AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 2001
REGISTRATION NO. 333-67376
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ICN PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2834 33-0628076
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION 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. [ ]
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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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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
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This prospectus relates to our 6 1/2% convertible subordinated notes due
July 15, 2008. Holders of notes may offer 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 notes are:
- convertible at any time into shares of common stock at a conversion rate
of 29.1924 shares per $1,000 principal amount of notes, subject to
adjustment in some circumstances;
- subordinated to all our existing and future senior indebtedness and
effectively subordinated to all existing and future limitations of our
subsidiaries, including trade payables;
- redeemable on or after July 21, 2004 at redemption prices described in
this prospectus;
- unsecured, general obligations of us; and
- subject to repurchase, at the option of a holder, upon a change of
control of us.
Our wholly-owned subsidiary, Ribapharm Inc., will become jointly and
severally liable for the obligations under the notes if:
- we complete a public offering of shares of common stock of Ribapharm, or
- we distribute our interest in Ribapharm to our stockholders.
A holder who converts notes into our common stock will also be entitled to
receive shares of Ribapharm common stock if we distribute our interest in
Ribapharm to our stockholders.
On November 9, 2001 the last reported sale price of our common stock was,
$25.26 per share. Our common stock is listed under the symbol "ICN" on the New
York Stock Exchange. Our 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 NOTES INVOLVES RISK. PLEASE CAREFULLY
CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 7 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 November 9, 2001
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.
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 nine months of 2001, we had revenues of approximately
$595.8 million and net income of approximately $30.6 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:
- 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;
- the creation of a pipeline of new products through internal research and
development, as well as strategic partnerships, licensing arrangements
and acquisitions; and
- the consolidation of our industry leadership position in Central and
Eastern Europe, including Russia.
RESTRUCTURING
We intend to split our business into three separate publicly traded
companies:
- Ribapharm
- ICN Americas
- ICN International
Ribapharm 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. To achieve our
objective to have Ribapharm become a separate publicly traded company, Ribapharm
common stock may be sold to the public in an initial public offering. We would
then distribute all or substantially all of our remaining interest in Ribapharm
to our stockholders. We refer to this distribution as the "spin-off."
Alternatively, we may complete the spin-off without making the Ribapharm public
offering. 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. In addition, after the spin-off, a holder will also receive shares of
Ribapharm common stock upon conversion of notes. The number of shares received
will be 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.
ICN International develops, manufactures and sells prescription and
over-the-counter branded pharmaceutical products throughout Europe, Asia, Africa
and Australia. We intend to sell up to a 40% interest in ICN International 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. It is our
longer term intention to sell our remaining interest in ICN International,
subject to market conditions and regulatory requirements.
1
ICN Americas will be comprised of our remaining assets. These include 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 prospectus.
On November 1, 2001 we announced unaudited financial results for the
quarter ended September 30, 2001.
-- Revenues, excluding royalties, for the quarter ended September 30, 2001,
increased 6% to $167 million, as compared to $158 million for the quarter
ended September 30, 2000. Total revenues for the quarter ended September 30,
2001 decreased 8% to $191 million, as compared to $207 million for the quarter
ended September 30, 2000.
-- Earnings per diluted share before extraordinary loss for the quarter ended
September 30, 2001, were $0.11, as compared to $0.45 cents for the quarter
ended September 30, 2000. Earnings for the quarter ended September 30, 2001,
were affected primarily by lower than expected royalty revenue, which was
caused by a delay in the launch of PegIntron (pegylated interferon). In
addition, earnings for the quarter ended September 30, 2001, were affected by
increases in research and development expenses and selling, general and
administrative expenses.
-- During the quarter ended September 30, 2001, we repurchased or redeemed $303
million of its outstanding indebtedness. In connection with such repurchases
and redemptions, we incurred an extraordinary charge of $21 million for debt
reduction, which resulted in a reported net loss of $0.14 per diluted share
for the quarter.
-- For the nine-month period ended September 30, 2001, revenues, excluding
royalties, increased 10% to $513 million, as compared to $466 million for the
nine-month period ended September 30, 2001. For the nine-month period ended
September 30, 2001, total revenues increased 1% to $596 million, as compared
to $591 million for the nine-month period ended September 30, 2000. Operating
income for the nine-month period ended September 30, 2001 decreased 32% to
$112 million, as compared to $165 million for the nine-month period ended
September 30, 2000. The decrease in operating income was due to a decrease in
royalty revenue of $42 million and an increase in research and development and
selling, general and administrative expenses, partially offset by an increase
in income from pharmaceutical operations of $8 million. The effective tax rate
for the nine-month period ended September 30, 2001, was 35%, as compared to
24% for the nine-month period ended September 30, 2000. Earnings per diluted
share before extraordinary loss, for the nine-month period ended September 30,
2001, were $0.62, as compared to $1.16 for nine-month period ended September
30, 2000.
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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.
2
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, in each case 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 some or all of the notes, at the
redemption prices described in the prospectus,
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:
- unsecured and general obligation of us;
- junior to all of our existing and future
senior indebtedness; and
- 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 September 30, 2001, we and our
subsidiaries had approximately $206,217,000 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):
- 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;
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- 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. 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 in this prospectus,
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."
