1)(2)............................ $ 306,370 $ 306,370
9 1/4% Senior Notes due 2005 (2)............................... 190,645 --
6 1/2% Convertible Subordinated Notes due 2008................. -- 525,000
Other debt....................................................... 14,452 14,452
----------- -----------
Total debt..................................................... $ 511,467 $ 845,822
=========== ===========
Minority interest................................................ $ 9,589 $ 9,589
Stockholders' equity: (3)
Common stock, $.01 par value; 200,000 shares authorized;
80,532 shares outstanding.................................... 805 805
Additional capital............................................. 974,687 974,687
Accumulated deficit (4)........................................ (120,857) (128,794)
Accumulated other comprehensive income......................... (96,585) (96,585)
----------- ------------
Total stockholders' equity.............................. 758,050 750,113
----------- ------------
Total capitalization.................................... $ 1,279,106 $ 1,605,524
=========== ===========
----------
(1) Represents the $200.0 million aggregate principal amount of 8 3/4%
senior notes due 2008 issued in August 1998, less unamortized debt
discount of $2.5 million, and the $125.0 million aggregate principal
amount of 8 3/4% senior notes due 2008 issued on July 20, 1999, less
unamortized discount of $3.3 million. We repurchased $12.8 million
aggregate principal amount of 8 3/4% senior notes during 2000.
(2) In April 2001, we repurchased $3.3 million and $1.7 million aggregate
principal amount of 8 3/4% and 9 1/4% senior notes, respectively. In
July and August 2001, we repurchased an additional $114.2 million
aggregate principal amount of 8 3/4% senior notes.
(3) Does not include 15,326,010 shares of ICN common stock initially
issuable upon conversion of the notes.
(4) Pro forma reflects the issuance of the notes and redemption of the
9 1/4% senior notes due 2005 including the extraordinary loss, net of
tax, of $7.9 million as a result of the redemption of the 9 1/4%
senior notes outstanding as of March 31, 2001.
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SELECTED FINANCIAL DATA
The following table sets forth our selected historical and other
financial data on a consolidated basis for each of the years in the five
year period ended December 31, 2000 and for the three months ended March
31, 2000 and 2001. The selected historical and other financial data for
each of the years in the five year period ended December 31, 2000 were
derived from our audited consolidated financial statements. The statement
of operations data and balance sheet data for the quarters ended March 31,
2000 and 2001 are derived from our unaudited financial statements which, in
the opinion of management, include the adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of our results of
operations and financial position for such periods. The results of
operations for the quarter ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2001 or any other period. The trends in our sales and net income are
affected by several business combinations completed in the fiscal years
1996 through 2000. The information contained in this table should be read
in conjunction with our "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our historical consolidated
financial statements, including the notes thereto, incorporated by
reference into this prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- --------------------------
STATEMENT OF OPERATIONS--CONSOLIDATED 1996 1997 1998 1999 2000 2000 2001
---------- ---------- ---------- ----------- ---------- ----------- -------------
(IN THOUSANDS)
Product sales...................... $614,080 $752,202 $800,639 $638,475 $645,190 $159,340 $171,419
Royalties.......................... -- -- 37,425 108,937 155,114 33,000 27,550
Total revenues..................... 614,080 752,202 838,064 747,412 800,304 192,340 198,969
Gross profit--product sales........ 322,273 400,224 447,039 382,329 382,372 98,574 101,645
Income (loss) from operations(1)... 114,113 125,298 (289,568) 198,857 183,955 52,565 41,198
Interest expense................... 15,780 22,849 38,069 55,943 60,356 15,221 13,017
Extraordinary loss(2).............. -- -- -- -- 3,225 -- --
Net income (loss)(1)............... 86,928 113,924 (352,074) 118,626 90,180 27,399 21,022
OTHER DATA--CONSOLIDATED
(IN THOUSANDS)
Depreciation and amortization...... $17,936 $28,753 $ 51,096 $65,502 $64,540 $15,885 $18,064
Cash flows provided by
(used in):
Operating activities............. (25,548) 9,315 9,624 87,123 181,684 52,981 54,887
Investing activities............. (41,962) (100,096) (295,046) (50,360) (90,795) (10,485) (35,835)
Financing activities............. 82,680 262,675 186,019 36,399 (112,765) (4,790) (5,031)
Ratio of earnings to fixed
Charges(3)(4)(5)................. 5.9x 4.5x -- 3.5x 3.1x 3.5x 3.3x
December 31, March 31,
------------------------------------------------------------------- -----------------------
BALANCE SHEET DATA 1996 1997 1998 1999 2000 2000 2001
--------- ----------- ----------- ---------- ----------- ---------- ---------
(IN THOUSANDS)
Cash.......................... $ 39,366 $ 209,896 $ 104,921 $ 177,577 $ 155,205 $ 215,238 $ 168,939
Working capital............... 306,764 585,606 236,994 424,108 406,639 450,392 385,305
Total assets.................. 778,651 1,491,745 1,356,396 1,472,261 1,477,072 1,496,855 1,467,100
Total debt(2)................. 195,681 348,206 556,489 606,035 511,688 606,032 511,467
Stockholders' equity.......... 315,350 796,328 586,164 683,572 757,194 699,932 758,050
NOTES TO SELECTED FINANCIAL DATA:
(1) As a result of political and economic events in Eastern Europe,
including the Yugoslavian government's seizure of our Yugoslavian
operations effective November 26, 1998, we recorded charges totaling
$451.0 million in the year ended December 31, 1998. Of this amount,
$440.8 million is included in operating expenses, representing the
write-off of our investment in Yugoslavia and related assets ($235.3
million), provisions for losses on accounts and notes receivable
(including accounts and notes receivable from the Yugoslavian
government) ($203.5 million) and the write-off of other investments
($2.0 million). The losses related to Eastern Europe also
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include reductions in the value of inventories ($6.1 million) included in
cost of product sales and a charge against interest ($4.1 million). As a
result of the seizure of our Yugoslavian operation, we deconsolidated the
financial statements of ICN Yugoslavia and are currently accounting for our
ongoing investments using the cost method. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Foreign
Operations" incorporated by reference into this prospectus.
(2) During 2000, we repurchased $84.4 million of our outstanding 9 1/4%
senior notes and $12.8 million of our outstanding 8 3/4% senior notes.
These repurchases generated an extraordinary loss on early
extinguishment of debt of $3.2 million, net of an income tax benefit
of $1.7 million.
(3) Fixed charges consist of interest expense and capitalized interest.
(4) For purposes of determining the ratio of earnings to fixed charges,
earnings consist of income before extraordinary loss, minority
interests, provision (benefit) for income taxes and interest expense.
(5) For the year ended December 31, 1998, we had a deficiency of earnings
compared to our fixed charges of $398.6 million.
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DESCRIPTION OF NOTES
We issued our 6 1/2% convertible subordinated notes due 2008
under an indenture entered into among ICN, Ribapharm and The Bank of New
York, as trustee, on July 18, 2001. The following statements are subject to
the detailed provisions of the indenture and are qualified in their
entirety by reference to the indenture. The indenture is filed as exhibit
to the Registration Statement of which this prospectus is a part.
Particular provisions of the indenture which are referred to in this
prospectus are incorporated by reference into this description as a part of
the statements made, and the statements are qualified in their entirety by
the reference. For purposes of this summary, the terms "ICN" and
"Ribapharm" refer only to ICN Pharmaceuticals, Inc. and Ribapharm Inc.,
respectively, and not to any of their respective subsidiaries. References
to "interest" shall be deemed to include "liquidated damages" unless the
context otherwise requires.
GENERAL
The notes initially represent unsecured general obligations of
ICN, subordinate in right of payment to certain of its obligations as
described under "Subordination of Notes," and are convertible into common
stock of ICN as described under "Conversion." In the event that an initial
public offering of Ribapharm, which we refer to as the "Ribapharm public
offering", is completed or ICN distributes shares of Ribapharm common stock
to ICN's stockholders in a spin-off transaction qualifying for tax free
treatment under Section 355 of the Internal Revenue Code, which we refer to
as the "Ribapharm spin-off", then Ribapharm will become a joint and several
obligor with ICN with respect to the notes. If the Ribapharm spin-off is
completed, the notes will become convertible into common stock of both ICN
and Ribapharm as described below.
Interest on the notes are payable semiannually on January 15 and
July 15 of each year, with the first interest payment to be made on January
15, 2002, at the rate of 6 1/2% per annum, to the persons who are
registered holders of notes at the close of business on the preceding
January 1 and July 1, respectively. Unless previously redeemed, repurchased
or converted, the notes will mature on July 15, 2008. The notes are limited
to $525,000,000 aggregate principal amount. The indenture requires that
payments in respect of the notes held of record by DTC or its nominee
(including notes evidenced by global securities) be made in same day funds.
Payments in respect of the notes held of record by holders other than DTC
may, at the option of ICN and Ribapharm, be made by check and mailed to
such holders of record as shown on the register for the notes.
The notes were issued without coupons in denominations of $1,000
and whole multiples of $1,000. A holder may transfer, exchange or convert
notes in accordance with the indenture. No service charge will be imposed
for any transfer, exchange or conversion of the notes, except for any tax
or other governmental charges that may be imposed in connection with any
transfers, exchanges or conversion. The registrar for the notes need not
transfer or exchange any notes selected for redemption, except the
unredeemed portion of notes being redeemed in part. The registered holder
of a note may be treated as its owner for all purposes.
The trustee is acting as registrar, paying agent and conversion
agent. An additional paying agent, registrar or conversion agent may be
appointed, and any of the foregoing may be changed, without notice. ICN or,
following a Ribapharm public offering or a Ribapharm spin-off, Ribapharm,
may act in any such capacity.
The indenture does not contain any financial covenants or any
restrictions on the ability of ICN or Ribapharm to pay dividends or
repurchase their securities. The indenture does not require ICN or
Ribapharm to maintain any sinking fund or other reserves for repayment of
the notes.
In the event of a Ribapharm public offering or a Ribapharm
spin-off, the notes will become joint and several obligations of ICN and
Ribapharm and holders of notes will be able to look to either ICN or
Ribapharm, or both of them, for satisfaction of all obligations in respect
of the notes. ICN and Ribapharm have agreed between them, however, that
even though both parties would be jointly and severally liable in respect
of the obligations on the notes if one or both of these events were to
occur, ICN will make payments of principal of, premium, if any, and
interest on the notes and other amounts payable in respect of the notes,
other than any liquidated damages that may be payable upon and following a
registration default caused by Ribapharm, as discussed below. ICN and
Ribapharm reserve the right, however, to change the terms of this agreement
so that Ribapharm may become liable, as between ICN and Ribapharm, for all
or part of the obligations on the notes.
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CONVERSION
Holders of notes are entitled at any time before the close of
business on the date of maturity of the notes, subject to prior redemption
or repurchase, to convert the notes, or portions thereof, if the portions
are $1,000 or whole multiples thereof, into 29.1924 shares of ICN common
stock per $1,000 of principal amount of notes, subject to adjustment as
described below. This is equivalent to an initial conversion price of
approximately $34.25 per share. In the event that a Ribapharm spin-off
occurs, the notes will become convertible into shares of common stock of
ICN and Ribapharm in the manner described below. Except as described below,
the number of shares into which a note is convertible will not be adjusted
for dividends on any common stock issued on or prior to conversion.
Fractional shares of common stock will not be issued upon conversion of
notes and instead a check will be delivered in lieu of the fractional share
based upon the market value of the common stock on the last trading day
prior to the conversion date. In the case of notes called for redemption,
conversion rights will expire at the close of business on the business day
immediately preceding the redemption date.