4
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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 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.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1998 1999 2000 2000 2001
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(IN THOUSANDS)
STATEMENTS OF
OPERATIONS -- CONSOLIDATED
Product sales......................... $ 800,639 $638,475 $ 645,190 $307,671 $345,759
Royalties............................. 37,425 108,937 155,114 76,102 58,981
Total revenues........................ 838,064 747,412 800,304 383,773 404,740
Gross profit -- product sales......... 447,039 382,329 382,372 185,970 206,809
Income (loss) from operations(1)...... (289,568) 198,857 183,955 100,944 84,219
Interest expense...................... 38,069 55,943 60,356 30,635 25,820
Extraordinary loss(2)................. -- -- 3,225 -- 214
Net income (loss)(1).................. (352,074) 118,626 90,180 58,492 42,285
OTHER DATA -- CONSOLIDATED
Depreciation and amortization......... $ 51,096 $ 65,502 $ 64,540 $ 31,377 $ 35,219
Cash flows provided by (used in):
Operating activities................ 9,624 87,123 181,684 82,263 77,208
Investing activities................ (295,046) (50,360) (90,795) (47,402) (57,724)
Financing activities................ 186,019 36,399 (112,765) (22,137) (8,918)
Ratio of earnings to fixed
charges(3)(4)(5) -- 3.5x 3.1x 3.4x 3.6x
JUNE 30, 2001
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ACTUAL PRO FORMA(7)
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(IN THOUSANDS)
BALANCE SHEET DATA
Working capital............................................. $ 397,889 $ 712,774
Total assets................................................ 1,491,225 1,815,156
Total debt(6)............................................... 506,362 842,384
Stockholders' equity........................................ 785,637 777,899
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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
5
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 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. 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, resulting in an
extraordinary loss, net of tax, of $214,000.
(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)In July and August 2001, we repurchased an additional $114.2 million
aggregate principal amount of 8 3/4% senior notes. In connection with these
repurchases, we will record an extraordinary loss on extinguishment of debt
of $13.2 million, net of tax, in the third quarter of 2001.
(7) Pro forma reflects the issuance of $525,000,000 of 6 1/2% convertible
subordinated notes due 2008 in July 2001, the redemption of the 9 1/4%
senior notes due 2005 (which occurred on August 17, 2001) and the
extraordinary loss, net of tax, of $7.7 million as a result of the
redemption of the 9 1/4% senior notes outstanding as of June 30, 2001. See
"Capitalization."
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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 September 30, 2001, we and our
subsidiaries had approximately $206,217,000 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 this 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. 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 below in this paragraph, none of our subsidiaries have
guaranteed or otherwise become obligated with respect to the notes. As a result,
the notes will be structurally subordinated to all indebtedness and other
obligations of our subsidiaries with respect to the assets of our subsidiaries.
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. This cash would otherwise be available to us to pay our
obligations under the notes. In addition, by limiting our ability to receive
cash from ICN International and creating a minority interest, this sale could
have a material adverse effect on our ability to comply with financial and other
restrictive covenants in our existing outstanding indebtedness. Our failure to
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.
7
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 September 30, 2001, we and our subsidiaries had approximately
$746,579,000 of consolidated indebtedness. We may incur additional indebtedness
in the future. Our level of indebtedness will have several important effects on
our future operations, including, without limitation:
- we anticipate that approximately $54 million of cash flow from operations
will be required to discharge our annual obligations on our indebtedness;
- 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
- 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:
- seek additional financing in the debt or equity markets;
- refinance or restructure all or a portion of our indebtedness;
- sell selected assets; or
- 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:
- may be subject to the approval of the ICN stockholders;
- will be subject to obtaining approval by the holders of our outstanding
senior notes or our repayment of or defeasance of that debt; and
- 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:
- 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
8
- 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:
- Ribapharm's financial condition and results of operations will be
substantially dependent on royalties from the license agreement with
Schering-Plough;
- 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;
- 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;
- 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;
- if Ribapharm fails to manage its expansion, its business could be
impaired; and
- 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.
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 for ribavirin to
fund our and its research and development program. During the term of the
license agreement, 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 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 paid under the
license agreement, should not include royalties on products distributed as part
of an indigent patient marketing program. 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 this adjustment as the license agreement
articulates those programs for which royalties would not be due. Should
Schering-Plough successfully apply the proposed adjustment retroactively since
the inception of the license agreement, the adjustment would be approximately
$15 million. Further, if Schering-Plough were to
9
apply the proposed adjustment to future royalty payments, royalties could be
reduced in approximately the same proportion as the proposed historical
adjustment. We have filed an arbitration claim to prevent Schering-Plough from
adjusting its royalty payments to us.
Royalties received from the sale of ribavirin by Schering-Plough could also
decline in the future for a variety of other reasons, including:
- reductions in the pricing of ribavirin by Schering-Plough or in
reimbursement by health care payors;
- the expiration or invalidation of the patents related to ribavirin;
- a decrease in Schering-Plough's marketing efforts;
- quarterly or yearly fluctuations in the prevalence of hepatitis C;
- fluctuations in foreign currency exchange rates;
- 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;
- the suspension or withdrawal of the FDA's approval of ribavirin marketed
by Schering-Plough or changes in the terms of that approval or the
approved labeling for ribavirin;
- any FDA or court imposed restrictions on the manner in which ribavirin is
promoted; and
- any reduction in supplies due to a natural or accidental disaster or
regulatory concerns like 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:
- pegylated interferon developed by Schering-Plough and F. Hoffmann-La
Roche;
- Infergen being developed by Amgen, Inc.;
- Albuferon being developed by Human Genome Sciences, Inc.;
- protease inhibitors being developed by Eli Lilly and Company, Vertex
Pharmaceuticals Incorporated, Viropharma Incorporated, American Home
Products Corporation and Gilead Sciences, Inc.; and
- generic forms of ribavirin being developed by two pharmaceutical
companies.
Other companies that engage in research activities similar to our and
Ribapharm's research activities include Abbott Laboratories, Pfizer Inc.,
GlaxoSmithKline 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% of our revenues for 2000 and for the first nine months of
2001 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.
A large portion of our foreign operations are conducted in emerging
markets. The risks of operating in emerging markets include 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.
10
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.
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 our 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 our Board of Directors.
If the dissident group or any other stockholder were to elect three additional
nominees at our 2002 annual meeting, then two-thirds of our Board of Directors
would be different from our Board of Directors as it existed prior to our 2001
annual meeting. This would trigger change of control provisions in our 8 3/4%
senior notes due 2008 and some compensation arrangements, but not under the
notes. If this were to occur, ICN would be required to redeem all outstanding
8 3/4% senior notes due 2008 at a purchase price equal to 101% of the principal
amount plus accrued interest. At September 30, 2001, $194,611,000 aggregate
principal amount of our 8 3/4% senior notes was outstanding. In addition, if we
experience a change of control under employment agreements with our Chairman and
several key senior executive officers, we would be obligated to pay amounts
totaling approximately $27,800,000, based upon present compensation. In
addition, the vesting of options granted to all of our employees and directors
would be accelerated. The value of the accelerated options would depend upon the
market price of shares of our common stock at that time.
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.
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.
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 SEC filed a civil complaint against us in the
United States District Court for the Central District of California. The SEC
complaint concerns the status and disposition of our 1994 new drug application
for ribavirin as a monotherapy treatment for chronic hepatitis C. We and the SEC
have engaged in discussions in an effort to determine whether the litigation can
be resolved by settlement agreement, but those discussions now appear to be at
an impasse.
11
We are also the subject of a grand jury investigation in the United States
District Court for the Central District of California. The United States
Attorney for the Central District of California advised our counsel that its
investigation relates to our 1994 new drug application for ribavirin as a
monotherapy treatment for chronic hepatitis C and other matters. 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.
In addition, ICN is a party to a legal matter at one of its distribution
companies in Russia. 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 with respect to this matter.
We are a party to other pending lawsuits and subject to a number of
threatened lawsuits. While we cannot predict the ultimate outcome of pending and
threatened lawsuits and the grand jury investigation 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 arrangements with
Schering-Plough for ribavirin and F. Hoffmann-La Roche for Levovirin, 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.
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. Two pharmaceutical companies
have filed abbreviated new drug applications for a generic form of ribavirin. We
have sued one of these pharmaceutical companies to block that company from
selling any generic form of ribavirin. Schering-Plough has sued both of these
companies to block them from selling any generic form of ribavirin.
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.
12
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 New Jersey and in France. These lawsuits allege that
Schering-Plough's pegylated interferon infringes F. Hoffmann-La Roche's patents
on pegylated interferon. 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 pegylated interferon products. In addition, Schering-Plough and Roche
will each license to the other its patents applicable to pegylated interferon as
a combination therapy with ribavirin. The announcement said that Schering-Plough
will cooperate should Roche wish to acquire a license from us under rights to
oral ribavirin for use in combination therapy with Roche's pegylated interferon
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.
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.
13
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.
We must obtain FDA approval in the United States and approval 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. We may not
secure authorization for the commercial sale of any new drugs or compounds for
any application, or for existing drugs or compounds for new applications in the
United States or any other country. Even if we do secure authorization, the
approved labeling may have significant labeling limitations that could affect
profitability. In addition, any drugs or compounds may not 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.
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.
14
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 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
15
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.
OUR EXISTING INDEBTEDNESS RESTRICTS MANY OF OUR CORPORATE ACTIVITIES, INCLUDING
OUR ABILITY TO OBTAIN FINANCING IN THE FUTURE.
As of September 30, 2001, we and our subsidiaries had approximately
$746,579,000 of consolidated 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 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
16
be required to pay as much as approximately $200 million in U.S. federal income
taxes. We intend to offset any tax liability first with any net operating loss
carry forwards, second with existing cash and, third through new financing of
debt or equity. There can be no assurance that sufficient funds to pay any of
these taxes will be available.
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.
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.
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
17
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. Two pharmaceutical companies have filed abbreviated
new drug applications for a generic form of ribavirin. We have sued one of these
pharmaceutical companies to block that company from selling any generic form of
ribavirin. Schering-Plough has sued both of these companies to block them from
selling any generic form of ribavirin. 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.
18
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............................................... 33.89 24.01
Fourth Quarter (through November 9, 2001.................... 27.89 24.20
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 September 28, 2001, there were 7,077 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.