If any notes are converted during the period after any record
date but before the next interest payment date, interest on such
convertible notes will be paid on the next interest payment date,
notwithstanding such conversion, to the holder of record on the record date
of those convertible notes. Any notes that are, however, delivered for
conversion after any record date but before the next interest payment date
must, except as described in the next sentence, be accompanied by a payment
equal to the interest payable on such interest payment date on the
principal amount of notes being converted. The indenture does not require
the payment described in the preceding sentence if, during the period
between a record date and the next interest payment date, a conversion
occurs on or after the date that we have issued a redemption notice and
prior to the date of redemption. If any notes are converted after an
interest payment date but on or before the next record date, no interest
will be paid on those notes. No fractional shares will be issued upon
conversion, but a cash adjustment will be made for fractional shares.
As described elsewhere in this prospectus under the caption
"Summary--Ribapharm--Restructuring," ICN may effect a Ribapharm public
offering prior to a Ribapharm spin-off. No adjustment to the conversion
rate will be made in respect of a Ribapharm public offering. Upon
completion of a Ribapharm spin-off, a holder of the notes will be entitled
to receive, upon conversion of notes, that number of shares of ICN common
stock that would have been issuable to such holder upon conversion
immediately prior to the record date for the Ribapharm spin-off, plus that
number of shares of Ribapharm common stock which the holder would have been
entitled to receive in the Ribapharm spin-off had the holder converted such
notes immediately prior to the record date for the Ribapharm spin-off.
Ribapharm common stock to which a note holder would be entitled upon
conversion after a Ribapharm spin-off may come from ICN, Ribapharm or ICN
and Ribapharm. The holders of notes will not be entitled to receive shares
of Ribapharm common stock if a Ribapharm spin-off is not consummated or in
the event of any other transaction resulting in the separation of Ribapharm
from ICN in which existing ICN stockholders do not participate.
The number of shares of common stock of ICN and, following a
Ribapharm spin-off, Ribapharm, that will be issuable upon conversion of
notes will be subject to adjustment upon the occurrence of the events
described below:
o the issuance of shares of common stock of ICN or, following a
Ribapharm spin-off, Ribapharm, as a dividend or distribution on
the common stock of ICN or Ribapharm, as the case may be;
o the subdivision or combination of the outstanding common stock of
ICN or, following a Ribapharm spin-off, Ribapharm;
o the issuance to substantially all holders of common stock of ICN
or, following a Ribapharm spin-off, Ribapharm, of rights or
warrants to subscribe for or purchase common stock, or securities
convertible into common stock, of ICN or Ribapharm, as the case
may be, at a price per share less than the then current market
price per share determined in accordance with the indenture;
o the distribution of shares of capital stock (other than the
distribution by ICN of common stock of ICN, the distribution by
ICN of common stock of Ribapharm in a Ribapharm spin-off or,
following a Ribapharm spin-off, the distribution by Ribapharm of
Ribapharm common stock), evidences of indebtedness or other
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35
assets, excluding dividends in cash, except as described in
clause (5) below, to all holders of common stock of ICN or
Ribapharm, as the case may be;
o the distribution, by dividend or otherwise, of cash to all
holders of common stock of ICN or, following a Ribapharm
spin-off, Ribapharm, in an aggregate amount that, together with
the aggregate of any other distributions of cash that did not
trigger a conversion rate adjustment to all holders of the common
stock of ICN or Ribapharm, as the case may be, within the 12
months preceding the date fixed for determining the stockholders
entitled to such distribution and all payments representing a
premium to market value, determined in accordance with the
indenture, in respect of each tender offer or other negotiated
transaction by ICN or Ribapharm, as the case may be, or any of
their respective subsidiaries for common stock of ICN or
Ribapharm, as the case may be, concluded within the preceding 12
months not triggering a conversion rate adjustment, exceeds 10%
of the product of the current market price per share (determined
in accordance with the indenture) on the date fixed for the
determination of stockholders entitled to receive such
distribution times the number of shares of common stock of ICN or
Ribapharm, as the case may be, outstanding on that date;
o payments representing a premium to market value, determined in
accordance with the indenture, in respect of a tender offer or
other negotiated transaction by ICN or, following a Ribapharm
spin-off, Ribapharm or any of their respective subsidiaries for
common stock of ICN or Ribapharm, as the case may be, if the
aggregate amount of such payment, together with the aggregate
amount of cash distributions made within the preceding 12 months
not triggering a conversion rate adjustment and all payments
representing a premium to market value, determined in accordance
with the indenture, in respect of each other tender offer or
other negotiated transaction by ICN or Ribapharm, as the case may
be, or any of their respective subsidiaries for common stock of
ICN or Ribapharm, as the case may be, concluded within the
preceding 12 months not triggering a conversion rate adjustment,
exceeds 10% of the product of the current market price per share
on the expiration of the tender offer or the consummation of the
other negotiated transaction, as the case may be, times the
number of shares of common stock of ICN or Ribapharm, as the case
may be, outstanding on that date; and
o the distribution to substantially all holders of common stock of
ICN or, following a Ribapharm spin-off, Ribapharm, of rights or
warrants to subscribe for securities other than those referred to
in the third bulleted paragraph above.
No adjustment of the conversion rate will be made until
cumulative adjustments amount to one percent or more of the then effective
conversion rate, as last adjusted.
If ICN or, following a Ribapharm spin-off, Ribapharm,
reclassifies or changes its outstanding common stock, or consolidates with
or merges into or transfers or leases all or substantially all of its
assets to any person or is party to a merger that reclassifies or changes
its outstanding common stock, other than a Ribapharm spin-off, the notes
will become convertible into the kind and amount of securities, cash or
other assets which the holders of the notes would have owned immediately
after the transaction if the holders had converted the notes immediately
before the effective date of the transaction.
ICN and Ribapharm are permitted to make such increases in the
conversion rate as they, in their discretion, determine to be advisable in
order that any stock dividend, subdivision of shares, distribution or
rights to purchase stock or securities or distribution of securities
convertible into or exchangeable for stock made by them to their
stockholders will not be taxable to the recipients. In addition, ICN or
Ribapharm, as the case may be, are permitted to increase the conversion
rate of the notes for limited periods of time if its Board of Directors
deems it advisable. Any such increase shall be effective for not less than
20 business days. The indenture requires at least 15 days' prior notice to
holders of notes of any increase.
As described elsewhere in this prospectus under the caption
"Summary--ICN International," ICN has announced its intention to sell up to
40% of its interest in its international operations in a global offering.
No adjustment of the conversion rate of the notes will be made in respect
of the ICN International offering.
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Adjustments in the number of shares issuable upon conversion may
in certain circumstances result in constructive distributions that could be
taxable as dividends under the Internal Revenue Code of 1986, as amended,
to holders of notes or to holders of common stock issued upon conversion
thereof. See "Certain United States federal tax consequences--United States
Holders--Dividends on Common Stock."
REDEMPTION
The notes are redeemable on or after July 21, 2004.
No sinking fund is provided for the notes, which means that the
indenture will not require the redemption of notes prior to their stated
maturity.
REDEMPTION AT OPTION OF ICN
The notes are redeemable at the option of ICN, in whole or in
part, at any time on or after July 21, 2004 on any date not less than 30
nor more than 60 days after the mailing of a redemption notice to each
holder of notes to be redeemed at the address of the holder appearing in
the security register. The redemption price for the notes, expressed as a
percentage of principal amount, is as follows:
PERIOD BEGINNING REDEMPTION PRICE
---------------- ----------------
July 21, 2004...................... 103.714%
July 16, 2005...................... 102.786%
July 16, 2006...................... 101.857%
July 16, 2007...................... 100.929%
Accrued interest will also be paid to the redemption date.
The notes will not be redeemable at the option of Ribapharm.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL
Upon any change in control with respect to ICN or, following a
Ribapharm public offering or a Ribapharm spin-off, Ribapharm, each holder
of the notes shall have the right, at the holder's option, to require the
repurchase by ICN or Ribapharm, as the case may be, of all of such holder's
notes or a portion thereof, in a minimum amount of $1,000 or any integral
multiple thereof, on the date that is 45 days after the date of notice, as
described in the next paragraph, at a repurchase price equal to 100% of the
principal amount of such holder's notes tendered for repurchase, plus
accrued and unpaid interest to the repurchase date.
Within 30 days after the occurrence of a change in control, all
holders of record of the notes will be mailed a notice of the occurrence of
such change in control and the repurchase right arising as a result
thereof. A copy of the notice will be delivered to the trustee and a copy
of the notice will be published in The New York Times and The Wall Street
Journal or another newspaper of national circulation. To exercise the
repurchase right, a holder of notes must, on or before the close of
business on the business day immediately preceding the repurchase date,
deliver written notice to ICN and Ribapharm, as the case may be, or an
agent designated by them for that purpose, and the trustee of the holder's
exercise of its repurchase right, together with the notes with respect to
which the repurchase right is being exercised, duly endorsed for transfer.
A "change in control" of ICN or, following the earlier of a
Ribapharm public offering or a Ribapharm spin-off, Ribapharm, as the case
may be, means:
o the acquisition by any person, entity or "group," within the
meaning of Section 13(d)(3) or 14(d)(2) under the Exchange Act of
beneficial ownership, within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 50% or more of the voting
power of the total outstanding voting stock of ICN or Ribapharm,
as the case may be;
o persons who constitute the Board of Directors which is referred to
as the "incumbent board" of ICN as of the
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date of the indenture which shall be deemed to include any person
determined to have been elected at ICN's 2001 annual meeting of
stockholders or of Ribapharm as of the effective date of the
earlier of a Ribapharm public offering or a Ribapharm spin-off,
cease for any reason to constitute at least a majority of the
Board of Directors of ICN or Ribapharm, as the case may be,
provided that any person subsequently becoming a director whose
election, or nomination for election by stockholders, was
approved by a vote of at least a majority of the directors then
comprising the incumbent board of ICN or Ribapharm, as the case
may be, shall be considered as though that person were a member
of the incumbent board;
o approval by the stockholders of a reorganization, merger or
consolidation of ICN or Ribapharm, as the case may be, in each
case, with respect to which persons who were stockholders of ICN
or Ribapharm, as the case may be, immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, beneficially own shares sufficient to elect a
majority of directors of the reorganized, merged or consolidated
company, provided that the failure of ICN to beneficially own
shares sufficient to elect a majority of directors of Ribapharm
following a Ribapharm public offering or a Ribapharm spin-off
shall not be deemed to constitute a change in control pursuant to
this provision; or
o a liquidation or dissolution of ICN or Ribapharm, as the case may
be other than pursuant to the United States Bankruptcy Code, or
the conveyance, transfer or leasing of all or substantially all
of the assets of ICN or Ribapharm, as the case may be, to any
person, provided that a Ribapharm Public Offering or a Ribapharm
Spin-Off shall not be deemed to constitute a change in control
pursuant to this provision.
No quantitative or other established meaning has been given to
the phrase "all or substantially all", which appears in the definition of
change in control, by courts which have interpreted this phrase in various
contexts. In interpreting this phrase, courts make a subjective
determination as to the portion of assets conveyed, considering such
factors as the value of assets conveyed and the proportion of an entity's
income derived from the assets conveyed. To the extent the meaning of such
phrase is uncertain, it may be uncertain whether a change in control has
occurred and, accordingly, whether the holders of notes have the right to
require the repurchase of their notes.
The occurrence of a change in control might, under the terms of
other indebtedness incurred by ICN or Ribapharm from time to time, permit
the lenders to require prepayment of some or all amounts outstanding under
their respective debt agreements. See "Capitalization." In the event of a
change in control, any repurchase of the notes could, absent waiver or
payment in full of any amounts outstanding under such indebtedness or
credit facilities, be prevented. See "-- Subordination of notes." The
failure to repurchase the notes when required would result in an event of
default with respect to the notes whether or not such repurchase is
permitted by the lenders. The obligation to repurchase notes could delay or
deter a change in control of ICN or Ribapharm, even if such change in
control were supported by its board of directors.