19
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 the notes in July 2001 and the redemption of our 9 1/4% senior
notes. This table should be read in conjunction with our consolidated financial
statements and the related notes incorporated by reference into this prospectus.
AS OF JUNE 30, 2001
-------------------------
ACTUAL PRO FORMA(4)
---------- ------------
(IN THOUSANDS)
Total debt:
8 3/4% Senior Notes due 2008(1)(2)........................ $ 303,250 $ 303,250
9 1/4% Senior Notes due 2005(2)........................... 188,978 --
6 1/2% Convertible Subordinated Notes due 2008............ -- 525,000
Other debt.................................................. 14,134 14,134
---------- ----------
Total debt........................................ $ 506,362 $ 842,384
========== ==========
Minority interest........................................... $ 9,640 $ 9,640
Stockholders' equity:(3)
Common stock, $.01 par value; 200,000 shares authorized;
80,532 shares outstanding.............................. 814 814
Additional capital........................................ 982,279 982,279
Accumulated deficit(4).................................... (105,696) (113,434)
Accumulated other comprehensive income.................... (91,760) (91,760)
---------- ----------
Total stockholders' equity........................ 785,637 777,899
---------- ----------
Total capitalization.............................. $1,301,639 $1,629,923
========== ==========
---------------
(1) Represents the $200.0 million aggregate principal amount of 8 3/4% senior
notes 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
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. In connection with these
repurchases, we will record an extraordinary loss on extinguishment of debt
of $13.2 million, net of tax, in the third quarter of 2001.
(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 at 104.625% of the principal amount including the
extraordinary loss, net of tax, of $7.7 million as a result of the
redemption of the 9 1/4% senior notes outstanding as of June 30, 2001.
20
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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 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.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30
------------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- --------- --------- -------- --------- -------- --------
(IN THOUSANDS)
STATEMENT OF OPERATIONS --
CONSOLIDATED
Product sales................... $614,080 $ 752,202 $ 800,639 $638,475 $ 645,190 $307,671 $345,759
Royalties....................... -- -- 37,425 108,937 155,114 76,102 58,981
Total revenues.................. 614,080 752,202 838,064 747,412 800,304 383,773 404,740
Gross profit -- product sales... 322,273 400,224 447,039 382,329 382,372 185,970 206,809
Income (loss) from
operations(1)................. 114,113 125,298 (289,568) 198,857 183,955 100,944 84,219
Interest expense................ 15,780 22,849 38,069 55,943 60,356 30,635 25,820
Extraordinary loss(2)........... -- -- -- -- 3,225 -- 214
Net income (loss)(1)............ 86,928 113,924 (352,074) 118,626 90,180 58,492 42,285
OTHER DATA -- CONSOLIDATED
Depreciation and amortization... $ 17,936 $ 28,753 $ 51,096 $ 65,502 $ 64,540 $ 31,377 $ 35,219
Cash flows provided by (used
in):
Operating activities.......... (25,548) 9,315 9,624 87,123 181,684 82,263 77,208
Investing activities.......... (41,962) (100,096) (295,046) (50,360) (90,795) (47,402) (57,724)
Financing activities.......... 82,680 262,675 186,019 36,399 (112,765) (22,137) (8,918)
Ratio of earnings to fixed
Charges(3)(4)(5).............. 5.9x 4.5x -- 3.5x 3.1x 3.4x 3.6x
DECEMBER 31, JUNE 30,
------------------------------------------------------------ -----------------------
1996 1997 1998 1999 2000 2000 2001
-------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA
Cash...................... $ 39,366 $ 209,896 $ 104,921 $ 177,577 $ 155,205 $ 188,808 $ 165,899
Working capital........... 306,764 585,606 236,994 424,108 406,639 448,974 397,889
Total assets.............. 778,651 1,491,745 1,356,396 1,472,261 1,477,072 1,472,748 1,491,225
Total debt(2)............. 195,681 348,206 556,489 606,035 511,688 592,403 506,362
Stockholders' equity...... 315,350 796,328 586,164 683,572 757,194 719,134 785,637
---------------
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
21
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 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. 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, resulting in an
extraordinary loss, net of tax, of $214,000.
(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.
22
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 $83
million for the nine months ended September 30, 2001. In October 2001,
Schering-Plough announced that it began selling peg-intron for use in a
combination therapy with ribavirin. 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, a compound that is currently in
Phase I clinical trials for the treatment of hepatitis C, to F. Hoffmann-La
Roche. Ribapharm received 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." We also
licensed one compound for the treatment of hepatitis B from another company. We
anticipate transferring or sub-licensing these compounds to Ribapharm in
connection with the restructuring.
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
23
conversion of the notes. See "Certain United States Federal Tax
Consequences -- Certain Tax Consequences to us and Ribapharm."
In connection with the restructuring ICN has contributed to Ribapharm:
- ICN's building in Costa Mesa, California, including all fixtures and real
property associated with the building;
- subject to the approval of the holders of ICN's existing outstanding
8 3/4% senior notes due 2008, 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;
- all the chemical compounds contained in ICN's chemical compound library,
along with all associated records, journals and data;
- 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;
- all of the equipment and furniture contained in, and personnel employed
in, Ribapharm's research and development department in the Costa Mesa
facility; and
- 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
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.
SPIN-OFF
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,
24
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.
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:
- may be subject to the approval of ICN's stockholders;
- 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
- 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:
- 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
- compliance with all applicable laws, including the regulations of the SEC
and Delaware General Corporation Law provisions regarding the payment of
dividends.
25
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 is 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
26
agreement so that Ribapharm may become liable, as between ICN and Ribapharm, for
all or part of the obligations on the notes.
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:
- 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;
- the subdivision or combination of the outstanding common stock of ICN or,
following a Ribapharm spin-off, Ribapharm;
- 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
27
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;
- 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 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;
- 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;
- 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
- 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, is 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.
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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.
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:
- 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
29
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;
- persons who constitute the Board of Directors which is referred to as the
"incumbent board" of ICN as of the 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;
- 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
- 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
30
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:
- 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;
- 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
- 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
- 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;
- 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);
- guarantees by that person of indebtedness described in the first or
second bullet of another person;
- all renewals, extensions, refundings, deferrals, restructurings,
amendments and modifications of any indebtedness, obligation or
guarantee;
- all reimbursement obligations of that person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of that person;
- all capital lease obligations of that person; and
31
- 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.
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 September 30, 2001, ICN and its subsidiaries had approximately
$206,217,000 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
32
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:
- default for 30 days in payment of interest or liquidated damages on the
notes;
- default in payment of principal at maturity, upon redemption or exercise
of a repurchase right or otherwise;
- 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
- 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:
- reduce the amount of notes whose holders must consent to an amendment;
- reduce the rate or change the time for payment of interest on any note;
- reduce the principal of or change the fixed maturity of any note
(including, without limitation, the optional redemption provisions);
- make any note payable in money other than that stated in the note;
- 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
- 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.
33
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
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
34
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 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.
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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 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,
36
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.
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.
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:
- dealers in securities or currencies;
- traders in securities;
- United States holders (as defined below) whose functional currency is not
the United States dollar;
- persons holding notes as part of a hedge, straddle, conversion or other
integrated transaction;
37
- certain United States expatriates;
- financial institutions;
- insurance companies;
- S corporations;
- entities that are tax-exempt for United States federal income tax
purposes; and
- 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:
- an individual citizen or resident of the United States;
- 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;
- an estate, the income of which is subject to United States federal income
taxation regardless of the source of that income; or
- 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:
- 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
- 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.
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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 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:
- 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
- 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.
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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.
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
40
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:
- the amount realized on the sale or other disposition; and
- 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.
Backup Withholding In general, "backup withholding" at the applicable rate
may apply:
- to payments of principal and interest made on a note,
- to payments of the proceeds of a sale or other disposition of a note
before maturity,
- to payments of dividends on common stock, and
- 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
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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:
- on at least 31 days in the calendar year, and
- for an aggregate of at least 183 days during a three-year period ending
in the current calendar year, 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:
- 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;
- 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;
- such interest is not effectively connected with your conduct of a United
States trade or business; and
42
- 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:
- if you are a foreign partnership, the certification requirement will
generally apply to your partners, and you will be required to provide
certain information;
- 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
- 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.
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:
- 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
- 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
43
convertible into both our and Ribapharm's common stock. In addition, any gain
that is realized by you will not be recognized unless:
- 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
- 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:
- 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
- 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 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,
- if you are a foreign partnership, the certification requirement will
generally apply to your partners and you will be required to provide
certain information;
44
- 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
- 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, 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:
- 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;
- 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
- 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:
- 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
- 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
45
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:
- is a United States person, as defined in the Internal Revenue Code;
- derives 50 percent or more of its gross income in specific periods from
the conduct of a trade or business in the United States;
- is a "controlled foreign corporation" for United States federal income
tax purposes; or
- is a foreign partnership, if at any time during its tax year:
- 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
- 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.
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.