If a change in control occurs, there can be no assurance that ICN
or Ribapharm would have sufficient funds or financing to repay any senior
indebtedness then required to be repaid or to repurchase any or all notes
then required to be repurchased under the indenture. If an offer is made to
repurchase notes as a result of a change in control, ICN and Ribapharm
intend to comply with all tender offer rules, including but not limited to
Section 13(e) and 14(e) under the Exchange Act and Rules 13e-4 and 14e-1
thereunder, to the extent applicable to the offer.
SUBORDINATION OF NOTES
Upon any distribution to creditors of ICN or, following a
Ribapharm public offering or a Ribapharm spin-off, Ribapharm, in a
liquidation or dissolution of ICN or Ribapharm, as the case may be, or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to ICN or, following a Ribapharm public offering or a Ribapharm
spin-off, Ribapharm, or their respective properties, the payment of all
amounts due on the notes, other than cash payments due upon conversion in
lieu of fractional shares, will be subordinated, to the extent provided in
the indenture, in right of payment to the prior payment in full of all
senior indebtedness of ICN or, following a Ribapharm public offering or a
Ribapharm spin-off, Ribapharm, as the case may be.
ICN will not pay, directly or indirectly, any amount due on the
notes, including any repurchase price pursuant to the exercise of the
repurchase right, or acquire any of the notes, in the following
circumstances:
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o if any default in payment of principal, premium, if any, or
interest on senior indebtedness of ICN exists, unless and until
the default has been cured or waived or has ceased to exist;
o if any default, other than a default in payment of principal,
premium, if any, or interest, has occurred with respect to senior
indebtedness of ICN and that default permits the holders of the
senior indebtedness to accelerate its maturity, until the
expiration of the "payment blockage period" described below
unless the default has been cured or waived or has ceased to
exist; or
o if the maturity of senior indebtedness of ICN has been
accelerated, until the senior indebtedness has been paid or the
acceleration has been cured or waived.
Following a Ribapharm public offering or a Ribapharm spin-off,
the obligations of Ribapharm to make payments in respect of the notes will
be similarly subordinated to senior indebtedness of Ribapharm.
A "payment blockage period" is a period of 180 days that begins
on the date that ICN or, following a Ribapharm public offering or a
Ribapharm spin-off, Ribapharm, as the case may be, receives a written
notice from any holder of senior indebtedness or a holder's representative,
or from a trustee under an indenture under which senior indebtedness has
been issued, that an event of default with respect to and as defined under
any senior indebtedness, other than default in payment of the principal of,
or premium, if any, or interest on any senior indebtedness, which event of
default permits the holders of senior indebtedness to accelerate its
maturity has occurred and is continuing. However, if the maturity of such
senior indebtedness is accelerated, no payment may be made on the notes
until the senior indebtedness that has matured has been paid or such
acceleration has been cured or waived.
Senior indebtedness is defined in the indenture as all
indebtedness of ICN or, following a Ribapharm public offering or a
Ribapharm spin-off, Ribapharm, as the case may be, outstanding at any time
except indebtedness that by its terms is subordinate in right of payment to
the notes or indebtedness that is not otherwise senior in right of payment
to the notes. Senior indebtedness does not include indebtedness of ICN or
Ribapharm, as the case may be, to any of their subsidiaries.
Indebtedness is defined with respect to any person as the
principal of, and premium, if any, and interest on
o all indebtedness of that person for borrowed money, including all
indebtedness evidenced by notes, bonds, debentures or other
securities sold by that person for money;
o all debt obligations incurred by that person in the acquisition
(whether by way of purchase, merger, consolidation or otherwise
and whether by such person or another person) of any business,
real property or other assets (except inventory and related items
acquired in the ordinary course of the conduct of the acquiror's
usual business);
o guarantees by that person of indebtedness described in the first
or second bullet of another person;
o all renewals, extensions, refundings, deferrals, restructurings,
amendments and modifications of any indebtedness, obligation or
guarantee;
o all reimbursement obligations of that person with respect to
letters of credit, bankers' acceptances or similar facilities
issued for the account of that person;
o all capital lease obligations of that person; and
o all net obligations of that person under interest rate swap,
currency exchange or similar agreements of that person.
By reason of the subordination provisions described above, in the
event of insolvency, funds which may otherwise be payable to noteholders
will be paid to the holders of senior indebtedness to the extent necessary
to pay senior indebtedness in full.
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The notes are obligations of ICN and, following a Ribapharm
public offering or a Ribapharm spin-off, will be obligations of ICN and
Ribapharm. Substantial operations of ICN are currently and are expected in
the future to be conducted through subsidiaries, which are separate and
distinct legal entities and have no obligation, contingent or otherwise, to
pay any amounts due pursuant to the notes or to make any funds available
therefor, whether by dividends, loans or other payments. Although Ribapharm
does not currently conduct its operations through subsidiaries, it may do
so in the future. The payment of dividends and certain loans and advances
to ICN or Ribapharm by subsidiaries may be subject to certain statutory or
contractual restrictions, are contingent upon the earnings of such
subsidiaries and are subject to various business considerations.
The notes are effectively subordinated to all indebtedness and
other liabilities and commitments, including trade payables and lease
obligations, of the subsidiaries of ICN and, following a Ribapharm public
offering or a Ribapharm spin-off, the subsidiaries of Ribapharm, to the
extent of the assets of the subsidiaries, except that following a Ribapharm
public offering or a Ribapharm spin-off, Ribapharm would be jointly and
severally liable for the obligations under the notes. Any right of ICN or
Ribapharm to receive assets of any subsidiary upon the liquidation or
reorganization of any such subsidiary, and the consequent right of the
holders of the notes to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, except to the
extent that ICN or Ribapharm is itself recognized as a creditor of the
subsidiary, in which case the claims of ICN or Ribapharm would still be
subordinate to any security in the assets of the subsidiary and any
indebtedness of the subsidiary senior to that held by it.
There are no restrictions in the indenture upon the creation of
additional senior or other indebtedness by ICN or Ribapharm or any of their
subsidiaries. As of March 31, 2001, ICN and its subsidiaries had
approximately $511,467,000 of consolidated indebtedness to which the notes
would be effectively subordinated. Ribapharm currently has no indebtedness.
After a Ribapharm public offering, Ribapharm intends to borrow up to $25
million from ICN, which will be senior to the notes.
MERGER OR CONSOLIDATION
The indenture does not permit either ICN or, following a
Ribapharm public offering or a Ribapharm spin-off, Ribapharm, to
consolidate with, or merge into, or transfer or lease all or substantially
all of its assets to, another person unless such other person is a
corporation, limited liability company or other entity organized under the
laws of the United States, any State thereof or the District of Columbia
and the person assumes by supplemental indenture or other written
instrument all of the obligations of ICN or Ribapharm, as the case may be,
under the notes and the indenture, and immediately after giving effect to
the transaction, no default shall exist. A Ribapharm public offering or a
Ribapharm spin-off shall not be deemed to constitute the transfer of all or
substantially all of the assets of ICN for this purpose.
RULE 144A INFORMATION REQUIREMENT
ICN and, following a Ribapharm public offering or a Ribapharm
spin-off, Ribapharm have agreed to furnish to the holders or beneficial
holders of the notes and prospective purchasers of the notes designated by
the holders of the notes, upon their request, the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act until the
time the notes and the underlying common stock are registered for resale
under the Securities Act. In addition, ICN and, following a Ribapharm
public offering or a Ribapharm spin-off, Ribapharm have agreed to furnish
the information if, at any time while the notes are restricted securities
within the meaning of the Securities Act, they are not subject to the
informational requirements of the Exchange Act. Furthermore, following a
Ribapharm spin-off, Ribapharm has agreed to furnish the information if, at
any time while the common stock issuable upon conversion of the notes are
restricted securities within the meaning of the Securities Act, they are
not subject to the informational requirements of the Exchange Act.
DEFAULTS AND REMEDIES
An event of default includes the occurrence of any of the
following:
o default for 30 days in payment of interest or liquidated damages
on the notes;
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o default in payment of principal at maturity, upon redemption or
exercise of a repurchase right or otherwise;
o the failure by ICN or, following a Ribapharm public offering or a
Ribapharm spin-off, Ribapharm, for 60 days after notice to ICN or
Ribapharm, as the case may be, to comply with any of its other
agreements in the indenture or the notes; and
o certain events of bankruptcy or insolvency involving ICN or,
following a Ribapharm public offering or a Ribapharm spin-off,
Ribapharm, or any of their subsidiaries that constitutes a
"significant subsidiary" within the meaning of the Securities
Act.
If an event of default occurs and is continuing, the trustee or
the holders of at least 25% in principal amount of the notes may declare
all the notes to be due and payable immediately, except for defaults due to
certain events of bankruptcy or insolvency involving ICN or, following a
Ribapharm public offering or a Ribapharm spin-off, Ribapharm, in which case
if an event of default occurs and is continuing, the aggregate outstanding
principal amount of the notes shall automatically become immediately due
and payable. The trustee may require indemnity satisfactory to it before it
enforces the indenture or the notes. Subject to some limitations, holders
of a majority in principal amount of the notes may direct the trustee in
its exercise of any trust power. The trustee may withhold notice of any
default, except a default in payment of amounts due, if it determines that
withholding notice is in the interests of the holders of the notes. ICN
and, following a Ribapharm public offering or a Ribapharm spin-off,
Ribapharm are required to file with the trustee annually an officers'
statement as to the absence of defaults in fulfilling any of their
obligations under the indenture.
MODIFICATIONS OF THE INDENTURE
Except as provided below, the indenture may be amended without
notice to any note holder but with the written consent of the holders of a
majority in principal amount of the outstanding notes. Without the consent
of each note holder affected, an amendment may not:
o reduce the amount of notes whose holders must consent to an
amendment;
o reduce the rate or change the time for payment of interest on any
note;
o reduce the principal of or change the fixed maturity of any note
(including, without limitation, the optional redemption
provisions);
o make any note payable in money other than that stated in the
note;
o change the provisions of the indenture regarding the right of a
majority of the note holders to waive defaults under the
indenture or impair the right of any note holder to institute
suit for the enforcement of any payment of principal and interest
on the notes on and after their respective due dates; or
o make any change that adversely affects the rights to convert any
note or to require the repurchase of any note upon a change in
control.
In addition, without the consent of any note holder, the
indenture may be amended or supplemented to, among other things, cure any
ambiguity, omission, defect or inconsistency or to make any change that
does not adversely affect the rights of any note holder.
SATISFACTION AND DISCHARGE OF INDENTURE
The indenture will be discharged and canceled upon the
satisfaction of certain conditions, including the payment of all the notes
or the deposit with the trustee, within not more than one year prior to the
maturity of the notes or within not more than one year of redemption of all
of the notes, of funds sufficient for such payment or redemption.
REPORTS TO TRUSTEE
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ICN and, following a Ribapharm public offering or a Ribapharm
spin-off, Ribapharm, will regularly furnish to the trustee copies of their
annual report to stockholders, containing audited financial statements, and
any other financial reports which they furnish to their stockholders.
TRUSTEE AND TRANSFER AGENT
The trustee and transfer agent for the notes is The Bank of New
York.