SHARES OF
PRINCIPAL COMMON SHARES OF
AMOUNT OF NOTES STOCK COMMON STOCK
BENEFICIALLY ISSUABLE UPON OWNED AFTER
OWNED AND CONVERSION OF COMPLETION OF
NAME OFFERED THE NOTES THE OFFERING
---- --------------- ------------- -------------
AFTRA Health Fund................................... $ 190,000 5,546 --
AIG SoundShore Holding Ltd. ........................ 2,206,000 64,398 --
AIG SoundShore Opportunity Holding Fund Ltd. ....... 2,029,000 59,231 --
AIG SoundShore Strategic Holding Fund Ltd. ......... 695,000 20,288 --
AIM Dent Demographics Trends Fund................... 400,000 11,676 --
AIM VI Dent Demographics Trends Fund................ 200,000 5,838 --
AIM Dent Demographics Trends Fund................... 500,000 14,596 --
46
SHARES OF
PRINCIPAL COMMON SHARES OF
AMOUNT OF NOTES STOCK COMMON STOCK
BENEFICIALLY ISSUABLE UPON OWNED AFTER
OWNED AND CONVERSION OF COMPLETION OF
NAME OFFERED THE NOTES THE OFFERING
---- --------------- ------------- -------------
Alexandria Global Investment Fund 1 Ltd. ........... $ 31,000,000 904,964 --
Allstate Insurance Company.......................... 2,500,000 72,981 50,000(1)
Allstate Life Insurance Company..................... 750,000 21,894 50,000(2)
American Samoa Government........................... 93,000 2,714 --
Arbitex Master Fund, L.P. .......................... 10,500,000 306,520 --
Argent Classic Convertible Arbitrage Fund
(Bermuda) Ltd. ................................... 16,700,000 487,513 --
Aristria International Limited...................... 3,308,000 96,568 --
Aristria Partners, LP............................... 1,192,000 34,797 --
Ascend Offshore Fund Ltd. .......................... 240,900 7,032 --
Ascend Partners L.P. ............................... 57,100 1,666 --
Ascend Partners Sapient L.P. ....................... 32,000 934 --
Associated Electric & Gas Insurance Services
Limited........................................... 700,000 20,434 --
Bancroft Convertible Fund, Inc. .................... 1,000,000 29,192 --
Bank Austria Cayman Islands Ltd. ................... 6,000,000 175,154 --
Bear Stearns & Co. Inc. ............................ 1,000,000 29,192 --
Bear Stearns Securities Corp. ...................... 2,029,000 59,231 --
BNP Paribas Equity Strategies SNC................... 12,495,000 364,759 --
Bon Ernst Global Portfolio/Convertible Bond......... 400,000 11,676 --
BP Amoco PLC, Master Trust.......................... 2,846,000 83,081 --
BTES -- Convertible ARB............................. 1,000,000 29,192 --
BTPO Growth Vs Value................................ 4,500,000 131,365 --
CALAMOS(R) Market Neutral Fund -- CALAMOS(R)
Investment Trust.................................. 9,800,000 286,085 --
Canyon Capital Arbitrage Master Hedge Fund, Ltd. ... 3,000,000 87,577 --
Canyon MAC 18 LTD (RMF)............................. 1,000,000 29,192 --
Canyon Value Realization Fund (Cayman), Ltd. ....... 7,000,000 204,346 --
Carls Foundation.................................... 200,000 5,838 --
Chrysler Corporation Master Retirement Trust........ 7,730,000 225,657 --
Coastal Convertibles Ltd. .......................... 1,000,000 29,192 --
Commonfund Event-Driven Company c/o IBT Fund
Services (Cayman)................................. 319,000 9,312 --
Consulting Group Capital Market Funds............... 540,000 15,763 --
Cooper Neff Convertible Strategies Fund, L.P. ...... 2,145,000 62,617 --
CSFB Convertible and Quantitative Strategies........ 3,100,000 90,496 --
DeAm Convertible Arbitrage FD....................... 2,000,000 58,384 --
Delta Air Lines Master Trust........................ 2,015,000 58,822 --
Delta Pilots D & S Trust............................ 840,000 24,521 --
Deutsche Banc Alex Brown Inc. ...................... 21,500,000 627,636 --
Ellsworth Convertible Growth and Income Fund,
Inc. ............................................. 1,000,000 29,192 --
First Union International Capital Markets........... 8,000,000 233,539 --
47
SHARES OF
PRINCIPAL COMMON SHARES OF
AMOUNT OF NOTES STOCK COMMON STOCK
BENEFICIALLY ISSUABLE UPON OWNED AFTER
OWNED AND CONVERSION OF COMPLETION OF
NAME OFFERED THE NOTES THE OFFERING
---- --------------- ------------- -------------
First Union National Bank........................... $ 30,000,000 875,772 --
Franklin Custodial Funds -- Franklin Income
Series............................................ 12,500,000 364,905 --
Forest Alternative Strategies II.................... 50,000 1,459 --
Forest Fulcrum Fund L.L.P........................... 640,000 18,683 --
Forest Global Convertible Fund Series A-5........... 2,950,000 86,117 --
Franklin Income Series.............................. 22,500,000 656,829 --
Franklin Investors Securities Trust -- Franklin
Convertible Secs.................................. 4,500,000 131,365 --
Franklin Investors Securities Trust -- Franklin
Equity Income Fund................................ 4,600,000 134,285 --
Franklin Templeton Variable Insurance Products
Trust -- Franklin Growth and Income Fund.......... 7,200,000 210,185 --
Franklin Growth and Income Fund..................... 8,000,000 233,539 --
Franklin Strategic Series -- Franklin California
Growth Fund....................................... 9,600,000 280,247 --
Franklin Templeton Variable Insurance Products
Trust -- Franklin Income Securities Fund.......... 1,150,000 33,571 --
FTIF -- Franklin Income Fund........................ 100,000 2,919 --
GLG Global Convertible Fund......................... 2,520,000 73,564 --
GLG Global Convertible Ucits Fund................... 480,000 14,012 --
Goldman Sachs and Company........................... 235,000 6,860 --
HBK Master Fund L.P. ............................... 5,000,000 145,962 --