BOOK ENTRY
The notes are evidenced by one or more global securities
representing notes issued in reliance on Rule 144A under the Securities
Act, a global security representing notes issued in reliance on Regulation
S under the Securities Act and a global security representing notes issued
to institutional "accredited investors", as defined in Rule 501 under the
Securities Act. Ownership of beneficial interests in a global security will
be limited to persons that have accounts with the depositary
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests by participants in a global security will
be shown on, and the transfer of that ownership interest will be effected
only through, records maintained by the depositary for such global
security. Ownership of beneficial interests in such global security by
persons that hold through participants will be shown on, and the transfer
of that ownership interest through such participant will be effected only
through, records maintained by such participant. This may impair the
ability to transfer beneficial interests in a global security.
Payment of all amounts due on notes represented by any such
global security will be made to the depositary or its nominee, as the case
may be, as the sole holder of the notes represented thereby for all
purposes under the indenture. None of ICN, Ribapharm, the trustee, any
agent of ICN, Ribapharm or the trustee or the initial purchaser will have
any responsibility or liability for any aspect of the depositary's records
relating to or payments made on account of beneficial ownership interests
in any global security representing any notes or for maintaining,
supervising or reviewing any of the depositary's records relating to such
beneficial ownership interests.
ICN and Ribapharm have been advised by the depositary that, upon
receipt of any payment on any global security, the depositary will
immediately credit, on its book-entry registration and transfer system, the
accounts of participants with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such global
security as shown on the records of the depositary. Payments by
participants to owners of beneficial interests in a global security held
through such participants will be governed by standing instructions and
customary practices as is now the case with securities held for customer
accounts registered in "street name," and will be the sole responsibility
of such participants.
A global security may not be transferred except as a whole by the
depositary for such global security to a nominee of such depositary or by a
nominee of such depositary to such depositary or another nominee of such
depositary or by such depositary or any such nominee to a successor of such
depositary or a nominee of such successor. If the depositary is at any time
unwilling or unable to continue as depositary and a successor depositary is
not appointed by ICN and Ribapharm or the depositary within 90 days, ICN
and Ribapharm will issue notes in definitive form in exchange for the
global security. In either instance, an owner of a beneficial interest in
the global security will be entitled to have notes equal in principal
amount to such beneficial interest registered in its name and will be
entitled to physical delivery of such notes in definitive form. Notes so
issued in definitive form will be issued in denominations of $1,000 and
integral multiples thereof and will be issued in registered form only,
without coupons. Amounts due on the notes will be payable, and the notes
may be presented for registration of transfer or exchange, at the offices
of the trustee.
So long as the depositary for a global security, or its nominee,
is the registered owner of such global security, the depositary or nominee,
as the case may be, will be considered the sole holder of the notes
represented by the global security for the purposes of receiving payment on
the notes, receiving notices and for all other purposes under the indenture
and the notes. Beneficial interests in notes will be evidenced only by, and
transfers thereof will be effected only through, records maintained by the
depositary and its participants. Cede & Co. has been appointed as the
nominee of the depositary. Except as provided above, owners of beneficial
interests in a global security will not be entitled to and will not be
considered the holders thereof for any purposes under the indenture.
Accordingly any person owning a beneficial interest in a global security
must rely on the procedures of the
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depositary, and, if any person is not a participant, on the procedures of
the participant through which that person owns its interest, to exercise
any rights of a holder under the indenture. The indenture provides that the
depositary may grant proxies and otherwise authorize participants to give
or to take any request, demand, authorization, direction, notice, consent,
waiver or other action which a holder is entitled to give or take under the
indenture. ICN and Ribapharm understand that under existing industry
practices, in the event that they request any action of holders or that an
owner of a beneficial interest in a global security desires to give or take
any action which a holder is entitled to give or take under the indenture,
the depositary would authorize the participants holding the relevant
beneficial interest to give or take the action and participants would
authorize beneficial owners owning through the participants to give or take
the action or would otherwise act upon the instructions of beneficial
owners owning through them.
The Depository Trust Company has been appointed as the initial
depositary. DTC has advised ICN and Ribapharm that it is a limited-purpose
trust company organized under the laws of the State of New York, a member
of the Federal Reserve System, a "clearing corporation" within the meaning
of the New York Uniform Commercial Code, and a "clearing agency" registered
under the Exchange Act. DTC was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the
need for physical movement of securities certificates. DTC's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations, some of whom, and/or their
representatives, own the depositary. Access to DTC's book-entry system is
also available to others, such as banks, brokers, dealers and trust
companies, that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Beneficial interests in any global security may be exchanged for
beneficial interests in any other global security only in connection with a
transfer of such interest. Transfers are subject to compliance with
customary certification requirements which are set forth in the indenture.
Any beneficial interest in one of the global securities that is
exchanged for an interest in any other global security will cease to be an
interest in such global security and will become an interest in such other
global security. Accordingly, such interest will thereafter be subject to
all transfer restrictions and other procedures applicable to beneficial
interests in such other global security for as long as it remains such an
interest. Any exchange of a beneficial interest in one global security for
a beneficial interest in any other global security will be effected by DTC
by means of an instruction originated by the trustee through its
Deposit/Withdraw at Custodian ("DWAC") system. Accordingly, in connection
with any such exchange, appropriate adjustments will be made in the records
of the registrar to reflect a decrease in the principal amount of the
global security and a corresponding increase in the principal amount of the
other global security.
PAYMENTS OF PRINCIPAL AND INTEREST
The indenture requires that payments in respect of the notes held
of record by DTC or its nominee (including notes evidenced by the global
securities) be made in same day funds. Payments in respect of the notes
held of record by holders other than DTC may, at the option of ICN and
Ribapharm, be made by check and mailed to the holders of record as shown on
the register for the notes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
ICN, Ribapharm and the initial purchaser have entered into a
registration rights agreement under which ICN and Ribapharm have agreed
that a registration statement will be filed with the Commission within 90
days after July 18, 2001 on Form S-1 or Form S-3, if the use of such form
is then available, in order to permit sales of notes and shares of ICN
common stock that constitute transfer restricted securities, as defined
below, by the holders thereof who satisfy certain conditions relating to
the provision of information in connection with the registration statement.
ICN has previously granted registration rights to other persons who may be
entitled to register securities on this registration statement. ICN and
Ribapharm have agreed to use their reasonable best efforts to cause the
registration statement to be declared effective by the Commission within
180 days. Notwithstanding the foregoing, ICN and Ribapharm will be
permitted to prohibit offers and sales of transfer restricted securities
pursuant to the registration statement under certain circumstances and
subject to certain conditions, any period during which offers
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and sales are prohibited being referred to as a "suspension period".
"Transfer restricted securities" means each note and any underlying share
of common stock until the earlier of (x) the date on which such note or
underlying share of common stock has been effectively registered under the
Securities Act and disposed of, whether or not in accordance with the
registration statement, and (y) the date which is two years after the later
of the date of original issue of such notes and the last date that ICN,
Ribapharm or any of their respective affiliates was the owner of the notes,
or any predecessor thereto, or such shorter period of time as permitted by
Rule 144(k) under the Securities Act or any successor provision thereunder.
To have their notes or shares of ICN common stock that constitute
transfer restricted securities included in the registration statement, a
holder of such securities will be required to complete the Selling
Securityholder Notice and Questionnaire attached to this prospectus as
Annex A and to deliver any other information to be used in connection with,
and may be required to be named as a selling securityholder in, the
registration statement and to provide any comments it may wish to make on
the registration statement within the periods set forth in the registration
rights agreement. If a holder fails to do so, such transfer restricted
securities held by the holder will not be entitled to be registered and
such holder will not be entitled to receive any of the liquidated damages
described in the following paragraph. There can be no assurance that ICN
and Ribapharm will be able to maintain an effective and current
registration statement as required. The absence of such a registration
statement may limit the holder's ability to sell such transfer restricted
securities or adversely affect the price at which such transfer restricted
securities can be sold.
If the registration statement is not filed with the Commission
within 90 days of the date on which the notes are issued, the registration
statement has not been declared effective by the Commission within 180 days
of the date on which the notes are issued or the registration statement is
filed and declared effective but thereafter ceases to be effective, without
being succeeded immediately by an additional registration statement filed
and declared effective, or usable for the offer and sale of transfer
restricted securities for a period of time, including any suspension
period, which shall exceed 60 days in the aggregate in any 12-month period,
each referred to as a "registration default", ICN and, following a
Ribapharm public offering or a Ribapharm spin-off, Ribapharm will pay
liquidated damages to each holder of transfer restricted securities who has
timely provided the required selling securityholder information to us. The
aggregate amount of liquidated damages payable during any period during
which a registration default shall have occurred and be continuing is that
amount which is equal to one-quarter of one percent (25 basis points) per
annum per $1,000 principal amount and, if applicable, on an equivalent
basis per share of common stock, subject to adjustment in the event of
stock splits, stock recombinations, stock dividends and the like,
constituting transfer restricted securities for each 90-day period until
the registration statement is filed, the registration statement is declared
effective or the registration statement again becomes effective or usable,
as the case may be, up to a maximum amount of liquidated damages of
three-quarters of one percent (75 basis points) per annum per $1,000
principal amount of notes and, if applicable, on an equivalent basis per
share of common stock, subject to adjustment as set forth above,
constituting transfer restricted securities. All accrued liquidated damages
shall be paid to record holders entitled thereto in the same manner in
which interest is payable on the notes or, if no notes are outstanding, as
provided in the registration rights agreement. Following the cure of all
registration defaults, liquidated damages will cease to accrue with respect
to such registration default. Ribapharm has agreed to indemnify ICN for
liquidated damages incurred by ICN through the fault of Ribapharm.
ICN and Ribapharm shall use their reasonable best efforts to
cause the registration statement to be effective for a period of two years
from the effective date or a shorter period that will terminate when each
of the transfer restricted securities covered by the registration statement
ceases to be a transfer restricted security.
Under the registration rights agreement, if the Ribapharm public
offering is consummated and Ribapharm was not a registrant under the
registration statement that originally registered the notes, Ribapharm must
file a separate registration statement on Form S-1 or S-3 to register its
obligations under the notes. In addition, if the Ribapharm spin-off is
consummated, the registration rights agreement requires Ribapharm to file
with the SEC a registration statement on Form S-1 or Form S-3 to register
resales of the Ribapharm common stock issuable upon conversion of notes.
Ribapharm's obligations with respect to the filing and effectiveness of
this registration statement are substantially similar to ICN's obligations
in respect of the registration statement to be filed by ICN with respect to
the notes and the ICN common stock, except that the time periods within
which such registration statement must be filed and declared effective by
the SEC would run from the date of the closing of the Ribapharm spin-off.
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This summary of some provisions of the registration rights
agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the provisions of the
registration rights agreement. The registration rights agreement is filed
as an exhibit to the Registration Statement of which this prospectus is a
part.
GOVERNING LAW
The indenture and the notes will be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
that state's conflicts of laws principles.
DESCRIPTION OF COMMON STOCK
The description of our common stock is incorporated by reference
to filings with the SEC.
ICN currently owns all of the issued and outstanding shares of
Ribapharm common stock. Prior to the earlier to occur of the Ribapharm
public offering and the Ribapharm spin-off, Ribapharm will effect a
recapitalization and stock split. The definitive terms of the Ribapharm
common stock that would be sold in the Ribapharm public offering and/or
distributed in the Ribapharm spin-off have not yet been determined.
A holder of notes that converts notes into common stock after the
Ribapharm spin-off will receive the same number of shares of Ribapharm
common stock that the holder would have received had the holder converted
the notes immediately prior to the record date for the Ribapharm spin-off.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following summary describes the material United States
federal income tax consequences and, in the case of a holder that is a
non-U.S. holder, as defined below, the United States federal estate tax
consequences, of purchasing, owning and disposing of the notes and common
stock into which the notes may be converted.