Herrick Foundation.................................. 200,000 5,838 --
HFR Master Fund, LTD................................ 50,000 1,459 --
Hotel Union & Hotel Industry of Hawaii Pension
Plan.............................................. 995,000 29,046 --
James Campbell Corporation.......................... 407,000 11,881 --
Janus Capital Corporation........................... 3,000,000 87,577 --
Jefferies & Co. .................................... 200,000 5,838 --
Jefferies & Company Inc. ........................... 22,000 642 --
KBC Financial Products USA Inc. .................... 2,070,000 60,428 --
LDG Limited......................................... 200,000 5,838 --
Levo Alternative Fund, Ltd. ........................ 7,981,000 232,984 --
Lexington Vantage Fund, Ltd. ....................... 200,000 5,838 --
LLT Limited......................................... 155,000 4,524 --
Lyxor Master Fund................................... 1,000,000 29,192 --
Mainstay Convertible Fund........................... 2,690,000 78,527 --
Mainstay VP Convertible Portfolio................... 760,000 22,186 --
McMahan Securities Co. L.P. ........................ 3,200,000 93,415 --
Microsoft Corporation............................... 1,085,000 31,673 --
Morgan Stanley & Co. ............................... 5,000,000 145,962 --
Motion Picture Industry Health Plan -- Active Member
Fund.............................................. 570,000 16,639 --
Motion Picture Industry Health Plan -- Retiree
Member Fund....................................... 245,000 7,152 --
48
SHARES OF
PRINCIPAL COMMON SHARES OF
AMOUNT OF NOTES STOCK COMMON STOCK
BENEFICIALLY ISSUABLE UPON OWNED AFTER
OWNED AND CONVERSION OF COMPLETION OF
NAME OFFERED THE NOTES THE OFFERING
---- --------------- ------------- -------------
MSD Portfolio L.P. -- Investments................... $ 5,000,000 145,962 --
New York Life Separate Account #7................... 360,000 10,509 --
North Pole Capital Investments Ltd. ................ 1,800,000 52,546 --
OCM Convertible Limited Partnership................. 240,000 7,006 --
OCM Convertible Trust............................... 4,685,000 136,766 --
Onex Industrial Partners Limited.................... 1,970,000 57,509 --
Pacific Life Insurance Company...................... 500,000 14,596 --
Palladin Securities................................. 1,000,000 29,192 --
Partner Reinsurance Company Ltd. ................... 990,000 28,900 --
Pebble Capital Inc. ................................ 760,000 22,186 --
Polar Hedge Enhanced Income Trust................... 200,000 5,838 --
Prime Corp Convertible Fund......................... 1,000,000 29,192 --
Purchase Associates L.P. ........................... 2,200,000 64,223 --
Quattro Fund, LLC................................... 6,000,000 175,154 --
RCG Latitude Master Fund Ltd. ...................... 2,000,000 58,384 --
R(2) Investments, LDC............................... 14,000,000 408,693 --
RBC Capital Services, Inc. ......................... 15,000 437 --
Salomon Brothers Asset Management................... 19,400,000 566,332 --
Silvercreek II Limited.............................. 2,270,000 66,266 --
Silvercreek Limited Partnership..................... 1,000,000 29,192 --
St. Albans Partners Inc. ........................... 1,400,000 40,869 --
State Employees' Retirement Fund of the State of
Delaware.......................................... 2,475,000 72,251 --
State of Connecticut Combined Investment Funds...... 5,280,000 154,135 --
Sturgeon Limited.................................... 360,000 10,509 --
Sylvin (IMA) Ltd. .................................. 260,000 7,590 --
The Bank of New York & E. Mac Gregor Strauss........ 25,000 729 --
The Class 1C Company, Ltd. ......................... 2,000,000 58,384 --
The Estate of James Campbell........................ 347,000 10,129 --
TQA Master Fund, Ltd. .............................. 3,750,000 109,471 --
TQA Master Plus Fund, Ltd. ......................... 3,750,000 109,471 --
Tribeca Investments, L.L.C. ........................ 12,000,000 350,308 --
Triborough Partners QP, L.L.C. ..................... 1,000,000 29,192 --
UBS AG London Branch................................ 11,525,000 336,442 --
UBS Warburg LLC..................................... 26,508,000 773,832 --
Value Realization Fund, L.P. ....................... 4,000,000 116,769 --
Vanguard Convertible Securities Fund, Inc. ......... 7,845,000 229,014 --
Van Kampen Harbor Fund.............................. 5,000,000 145,962 319,300(3)
Viacom Inc. Pension Plan Master Trust............... 106,000 3,094 --
White Box Convertible Arbitrage Partners LP......... 5,000,000 145,962 --
White River Securities L.L.C. ...................... 1,000,000 29,192 --
Yield Strategies Fund, I, L.P. ..................... 2,600,000 75,900 --
49
SHARES OF
PRINCIPAL COMMON SHARES OF
AMOUNT OF NOTES STOCK COMMON STOCK
BENEFICIALLY ISSUABLE UPON OWNED AFTER
OWNED AND CONVERSION OF COMPLETION OF
NAME OFFERED THE NOTES THE OFFERING
---- --------------- ------------- -------------
ZCM Asset Holding Company (Bermuda) Ltd. ........... $ 200,000 5,838 --
Zurich Institutional Benchmarks Master Fund
Limited........................................... 200,000 5,838 --
Zurich Master Hedge Fund............................ 130,000 3,795 --
------------ ---------- -------
TOTAL............................................... $479,958,000 14,011,073 419,300
---------------
(1)Beneficial ownership of our common stock consists of Allstate Insurance
Company 29,500 shares, Allstate Life Insurance Company 1,400 shares, Allstate
New Jersey Insurance Company 1,700 shares, Agents Pension Plan 5,200 shares
and Allstate Retirement Plan 12,200 shares.
(2)Beneficial ownership of our common stock consists of Allstate Insurance
Company 29,500 shares, Allstate Life Insurance Company 1,400 shares, Allstate
New Jersey Insurance Company 1,700 shares, Agents Pension Plan 5,200 shares
and Allstate Retirement Plan 12,200 shares.
(3)Beneficial ownership of our common stock consists of LSA Aggressive Growth
Fund 460 shares, Van Kampen Aggressive Growth Fund 300,000 shares, US Allianz
Aggressive Growth Fund 230 shares, Van Kampen Life Investment Trust
Aggressive Growth Portfolio 310 shares and MSDW All Star Growth Fund 18,300
shares.
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, except UBS AG
London Branch, an affiliate of UBS Warburg. 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.
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:
- 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;
- in the over-the-counter market;
- in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
- through the writing of options, whether the options are listed on an
options exchange or otherwise; or
- through the settlement of short sales.
50
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.
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
51
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 the six month periods ended June 30, 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 reports
dated May 3, 2001 and August 2, 2001 incorporated by reference herein, state
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.
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.
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:
- Room 1024, 450 Fifth Street, NW, Judiciary Plaza, Washington, D.C. 20549;
and
- Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
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.
52
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, June
29, 2001 and November 2, 2001.......... Year ended December 31, 2000
Quarterly Reports on Form 10-Q........... Quarters ended March 31, 2001 and June
30, 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
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.
53
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:
- growth opportunities;
- acquisition strategy;
- reorganization plans; and
- 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:
- 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);
- 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;
- the risk of potential claims against certain of our research compounds;
- our ability to successfully develop and commercialize future products;
- the limited protection afforded by the patents relating to ribavirin, and
possibly on future drugs, techniques, processes or products we may
develop or acquire;
- the potential impact of the Euro currency;
- our ability to continue our expansion plan and to integrate successfully
any acquired companies;
- the results of lawsuits or the outcome of investigations pending against
us;
- our potential product liability exposure and lack of any insurance
coverage thereof; and
- 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 7. 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.
54
---------------------------------------------------------
---------------------------------------------------------
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......................
Risk Factors............................. 7
Use of Proceeds.......................... 19
Price Range of Common Stock and Dividend
Policy................................. 19
Capitalization........................... 20
Selected Financial Data.................. 21
Ribapharm................................ 23
Description of Notes..................... 26
Description of Common Stock.............. 37
Certain United States Federal Tax
Consequences........................... 37
Selling Securityholders.................. 46
Plan of Distribution..................... 50
Independent Accountants.................. 51
Validity of the Securities............... 52
Where You Can Find More Information...... 52
Incorporation by Reference............... 53
Forward-looking Statements............... 54
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
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
-------------------------
November 9, 2001
---------------------------------------------------------
---------------------------------------------------------
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..................................... 150,000
Accounting fees and expenses................................ 50,000
New York Stock Exchange Supplemental Listing fee............ --
Miscellaneous............................................... 50,000
--------
Total............................................. $381,250
========
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
II-1
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.
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
II-2
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.
(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.
II-3
SIGNATURES
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 Amendment No. 2 to
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 9th day of November 2001.
ICN PHARMACEUTICALS, INC.
By: /s/ MILAN PANIC
------------------------------------
Milan Panic
Chairman of the Board
And Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 2 to this Registration Statement has been signed below by the
following persons, on the 9th day of November 2001, on behalf of the Registrant
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Board and Chief November 9, 2001
------------------------------------------------ Executive Officer
Milan Panic
* Executive Vice President and November 9, 2001
------------------------------------------------ Chief Financial Officer
Richard A. Meier (principal financial officer)
* Executive Vice President November 9, 2001
------------------------------------------------ (principal accounting officer)
John E. Giordani
* Director November 9, 2001
------------------------------------------------
Norman Barker, Jr.
* Director November 9, 2001
------------------------------------------------
Senator Birch E. Bayh
* Director November 9, 2001
------------------------------------------------
Edward A. Burkhardt
* Director November 9, 2001
------------------------------------------------
Alan F. Charles
* Director November 9, 2001
------------------------------------------------
Ronald R. Fogleman
* Director November 9, 2001
------------------------------------------------
Roger Guillemin, M.D., Ph.D.
II-4
SIGNATURE TITLE DATE
--------- ----- ----
* President, Director November 9, 2001
------------------------------------------------
Adam Jerney
* Director November 9, 2001
------------------------------------------------
Jean-Francois Kurtz
* Director November 9, 2001
------------------------------------------------
Steven J. Lee
* Director November 9, 2001
------------------------------------------------
Stephen D. Moses
* Director November 9, 2001
------------------------------------------------
Rosemary Tomich
*By: /s/ GREGORY KEEVER
------------------------------------------
Gregory Keever
as Attorney-in-Fact
II-5
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 Power of Attorney*
25.1 Statement of eligibility of trustee on Form T-1*
---------------
* Previously filed.
** Filed herewith.