This summary deals only with notes, and with common stock into
which the notes may be converted, held as capital assets, generally,
investment property, and does not deal with special tax situations such as:
o dealers in securities or currencies;
o traders in securities;
o United States holders (as defined below) whose functional
currency is not the United States dollar;
o persons holding notes as part of a hedge, straddle, conversion or
other integrated transaction;
o certain United States expatriates;
o financial institutions;
o insurance companies;
o S corporations;
o entities that are tax-exempt for United States federal income tax
purposes; and
o persons that are not the initial holders of the notes or that
acquire the notes for a price other than their issue price.
This summary does not discuss all of the aspects of United States
federal income and estate taxation that may be relevant to you in light of
your particular investment or other circumstances. In addition, this
summary does not discuss any United States state or local income or foreign
income or other tax consequences. This summary is based on United States
federal income and estate tax law, including the provisions of the Internal
Revenue Code of 1986, as amended, Treasury regulations, administrative
rulings and judicial authority, all as in effect as of the date of this
prospectus. Subsequent developments in United States federal income and
estate tax law, including changes in law or differing interpretations,
which may be applied retroactively, could have a material effect on the
United States federal income and estate tax consequences of purchasing,
owning and disposing of the notes, and common stock into which the notes
may be converted, as set forth in this summary. As described below,
Ribapharm becoming jointly and severally liable for the obligations under
the notes and the notes becoming convertible into both our and Ribapharm's
common stock, as well as the conversion of the notes into Ribapharm stock,
raises issues under United States federal income tax laws as to which there
are no clear answers. Thus, the IRS or a court may disagree with this
summary of those issues. You should consult your own tax advisor regarding
the particular United States federal, state and local and foreign income
and other tax consequences of acquiring, owning and disposing of the notes,
and common stock into which the notes may be converted, that may be
applicable to you.
UNITED STATES HOLDERS
The following summary applies to you only if you are a United
States holder (as defined below).
DEFINITION OF A UNITED STATES HOLDER A "United States holder" is a
beneficial owner of a note or notes, or of common stock into which the
notes may be converted, who or which is for United States federal income
tax purposes:
o an individual citizen or resident of the United States;
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o a corporation or partnership (or other entity classified as a
corporation or partnership for these purposes) created or
organized in or under the laws of the United States or of any
political subdivision of the United States, including any State;
o an estate, the income of which is subject to United States
federal income taxation regardless of the source of that income;
or
o a trust, if, in general, a United States court is able to
exercise primary supervision over the trust's administration and
one or more United States persons, within the meaning of the
Internal Revenue Code, has the authority to control all of the
trust's substantial decisions.
PAYMENTS OF INTEREST Interest on your notes will be taxed as ordinary
interest income. In addition:
o if you use the cash method of accounting for United States
federal income tax purposes, you will have to include the
interest on your notes in your gross income at the time you
receive the interest; and
o if you use the accrual method of accounting for United States
federal income tax purposes, you will have to include the
interest on your notes in your gross income at the time the
interest accrues.
The notes were not issued with original issue discount, and,
accordingly, issues relating to original issue discount are not summarized
in this document.
LIQUIDATED DAMAGES As more fully described above under "Descriptions of
Notes -- Registration rights; liquidated damages," in the event a
registration statement is not filed, does not become effective, or ceases
to be effective as provided in the registration rights agreement, we and,
following a Ribapharm public offering or a Ribapharm spin-off, Ribapharm,
will be required to pay liquidated damages to holders of the notes. Under
the Treasury Regulations regarding contingent payment debt instruments, any
payment subject to a remote or incidental contingency (i.e., there is a
remote likelihood that the payment will be required or the potential amount
of the payment is insignificant relative to the remaining payments on the
debt instrument) is not considered a contingent payment and is ignored for
purposes of computing original issue discount accruals. We believe that the
liquidated damage payments with respect to the notes are subject to either
a remote or incidental contingency. Accordingly, you should be required to
report any liquidated damage payment as interest for federal income tax
purposes only at the time the payment is made or properly accrued under
your method of accounting.
MARKET DISCOUNT Your resale of notes may be adversely affected by the
impact of the "market discount" provisions of the Internal Revenue Code.
For this purpose, the market discount on a note generally will be equal to
the amount, if any, by which the stated redemption price at maturity of the
note immediately after its acquisition (other than at original issue)
exceeds your adjusted tax basis in the note. Subject to a de minimis
exception, if you acquire a note at a market discount, these provisions
generally require you to treat as ordinary interest income any gain
recognized on the disposition of that note to the extent of the "accrued
market discount" on such note at the time of disposition, unless you elect
to include accrued market discount in income currently. Your election to
include market discount in income currently, once made, applies to all
market discount obligations acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of
the IRS. In general, market discount will be treated as accruing on a
straight-line basis over the remaining term of the note at the time of
acquisition, or, at your election, under a constant yield method. If you
acquire a note at a market discount and you do not elect to include accrued
market discount in income currently, you may be required to defer the
deduction of a portion of the interest on any indebtedness incurred or
maintained to purchase or carry the note until the note is disposed of in a
taxable transaction. If you acquire a note with market discount and receive
common stock upon conversion of the note, the amount of accrued market
discount not previously included in income with respect to the converted
note through the date of conversion will be treated as ordinary income upon
the disposition of the common stock.
AMORTIZABLE BOND PREMIUM If you acquire a note at a cost that is in excess
of the amount payable at maturity (after reducing that cost by an amount
equal to the value of the conversion option), you may elect under Section
171 of the Internal Revenue Code to amortize the excess cost (as an offset
to interest income) on a constant interest rate basis over the term of the
note. However, because the notes may be redeemed at our option at a price
in excess of their principal amount, you may be required to amortize any
bond premium based on the earlier call date and the call
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price payable at that time. If you make an election to amortize bond
premium, the tax basis of your notes will be reduced by the allowable bond
premium amortization. The amortization election would apply to all debt
instruments held or subsequently acquired by you and cannot be revoked
without permission from the IRS. On conversion of a note into conversion
shares, no additional amortization of any bond premium would be allowed,
and any remaining premium would be added to your tax basis in the common
stock received.
SALE OR OTHER DISPOSITION OF NOTES Your tax basis in your notes generally
will be their cost. You generally will recognize taxable gain or loss when
you sell or otherwise dispose of your notes equal to the difference, if
any, between:
o the amount realized on the sale or other disposition, less any
amount attributable to accrued interest, which will be taxable in
the manner described under "United States Holders -- Payments of
Interest"; and
o your tax basis in the notes.
Your gain or loss generally will be capital gain or loss. This
capital gain or loss will be long-term capital gain or loss if at the time
of the sale or other disposition you have held the notes for more than one
year. Subject to limited exceptions, your capital losses cannot be used to
offset your ordinary income. If you are a non-corporate United States
holder, your long-term capital gain generally will be subject to a maximum
tax rate of 20 percent.
CONSEQUENCES OF RIBAPHARM BECOMING A CO-OBLIGOR ON THE NOTES We are solely
liable on the notes and the notes are convertible solely into our common
stock. Upon the earlier of (i) a Ribapharm public offering and (ii) a
Ribapharm spin-off, Ribapharm will become jointly and severally liable for
the obligations under the notes. Also, upon a Ribapharm spin-off, the notes
will become convertible into both our and Ribapharm's common stock. As
described below, Ribapharm becoming jointly and severally liable for the
obligations under the notes and the notes becoming convertible into both
our and Ribapharm's common stock raises issues under United States federal
income tax laws as to which there are no clear answers. However, you
generally can avoid any potential adverse tax consequences by converting
your notes into our common stock prior to the earlier of a Ribapharm public
offering and a Ribapharm spin-off.
Although the matter is uncertain, if, prior to a Ribapharm
spin-off, a Ribapharm public offering occurs, and if, for United States
federal income tax purposes, Ribapharm becoming jointly and severally
liable for the obligations under the notes results in a "change in payment
expectations," and, therefore, a deemed "exchange" of your note for a new
note, you may be required to recognize income, gain or loss in an amount
equal to the difference between the fair market value of your "new" note
and your tax basis in your "old" note upon Ribapharm becoming jointly and
severally liable for the obligations under the notes.
If a Ribapharm spin-off occurs without a Ribapharm public
offering having occurred, although the matter is not free from doubt, you
generally should not recognize any income, gain or loss upon Ribapharm
becoming jointly and severally liable for the obligations under the notes
and the notes becoming convertible into both our and Ribapharm's common
stock. If, however, for United States federal income tax purposes,
Ribapharm becoming jointly and severally liable for the obligations under
the notes results in a "change in payment expectations," or the notes
becoming convertible into both our and Ribapharm's common stock constitutes
a "significant modification" of the notes, and Ribapharm becoming jointly
and severally liable for the obligation under the notes and the notes
becoming convertible into both our and Ribapharm's stock do not constitute
an exchange of securities under Section 355 of the Internal Revenue Code
made pursuant to the Ribapharm spin-off, you would be required to recognize
income, gain or loss.
Also, if, for federal income tax purposes, Ribapharm will not be
considered a co-obligor on the notes because, as between us and Ribapharm,
we and Ribapharm have agreed that we will be responsible for all payments
of principal of, premium, if any, and interest on the notes, it is possible
that you could be required to recognize as income, either at the time of
the Ribapharm spin-off or on an economic yield basis over the remaining
life of your note, an amount equal to the fair market value of the right to
convert your note into Ribapharm common stock. We and Ribapharm reserve the
right, however, to change the terms of this agreement so that Ribapharm may
become liable, as between us and Ribapharm, for all or part of the
obligations under the notes.
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Assuming that you do not recognize income, gain or loss upon
Ribapharm becoming jointly and severally liable for the obligations under
the notes and upon the notes becoming convertible into both our and
Ribapharm's common stock, neither your tax basis nor your holding period in
the notes will change.
CONVERSION OF NOTES Conversion of your note into our common stock generally
should be tax free to you, except with respect to cash received in lieu of
a fractional share of common stock or to the extent you receive stock for
accrued interest on your note.
Conversion of your note into Ribapharm common stock should be tax
free to you if, for federal income tax purposes, Ribapharm is considered to
be a co-obligor on the notes. Although subsequent to the earlier of a
Ribapharm public offering and a Ribapharm spin-off, Ribapharm will be
jointly and severally liable for the obligations under the notes, because
we and Ribapharm have agreed that we will be responsible for all payments
of principal of, premium, if any, and interest on the notes, it is possible
that, for federal income tax purposes, Ribapharm will not be considered a
co-obligor on the notes, in which case your receipt of Ribapharm stock upon
conversion of your note would cause you to recognize taxable income equal
to the difference between the fair market value of the Ribapharm stock you
receive and your basis in the portion of the note considered converted into
Ribapharm stock. However, you generally can avoid the risk that you will
have to recognize income upon conversion of your note into Ribapharm stock
by converting your note into our common stock prior to the earlier of a
Ribapharm public offering and a Ribapharm spin-off.
Assuming that you do not recognize income, gain or loss upon
conversion of the notes, your tax basis in the common stock received upon
conversion of the notes will be the same as your tax basis in the notes at
the time of conversion (reduced by any basis allocated to a fractional
share interest), and your holding period for the common stock received upon
conversion will generally include the holding period of the notes
converted.
DIVIDENDS ON COMMON STOCK Following conversion of a note or notes into
common stock, you may receive distributions in respect of the common stock.
Generally, distributions will be treated as a dividend, subject to tax as
ordinary income, to the extent of current or accumulated earnings and
profits, then as a tax-free return of capital to the extent of your tax
basis in the common stock, and thereafter as capital gain from the sale or
exchange of such stock, long-term or short-term depending on whether your
holding period exceeds one year.
If you are a corporate United States holder, a dividend
distribution to you generally will qualify for the 70 percent dividends
received deduction; if, however, you own 20 percent or more of the voting
power and value of our and Ribapharm's applicable stock (excluding for this
purpose any non-voting, non-convertible, non-participating preferred
stock), you generally will qualify for the 80 percent dividends received
deduction on dividends with respect thereto. The dividends received
deduction is subject, however, to certain holding period, taxable income
and other limitations.
If, in accordance with the antidilution provisions of the notes,
the conversion rate is adjusted, or if the conversion rate is adjusted at
our discretion, you may be deemed to receive a constructive distribution
taxable as a dividend under Section 305 of the Internal Revenue Code.
SALE OR OTHER DISPOSITION OF COMMON STOCK You generally will recognize
taxable gain or loss when you sell or otherwise dispose of common stock
equal to the difference, if any, between:
o the amount realized on the sale or other disposition; and
o your tax basis in the common stock.
Your gain or loss generally will be capital gain or loss. This
capital gain or loss will be long-term capital gain or loss if at the time
of the sale or other disposition your holding period for the common stock
exceeds one year.
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BACKUP WITHHOLDING In general, "backup withholding" at the applicable rate
may apply:
o to payments of principal and interest made on a note,
o to payments of the proceeds of a sale or other disposition of a
note before maturity,
o to payments of dividends on common stock, and
o to payments of the proceeds of a sale or other disposition of
common stock.
If you are a non-corporate United States holder and fail to
provide a correct taxpayer identification number or otherwise comply with
applicable requirements of the backup withholding rules.
The backup withholding tax is not an additional tax and may be
credited against your United States federal income tax liability, provided
that correct information is provided to the IRS.
CERTAIN TAX CONSEQUENCES TO US AND RIBAPHARM
Subsequent to a Ribapharm spin-off, if you exercise your right to
convert your note into our and Ribapharm's common stock, a portion of the
debt discharged upon conversion of a note into Ribapharm stock may be
taxable income to us. Depending upon the amount of debt that is converted
after the spin-off, we could be required to pay as much as approximately
$200 million in U.S. federal income taxes. In addition, although less
likely, it is conceivable that Ribapharm could recognize taxable income
upon the conversion of notes into our common stock if that conversion were
viewed as our discharging a debt of Ribapharm. Moreover, if Ribapharm makes
a payment of principal of, premium, if any, and/or interest on a note, and
if ICN does not honor ICN's agreement with Ribapharm that ICN will be
responsible for all such payments, ICN may be required to recognize taxable
income in the amount of such payment. ICN and Ribapharm reserve the right,
however, to change the terms of this agreement so that Ribapharm may become
liable, as between ICN and Ribapharm, for all or part of the obligations
under the notes.
If we elect to retain shares of Ribapharm stock in order to
deliver that stock upon conversion of the notes, our transfer of that stock
upon conversion of notes would create taxable income for us generally equal
to the fair market value of the Ribapharm stock transferred, unless the
transfer of such retained stock is considered to be a distribution of
Ribapharm stock under Section 355 of the Internal Revenue Code made
pursuant to the Ribapharm spin-off. We will not elect to retain shares of
Ribapharm stock in order to deliver that stock upon conversion unless we
received a ruling from the IRS or an opinion of our counsel that retention
of shares of Ribapharm stock by us will not prevent the Ribapharm spin-off
from qualifying as a tax-free spin-off under US tax laws and our transfer
of the retained Ribapharm stock upon conversion of notes would be
considered to be a tax-free distribution of Ribapharm stock under Section
355 of the Internal Revenue Code made pursuant to the Ribapharm spin-off.
There also are a number of provisions of the Internal Revenue
Code which could apply to limit our and/or Ribapharm's ability to deduct
interest payments made with respect to the notes. For example, if the
proceeds or a portion of the proceeds of this offering are used or are
deemed to have been used to make certain acquisitions, and if certain other
requirements are met, interest paid on the notes may not be deductible.
However, ICN and Ribapharm have agreed between them that even though both
parties would be jointly and severally liable in respect of the obligations
on the notes in the event of a Ribapharm public offering or Ribapharm
spin-off, ICN will make payments of principal of, premium, if any and
interest on the notes.
NON-U.S. HOLDERS
The following summary applies to you if you are a beneficial
owner of a note or notes, or of common stock into which the notes may be
converted, who or which is not a United States holder, as defined above, (a
"non-U.S. holder"). An individual may, subject to exceptions, be deemed to
be a resident alien, as opposed to a non-resident alien, by, among other
ways, being present in the United States:
o on at least 31 days in the calendar year, and
o for an aggregate of at least 183 days during a three-year period
ending in the current calendar year,
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counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding
year, and one-sixth of the days present in the second preceding
year.
Resident aliens are subject to United States federal income tax
as if they were United States citizens.
PAYMENTS OF INTEREST Interest paid by us or our paying agent, in its
capacity as such, to you on your notes will qualify for the "portfolio
interest" exception of the Internal Revenue Code and therefore, subject to
the discussion of backup withholding, below, will not be subject to United
States federal income tax or withholding tax, provided that:
o you do not, directly or indirectly, actually or constructively,
own ten percent or more of the total combined voting power of all
classes of our stock entitled to vote within the meaning of
section 871(h)(3) of the Internal Revenue Code and the Treasury
regulations thereunder;
o you are not (i) a controlled foreign corporation for United
States federal income tax purposes that is related, directly or
indirectly, to us through sufficient stock ownership, as provided
in the Internal Revenue Code, or (ii) a bank receiving interest
described in section 881(c)(3)(A) of the Internal Revenue Code;
o such interest is not effectively connected with your conduct of a
United States trade or business; and
o you provide a signed written statement, under penalties of
perjury, which can reliably be related to you, certifying that
you are not a United States person within the meaning of the
Internal Revenue Code and providing your name and address to:
(A) us or our paying agent; or
(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business and holds your notes on your behalf and that certifies to
us or our paying agent under penalties of perjury that it, or the bank or
financial institution between it and you, has received from you your
signed, written statement and provides us or our paying agent with a copy
of this statement.
Recently finalized Treasury regulations provide alternative
methods for satisfying the certification requirement described in this
section. In addition, under these Treasury regulations:
o if you are a foreign partnership, the certification requirement
will generally apply to your partners, and you will be required
to provide certain information;
o if you are a foreign trust, the certification requirement will
generally be applied to you or your beneficial owners depending
on whether you are a "foreign complex trust," "foreign simple
trust," or "foreign grantor trust" as defined in the Treasury
regulations; and
o look-through rules will apply for tiered partnerships, foreign
simple trusts and foreign grantor trusts.
If you are a foreign partnership or a foreign trust, you should
consult your own tax advisor regarding your status under these Treasury
regulations and the certification requirements applicable to you.
If you are engaged in a trade or business in the United States
and interest on your notes is effectively connected with the conduct of
your trade or business, and, if an income tax treaty applies, you maintain
a United States "permanent establishment" to which the interest is
generally attributable, you may be subject to United States income tax on a
net basis at the regular graduated rates and in the manner applicable to
U.S. persons on the interest (although interest is exempt from the
withholding tax discussed in the preceding paragraphs provided that you
provide a properly executed applicable IRS form on or before any payment
date to claim the exemption). In addition, Unites States trade or business
income of a non-U.S. holder that is a non-U.S. corporation may be subject
to a branch profits tax at a rate of 30 percent, or such lower rate
provided by an applicable income tax treaty.
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SALE OR OTHER DISPOSITION OF NOTES You generally will not be subject to
United States federal income tax or withholding tax on any gain realized
(including market discount) on the sale or other disposition of your notes,
including the receipt of cash in lieu of a fractional share upon conversion
of a note into common stock but not including any amount representing
interest, unless:
o you are an individual who is present in the United States for 183
days or more during the taxable year of the sale or other
disposition of your note, and specific other conditions are met;
or
o the gain is effectively connected with your conduct of a United
States trade or business, and, if an income tax treaty applies,
is generally attributable to a United States "permanent
establishment" maintained by you.
CONSEQUENCES OF RIBAPHARM BECOMING A CO-OBLIGOR ON THE NOTES As discussed
above under "United States Holders--Consequences of Ribapharm Becoming a
Co-Obligor on the Notes," (i) although the matter is uncertain, if, prior
to a Ribapharm spin-off, a Ribapharm public offering occurs, you may be
required to recognize income, gain or loss upon Ribapharm becoming jointly
and severally liable for the obligations under the notes and (ii) although
the matter is not free from doubt, if a Ribapharm spin-off occurs without a
Ribapharm public offering having occurred, you generally should not
recognize any income, gain or loss upon Ribapharm becoming jointly and
severally liable for the obligations under the notes and the notes becoming
convertible into both our and Ribapharm's common stock. In addition, any
gain that is realized by you will not be recognized unless:
o you are an individual who is present in the United States for 183
days or more during the taxable year of the conversion of your
note, and specific other conditions are met; or
o the gain is effectively connected with your conduct of a United
States trade or business, and, if an income tax treaty applies,
is generally attributable to a United States "permanent
establishment" maintained by you.
You generally can avoid any risk of gain recognition by
converting your notes into our common stock prior to the earlier of a
Ribapharm public offering and a Ribapharm spin-off.
In addition, as discussed above under "United States
Holders--Consequences of Ribapharm Becoming a Co-Obligor on the Notes," if,
for federal income tax purposes, Ribapharm will not be considered a
co-obligor on the notes because, as between us and Ribapharm, we and
Ribapharm have agreed that we will be responsible for all payments of
principal of, premium, if any, and interest on the notes it is possible
that you could be required to recognize as interest income, either at the
time of the Ribapharm spin-off or on an economic yield basis over the
remaining life of your note, an amount equal to the fair market value of
the right to convert your note into Ribapharm common stock. We and
Ribapharm reserve the right, however, to change the terms of this agreement
so that Ribapharm may become liable, as between us and Ribapharm, for all
or part of the obligations under the notes.
CONVERSION OF NOTES In general, no United States federal income tax or
withholding tax should be imposed upon the conversion of a note into common
stock by you, except with respect to (i) the Ribapharm stock you receive
upon conversion, if for federal income tax purposes, Ribapharm is not
considered to be a co-obligor on the notes, and (ii) cash you receive in
lieu of a fractional share of common stock upon conversion where:
o you are an individual who is present in the United States for 183
days or more during the taxable year of the conversion of your
note, and specific other conditions are met; or
o the Ribapharm stock you receive upon conversion if Ribapharm is
not considered a co-obligor on the notes, or the cash received in
lieu of a fractional share of common stock upon conversion of a
note is effectively connected with your conduct of a United
States trade or business, and, if an income tax treaty applies,
is generally attributable to a United States "permanent
establishment" maintained by you.
DIVIDENDS ON COMMON STOCK Following the conversion of a note or notes into
common stock, you may receive distributions in respect of the common stock.
In the event that we, or Ribapharm, as applicable, pay dividends on common
stock, we, or Ribapharm, as applicable, will have to withhold a United
States federal withholding tax at a rate of 30 percent, or a lower rate
under an applicable income tax treaty, from the gross amount of the
dividends paid
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to you. You should consult your tax advisor regarding your entitlement to
benefits under a relevant income tax treaty.
Dividends that are effectively connected with your conduct of a
trade or business in the United States and, if an income tax treaty
applies, attributable to a permanent establishment in the United States,
are taxed on a net income basis at the regular graduated rates and in the
manner applicable to U.S. persons. In that case, we, or Ribapharm, as
applicable, will not have to withhold United States federal withholding tax
if you comply with applicable certification and disclosure requirements. In
addition, United States trade or business income of a non-U.S. holder that
is a non-U.S. corporation may be subject to a branch profits tax at a rate
of 30 percent, or such lower rate provided by an applicable income tax
treaty.
If you claim the benefit of an applicable income tax treaty rate,
you generally will be required to satisfy applicable certification and
other requirements. However,
o if you are a foreign partnership, the certification requirement
will generally apply to your partners and you will be required to
provide certain information;
o if you are a foreign trust, the certification requirement will
generally be applied to you or your beneficial owners depending
on whether you are a "foreign complex trust," "foreign simple
trust," or "foreign grantor trust" as defined in Treasury
regulations; and
o look-through rules will apply for tiered partnerships, foreign
simple trusts and foreign grantor trusts.
o if you are a foreign partnership or a foreign trust, we urge you
to consult your own tax advisor regarding your status under these
Treasury regulations and the certification requirements
applicable to you.
SALE OR OTHER DISPOSITION OF COMMON STOCK You generally will not be taxed
on gain recognized upon the sale or other disposition of common stock
unless:
o the gain is effectively connected with your conduct of a trade or
business in the United States and, if an income tax treaty
applies, is attributable to a permanent establishment in the
United States;
o you are an individual who is present in the United States for 183
days or more during the taxable year of the sale or other
disposition and specific other conditions are met; or
o we (or Ribapharm, as the case may be) are or have been a "U.S.
real property holding corporation" for U.S. federal income tax
purposes at any time during the shorter of the five-year period
ending on the date of sale or other disposition or the period
that you held the common stock.
Generally, a corporation is a "U.S. real property holding
corporation" if the fair market value of its "U.S. real property interests"
equals or exceeds 50 percent of the sum of the fair market value of its
worldwide real property interests plus its other assets used or held for
use in a trade or business. The tax relating to stock in a U.S. real
property holding corporation generally will not apply to a non-U.S. holder
whose holdings, direct and indirect, at all times during the applicable
period, constituted 5 percent or less of the common stock, provided that
the common stock was regularly traded on an established securities market.
We believe that we, and Ribapharm, are not currently, and we do not
anticipate ourselves, or Ribapharm, becoming in the future, a U.S. real
property holding corporation.
UNITED STATES FEDERAL ESTATE TAX If you are an individual who is a non-U.S.
holder, as specially defined for United States federal estate tax purposes,
at the time of your death, notes owned or treated as owned by you will
generally not be subject to the United States federal estate tax, unless,
at the time of your death:
o you directly or indirectly, actually or constructively, own ten
percent or more of the total combined voting power of all classes
of our stock entitled to vote within the meaning of section
871(h)(3) of the Internal Revenue Code and the Treasury
regulations thereunder; or
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o your interest on the notes is effectively connected with your
conduct of a United States trade or business.
If you are an individual who is a non-U.S holder, as specially
defined for U.S. federal estate tax purposes, at the time of your death,
common stock owned or treated as owned by you will generally be included in
your gross estate for United States federal estate tax purposes, unless an
applicable estate tax or other treaty provides otherwise and, therefore,
may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING Under current Treasury
regulations, backup withholding and information reporting will not apply to
payments made by us or our paying agent, in its capacity as such, to you if
you have provided the required certification that you are a non-U.S. holder
and provided that neither we nor our paying agent has actual knowledge that
you are a United States holder. We or our paying agent may, however, report
payments of interest on the notes.
The gross proceeds from the disposition of your notes or of
common stock into which the notes may be converted may be subject to
information reporting and backup withholding tax at the applicable rate. If
you sell your notes or common stock into which the notes may be converted
outside the United States through a non-U.S. office of a non-U.S. broker
and the sales proceeds are paid to you outside the United States, then the
backup withholding and information reporting requirements generally will
not apply to that payment. However, information reporting, but not backup
withholding, will apply to a payment of sales proceeds, even if that
payment is made outside the United States, if you sell your notes or common
stock into which the notes may be converted through a non-U.S. office of a
broker that:
o is a United States person, as defined in the Internal Revenue
Code;
o derives 50 percent or more of its gross income in specific
periods from the conduct of a trade or business in the United
States;
o is a "controlled foreign corporation" for United States federal
income tax purposes; or
o is a foreign partnership, if at any time during its tax year:
o one or more of its partners are U.S. persons who in the aggregate
hold more than 50 percent of the income or capital interests in
the partnership; or
o the foreign partnership is engaged in a United States trade or
business,
unless the broker has documentary evidence in its files that you are a
non-U.S. person and certain other conditions are met or you otherwise
establish an exemption. If you receive payments of the proceeds of a sale
of your notes or common stock into which the notes may be converted to or
through a United States office of a broker, the payment is subject to both
backup withholding and information reporting unless you provide a Form
W-8BEN certifying that you are a non-U.S. person or you otherwise establish
an exemption.
You should consult your own tax advisor regarding application of
backup withholding in your particular circumstance and the availability of
and procedure for obtaining an exemption from backup withholding under
current Treasury regulations. Any amounts withheld under the backup
withholding rules from a payment to you will be allowed as a refund or
credit against your United States federal income tax liability, provided
the required information is furnished to the IRS.
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SELLING SECURITYHOLDERS
The notes were originally issued by us and sold by the initial
purchaser in a transaction exempt from the registration requirements of the
Securities Act to persons reasonably believed by the initial purchasers to
be qualified institutional buyers. Selling holders, including their
transferees, pledgees or donees or their successors, may from time to time
offer and sell pursuant to this prospectus any or all of the notes and
common stock into which the notes are convertible.
The following table sets forth information with respect to the
selling holders and the principal amounts of notes beneficially owned by
each selling holder that may be offered under this prospectus. The
information is based on information provided by or on behalf of the selling
holders. The selling holders may offer all, some or none of the notes or
common stock into which the notes are convertible. Because the selling
holders may offer all or some portion of the notes or the common stock, no
estimate can be given as to the amount of the notes or the common stock
that will be held by the selling holders upon termination of any sales. In
addition, the selling holders identified below may have sold, transferred
or otherwise disposed of all or a portion of their notes since the date on
which they provided the information regarding their notes in transactions
exempt from the registration requirements of the Securities Act.
COMMON COMMON
PRINCIPAL STOCK STOCK
AMOUNT OF ISSUABLE OWNED
NOTES UPON AFTER
BENEFICIALLY CONVERSION COMMON COMPLETION
NAME OWNED AND OF THE STOCK OF THE
OFFERED NOTES OFFERED OFFERING
------------------------------------------------------ ------------------ ---------------- ------------ ---------------------------
None of the selling holders nor any of their affiliates,
officers, directors or principal equity holders has held any position or
office or has had any material relationship with us within the past three
years. The selling holders purchased all of the notes in private
transactions on or after July 18, 2001. All of the notes were "restricted
securities" under the Securities Act prior to this registration.
Information concerning the selling holders may change from time
to time and any changed information will be set forth in supplements to
this prospectus if and when necessary. In addition, the conversion rate and
therefore, the number of shares of common stock issuable upon conversion of
the notes, is subject to adjustment under certain circumstances.
Accordingly, the aggregate principal amount of notes and the number of
shares of common stock into which the notes are convertible may increase or
decrease.
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PLAN OF DISTRIBUTION
The selling holders and their successors, including their
transferees, pledgees or donees or their successors, may sell the notes and
the common stock into which the notes are convertible directly to
purchasers or through underwriters, broker-dealers or agents, who may
receive compensation in the form of discounts, concessions or commissions
from the selling holders or the purchasers. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be
in excess of those customary in the types of transactions involved.
The notes and the common stock into which the notes are
convertible may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market prices, at varying prices determined at the time of sale,
or at negotiated prices. These sales may be effected in transactions, which
may involve crosses or block transactions:
o on any national securities exchange or U.S. inter-dealer system
of a registered national securities association on which the
notes or the common stock may be listed or quoted at the time of
sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems or
in the over-the-counter market;
o through the writing of options, whether the options are listed on
an options exchange or otherwise; or
o through the settlement of short sales.
In connection with the sale of the notes and the common stock
into which the notes are convertible or otherwise, the selling holders may
enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the notes or the
common stock into which the notes are convertible in the course of hedging
the positions they assume. The selling holders may also sell the notes or
the common stock into which the notes are convertible short and deliver
these securities to close out their short positions, or loan or pledge the
notes or the common stock into which the notes are convertible to
broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of
the notes or common stock into which the notes are convertible offered by
them will be the purchase price of the notes or common stock less discounts
and commissions, if any. Each of the selling holders reserves the right to
accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of notes or common stock to be made
directly or through agents. We will not receive any of the proceeds from
this offering.
Our outstanding common stock is listed for trading on the New
York Stock Exchange. We do not intend to list the notes for trading on any
national securities exchange or on the New York Stock Exchange and can give
no assurance about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if
applicable, the notes and common stock into which the notes are convertible
may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the notes and common stock
into which the notes are convertible may not be sold unless they have been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
The selling holders and any underwriters, broker-dealers or
agents that participate in the sale of the notes and common stock into
which the notes are convertible may be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions,
concessions or profit they earn on any resale of the shares may be
underwriting discounts and commissions under the Securities Act. Selling
holders who are "underwriters" within the meaning of Section 2(11) of the
Securities Act will be subject to the prospectus delivery requirements of
the Securities Act. The selling holders have acknowledged that they
understand their obligations to comply with the provisions of the Exchange
Act and the rules thereunder relating to stock manipulation, particularly
Regulation M.
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In addition, any securities covered by this prospectus that
qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act
may be sold under Rule 144 or Rule 144A rather than pursuant to this
prospectus. A selling holder may not sell any notes or common stock
described in this prospectus and may not transfer, devise or gift these
securities by other means not described in this prospectus.
To the extent required, the specific notes or common stock to be
sold, the names of the selling holders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and
any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if
appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
We entered into a registration rights agreement for the benefit
of holders of the notes to register their notes and common stock under
applicable federal and state securities laws under specific circumstances
and at specific times. The registration rights agreement provides for
cross-indemnification of the selling holders and us and their and our
respective directors, officers and controlling persons against specific
liabilities in connection with the offer and sale of the notes and the
common stock, including liabilities under the Securities Act. We will pay
substantially all of the expenses incurred by the selling holders incident
to the offering and sale of the notes and the common stock.
INDEPENDENT ACCOUNTANTS
Our consolidated financial statements as of December 31, 1999 and
2000 and for each of the three years in the period ended December 31, 2000,
incorporated by reference in this prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their
report, which includes an emphasis-of-a-matter paragraph related to ICN's
change in method of accounting for its investment in ICN Yugoslavia, a
previously consolidated subsidiary, appearing therein. With respect to the
unaudited consolidated financial information of ICN for the three-month
periods ended March 31, 2001 and 2000, and incorporated by reference in
this prospectus, PricewaterhouseCoopers LLP reported that they applied
limited procedures in accordance with professional standards for a review
of such information. However, their separate report dated May 3, 2001
incorporated by reference herein, states that they did not audit and they
do not express an opinion on that unaudited consolidated financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the
review procedures applied. PricewaterhouseCoopers LLP is not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited consolidated financial information because that
report is not a "report" or a "part" of the registration statement prepared
or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7
and 11 of the Securities Act of 1933.
VALIDITY OF THE SECURITIES
The validity of the notes and the common stock being offered by
this prospectus have been passed upon for us by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New
York, New York.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can inspect, read and copy these
reports, proxy statements and other information at the public reference
facilities the SEC maintains at:
o Room 1024, 450 Fifth Street, NW, Judiciary Plaza, Washington,
D.C. 20549;
o Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and
o Suite 1300, 7 World Trade Center, New York, New York 10048.
You can also obtain copies of these materials from the public
reference facilities of the SEC at prescribed rates. You can obtain
information on the operation of the public reference facilities by calling
the SEC at l-800-SEC-0330. The SEC also maintains a web site
(http://www.sec.gov) that makes available reports, proxy statements and
other information regarding issuers that file electronically with it. In
addition, you can inspect the reports, proxy statements and other
information we file at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
Statements contained herein as to the contents of any contract or
any other document referred to are not necessarily complete, and where such
contract or other document is an exhibit to a document we have filed with
the SEC, each such statement is qualified in all respects by the provisions
of such exhibit, to which reference is now made.
Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available to the
public from the SEC's web site at www.sec.gov.
INCORPORATION BY REFERENCE
Some of the information that you may want to consider in deciding
whether to invest in the notes is not included in this prospectus, but
rather is incorporated by reference to certain reports which we have filed
with the SEC. This permits us to disclose important information to you by
referring to those documents rather than repeating them in full in this
prospectus. The information incorporated by reference in this prospectus
contains important business and financial information. In addition,
information that we file with the SEC after the date of this prospectus and
prior to the completion of this offering will update and supersede the
information contained in this prospectus and incorporated filings. We
incorporate by reference the following documents filed by us with the SEC:
OUR SEC FILINGS PERIOD COVERED OR DATE OF FILING
--------------- --------------------------------
Annual Report on Form 10-K as amended
April 11, 2001, April 30, 2001 and June 29, 2001. Year ended December 31, 2000
Quarterly Report on Form 10-Q.................... Quarter ended March 31, 2001
Current Reports on Form 8-K...................... March 20, 2001, March 22, 2001, July 3,
2001, July 13, 2001 and July 18, 2001
Description of ICN common stock contained in
Registration Statement on Form S-4 and any
amendment or report filed for the purpose
of updating such description................... September 30, 1994
All subsequent documents filed by us under
Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act of 1934........................... After the date of this prospectus
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58
You may request a copy of each ICN filing at no cost, by writing
or calling us at the following address or telephone number:
Corporate Secretary
ICN Pharmaceuticals, Inc.
3300 Hyland Avenue
Costa Mesa, California 92626
(714) 545-0100
Exhibits to a document will not be provided unless they are
specifically incorporated by reference in that document.
The information in this prospectus may not contain all of the
information that may be important to you. You should read the entire
prospectus, as well as the documents incorporated by reference in the
prospectus, before making an investment decision.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into
this prospectus contain "forward-looking statements." These statements
relate to expectations, beliefs, projections, future plans and strategies,
anticipated events or trends and similar expressions concerning matters
that are not historical facts. Specifically, this prospectus and the
documents incorporated into this prospectus by reference contain
forward-looking statements regarding, among other matters:
o growth opportunities;
o acquisition strategy;
o reorganization plans; and
o regulatory matters pertaining to governmental approval of the
marketing or manufacturing of certain of our products and other
factors affecting our financial condition or results of
operations.
Investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks, uncertainties
and other factors which may cause actual results, performance or
achievements to differ materially from the future results, performance or
achievements, expressed or implied in such forward-looking statements. Such
factors also include, without limitation:
o our dependence on foreign operations (which are subject to
certain risks inherent in conducting business abroad, including
possible nationalization or expropriation, price and exchange
control, limitations on foreign participation in local
enterprises, health care regulations and other restrictive
governmental conditions);
o the risk of operations in Eastern Europe, Latin America, as well
as Russia and China in light of the unstable economic, political
and regulatory conditions in such regions;
o the risk of potential claims against certain of our research
compounds;
o our ability to successfully develop and commercialize future
products;
o the limited protection afforded by the patents relating to
ribavirin, and possibly on future drugs, techniques, processes or
products we may develop or acquire;
o the potential impact of the Euro currency;
o our ability to continue our expansion plan and to integrate
successfully any acquired companies;
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59
o the results of lawsuits or the outcome of investigations pending
against us;
o our potential product liability exposure and lack of any
insurance coverage thereof; and
o government regulation of the pharmaceutical industry (including
review and approval for new pharmaceutical products by the FDA in
the United States and comparable agencies in other countries) and
competition.
You should read carefully the section of this prospectus under
the heading "Risk factors" beginning on page 12. We assume no
responsibility for updating forward-looking statements contained in this
prospectus and in any documents that we incorporate by reference into this
prospectus.
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60
===============================================================================
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO
GIVE YOU WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE
REPRESENTATIONS AS TO MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF
THIS PROSPECTUS SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN OR OUR AFFAIRS HAVE NOT CHANGED SINCE THE DATE HEREOF.
TABLE OF CONTENTS PAGE
----
Summary.....................................1
Recent Developments........................10
Risk Factors...............................12
Use of Proceeds............................26
Price Range of Common Stock and
Dividend Policy............................26
Capitalization.............................27
Selected Financial Data....................28
Description of Notes.......................30
Description of Common Stock................41
Certain United States Federal Tax
Consequences...............................42
Selling Securityholders....................51
Plan of Distribution.......................52
Independent Accountants....................53
Validity of the Securities.................53
Where You Can Find More Information........54
Incorporation by Reference.................54
Forward-looking Statements.................55
===============================================================================
ICN PHARMACEUTICALS, INC.
$525,000,000 of 6 1/2 % Convertible
Subordinated Notes due 2008 and 15,326,010
shares of Common Stock Issuable upon
Conversion of the Notes
------------------------------------------
PROSPECTUS
------------------------------------------
___, 2001
===============================================================================
61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of expenses of the
Registrant in connection with the securities being registered. All of the
expenses are estimated, except for the registration fee.
Securities and Exchange Commission registration fee...... $131,250
Legal fees and expenses..................................
Accounting fees and expenses.............................
New York Stock Exchange Supplemental Listing fee......... --------
Miscellaneous............................................ --------
Total........................................................========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify its directors and officers, as
well as other employees and individuals (each an "Indemnified Party," and
collectively, "Indemnified Parties"), against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement in
connection with specified actions, suits, or proceedings, whether civil,
criminal, administrative, or investigative, other than in connection with
actions by or in the right of the corporation (a "derivative action"), if
an Indemnified Party acted in good faith and in a manner such Indemnified
Party reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe that his or her conduct was unlawful. A
similar standard is applicable in the case of derivative actions, except
that a corporation may only indemnify an Indemnified Party for expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such derivative action. Additionally, in the context of a
derivative action, DGCL Section 145 requires court approval before there
can be any indemnification where an Indemnified Party has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification arrangements that may be granted pursuant to a
corporation's charter, by-laws, disinterested director vote, stockholder
vote, agreement, or otherwise.
Section 102(b)(7) of the DGCL permits a corporation to provide in
its certificate of incorporation that a director of the corporation shall
not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law,
(iii) any willful or negligent declaration of an unlawful dividend, stock
purchase or redemption, or (iv) any transaction from which the director
derived an improper personal benefit.
The Certificate of Incorporation and By-Laws of the Registrant
provide that directors and officers of the Registrant shall not, to the
fullest extent permitted by the DGCL, be liable to the Registrant or any of
its stockholders for monetary damages for any breach of fiduciary duty as a
director or officer, as the case may be. The Certificate of Incorporation
and By-Laws of the Registrant also provide that if the DGCL is amended to
permit further elimination or limitation of the personal liability of
directors and officers, then the liability of the directors and officers of
the Registrant shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
The Registrant has entered into agreements to indemnify its
directors and officers in addition to the indemnification provided for in
its Certificate of Incorporation and By-Laws. These agreements, among other
things, indemnify the Registrant's directors and officers to the fullest
extent permitted by Delaware law for certain expenses (including attorney's
fees), liabilities, judgments, fines and settlement amounts incurred by
such person arising out of or in connection with such person's service as a
director or officer of the Registrant or an affiliate of the Registrant.
II-1
62
The Registrant maintains directors' and officers' liability
insurance, under which its directors and officers are insured, within the
limits and subject to the limitations of the policies, against certain
expenses in connection with the defense of, and certain liabilities which
might be imposed as a result of, actions, suits or proceedings to which
directors and officers are parties by reason of being or have been
directors or officers of the Registrant, as the case may be.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A list of exhibits included as part of this Registration
Statement is set forth in the Exhibit Index which immediately precedes such
exhibits and is incorporated by reference herein.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) to include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that the undertakings set forth in paragraphs
(1)(i) and (ii) above do not apply if the information required to
be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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63
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
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SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3, and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Costa Mesa, State of California,
on the 10th day of August 2001.
ICN PHARMACEUTICALS, INC.
By : /s/ Milan Panic
------------------------------------
Milan Panic
Chairman of the Board
And Chief Executive Officer
Each of the undersigned hereby appoints Gregory Keever and
Richard A. Meier, and each of them (with full power to act alone), as
attorney and agents for the undersigned, with full power of substitution,
for and in the name, place and stead of the undersigned, to sign and file
with the Commission under the Securities Act any and all amendments and
exhibits to this Registration Statement and any and all applications,
instruments and other documents to be filed with the Commission pertaining
to the registration of the securities covered hereby, with full power and
authority to do and perform any and all acts and things whatsoever
requisite or desirable.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons, on the 10th
day of August 2001, on behalf of the Registrant and in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Milan Panic Chairman of the Board and Chief August 10, 2001
-------------------------------- Executive Officer
/s/ Richard A. Meier Executive Vice President and August 10, 2001
-------------------------------- Chief Financial Officer
Richard A. Meier (principal financial officer and
principal accounting officer)
/s/ Norman Barker, Jr. Director August 10, 2001
--------------------------------
Norman Barker, Jr.
/s/ Sentor Birch E. Bayh Director August 10, 2001
--------------------------------
Sentor Birch E. Bayh
/s/ Edward A. Burkhardt Director August 10, 2001
--------------------------------
Edward A. Burkhardt
/s/ Alan F. Charles Director August 10, 2001
--------------------------------
Alan F. Charles
Director
--------------------------------
Ronald R. Fogleman
Director
--------------------------------
Roger Guillemin, M.D., Ph.D.
President, Director
--------------------------------
Adam Jerney
65
Director
--------------------------------
Jean-Francois Kurtz
/s/ Steven J. Lee Director August 10, 2001
--------------------------------
Steven J. Lee
/s/ Stephen D. Moses Director August 10, 2001
--------------------------------
Stephen D. Moses
/s/ Rosemary Tomich Director August 10, 2001
--------------------------------
Rosemary Tomich
66
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
3.1 Restated Certificate of Incorporation of Registrant
previously filed as Exhibit 3.1 to Registration Statement
No. 33-84534 on Form S-4, which is incorporated herein by
reference, as amended by the Certificate of Merger dated
November 10, 1994, of ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc. and Viratek, Inc. with and into ICN
Merger Corp. previously filed as Exhibit 4.1 to Registration
Statement No. 333-08179 on Form S-3, which is incorporated
herein by reference
3.2 Amended and Restated By-Laws of the Registrant previously
filed as Exhibit 3.3 to ICN Pharmaceuticals, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 2000, as
amended by Amendment No. 1 on Form 10-K/A, which is
incorporated herein by reference
4.1 Indenture, dated as of July 18, 2001, by and among ICN
Pharmaceuticals, Inc., Ribapharm Inc. and The Bank of New
York, as trustee, relating to the 6 1/2% Convertible
Subordinated Notes due 2008
4.2 Registration Rights Agreement, dated as of July 18, 2001, by
and among ICN Pharmaceuticals, Inc., Ribapharm Inc. and UBS
Warburg LLC
4.3 Form of 6 1/2% Senior Note due 2008 of ICN Pharmaceuticals,
Inc., Ribapharm Inc., UBS Warburg LLC (included as Exhibit A
to the Indenture filed as Exhibit 4.1)
4.4 Specimen Stock certificate
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson*
12.1 Statements re: Computations of Ratios
15.1 Awareness letter of PricewaterhouseCoopers LLP regarding
Unaudited Interim Financial Information
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson
(contained in opinion filed as Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page hereof)
25.1 Statement of eligibility of trustee on Form T-1
* To be filed by amendment.