<PAGE>
Filed pursuant to
Rule 424(b)(4)
Registration Statement Numbers
333-2343 and 333-2765
P R O S P E C T U S
$435,000,000
[LOGO]
5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006
------------------
The 5% Convertible Subordinated Debentures due 2006 (the "Debentures") to be
issued by ALZA Corporation, a Delaware corporation ("ALZA"), will be
convertible, at the option of the holder, at any time on or prior to maturity,
unless previously redeemed or repurchased, into shares of Common Stock of ALZA,
$.01 par value per share ("Common Stock"), at a conversion price of $38.19 per
share of Common Stock (equivalent to a conversion rate of 26.18 shares per
$1,000 principal amount of Debentures), subject to certain anti-dilution
adjustments. See "Description of Debentures -- Conversion of Debentures." On
April 23, 1996, the last reported sale price of the Common Stock as reported on
the New York Stock Exchange was $29 3/8 per share. The Common Stock is listed on
the New York Stock Exchange under the symbol "AZA".
Interest on the Debentures will be payable on May 1 and November 1 of each
year, commencing November 1, 1996. The Debentures will be redeemable by ALZA, in
whole or in part, at any time on or after May 1, 1999, at the redemption prices
set forth herein, in each case plus accrued and unpaid interest, if any, to the
redemption date; provided that the Debentures may not be redeemed by ALZA prior
to May 1, 2000, unless the average of the Closing Prices of the Common Stock for
all of the Trading Days during a period of 30 consecutive calendar days ending
not more than 10 days prior to ALZA's notice to the Trustee (as defined herein)
of such redemption equals or exceeds 150% of the conversion price then in
effect. In the event of a Change in Control (as defined herein), each holder of
the Debentures will have the right to require ALZA to repurchase all or a
portion of such holder's Debentures at 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. See
"Description of Debentures -- Repurchase at Option of Holders Upon Change in
Control."
The Debentures are unsecured and subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of ALZA. As of
December 31, 1995, ALZA had $850,000 principal amount of debt that would have
constituted Senior Indebtedness. The Debentures will rank pari passu with ALZA's
outstanding 5 1/4% Liquid Yield Option-TM- Notes due 2014 (the "LYONs"-TM-),
which as of December 31, 1995 had an accreted value of $362,944,000. See
"Description of Debentures -- Subordination of Debentures."
The Debentures have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "AZA 06".
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBENTURES
OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) ALZA(3)
<S> <C> <C> <C>
Per Debenture...................................... 100% 2.25% 97.75%
Total (4).......................................... $435,000,000 $9,787,500 $425,212,500
</TABLE>
(1) Plus accrued interest, if any, from April 29, 1996.
(2) ALZA has agreed to indemnify the Underwriter against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by ALZA estimated at $500,000.
(4) ALZA has granted the Underwriter an option, exercisable within 30 days after
the date of this Prospectus, to purchase up to an additional $65,250,000
aggregate principal amount of Debentures on the same terms as set forth
above to cover over-allotments, if any. If the option is exercised in full,
the Price to Public, Underwriting Discount and Proceeds to ALZA will be
$500,250,000, $11,255,625 and $488,994,375, respectively. See
"Underwriting."
--------------------------
The Debentures are offered by the Underwriter, subject to prior sale, when,
as and if issued to and accepted by the Underwriter, subject to approval of
certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify any
such offer and to reject orders in whole or in part. It is expected that
delivery of the Debentures will be made in New York, New York, on or about April
29, 1996.
- -TM-Trademark of Merrill Lynch & Co., Inc.
--------------------------
MERRILL LYNCH & CO.
---------------
The date of this Prospectus is April 23, 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY, THE COMMON STOCK OF ALZA OR OTHER SECURITIES OF ALZA, OR ANY OF
THEM, AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
AVAILABLE INFORMATION
ALZA is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected at the public reference facilities of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549.
Copies of such material can be obtained at prescribed rates from the Commission
at such address. Such reports, proxy statements and other information can also
be inspected at the Commission's regional offices at 7 World Trade Center, 13th
Floor, New York, New York 10019 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, such reports, proxy statements and other
information concerning ALZA may be inspected at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005.
ALZA has filed with the Commission a Registration Statement on Form S-3
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Debentures offered by this Prospectus. As permitted by the rules
and regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to ALZA and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto, which may be examined without charge at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by ALZA with the Commission,
are hereby incorporated by reference in this Prospectus:
(a) ALZA's Annual Report on Form 10-K for the fiscal year ended December
31, 1995; and
(b) The description of the Common Stock contained in ALZA's registration
statement on Form 8-A filed May 14, 1992 under the Exchange Act.
All documents filed by ALZA pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Debentures offered hereby shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Upon written or oral request directed to Corporate and Investor Relations,
ALZA Corporation, 950 Page Mill Road, P.O. Box 10950, Palo Alto, California
94303-0802, telephone (415) 494-5222, ALZA will provide, without charge, to any
person to whom this Prospectus is delivered, a copy of any document incorporated
by reference in this Prospectus (not including exhibits to any such document
except to the extent any such exhibits are specifically incorporated by
reference in the information incorporated in this Prospectus).
2
<PAGE>
PROSPECTUS SUMMARY
STATEMENTS MADE IN THIS PROSPECTUS RELATING TO PRODUCT DEVELOPMENT,
MANUFACTURING AND MARKETING, OR THAT OTHERWISE RELATE TO FUTURE PERIODS, ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
RISKS DESCRIBED IN THIS PROSPECTUS (INCLUDING ALZA'S ANNUAL REPORT ON FORM 10-K
FOR 1995 AND OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE). UNLESS OTHERWISE
INDICATED THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITER'S
OVER-ALLOTMENT OPTION IS NOT EXERCISED.
ALZA
ALZA is a leader in the development and commercialization of innovative
pharmaceutical products that incorporate drugs into advanced dosage forms
designed to provide controlled, predetermined rates of drug release for extended
time periods. By administering drugs in preset patterns and by alternative
routes, ALZA's advanced dosage forms, called therapeutic systems, can add
medical and economic value to drug therapies by minimizing their unpleasant or
harmful side effects, optimizing their beneficial actions, simplifying drug
therapy, and increasing patient compliance by decreasing the frequency with
which medication must be administered.
Historically, most of ALZA's product development activities have been
undertaken pursuant to joint development and commercialization agreements with
pharmaceutical companies. These agreements normally provide for the
pharmaceutical company client to reimburse ALZA for costs incurred in product
development and clinical evaluation of a specified product, including a portion
of general and administrative expenses. The client receives marketing rights to
the product and ALZA receives royalties on the client's sales of the product.
Generally ALZA manufactures all or a portion of the client's requirements of the
product. Among the ALZA-developed products commercialized to date by client
companies are Procardia XL-Registered Trademark- (nifedipine) extended release
tablets for the treatment of angina and hypertension, Duragesic-Registered
Trademark- (fentanyl) CII for the management of chronic pain in patients who
require continuous opioid analgesia for pain that cannot be managed by lesser
means, Transderm-Nitro-Registered Trademark- (nitroglycerin), a once-daily
product for the prevention of angina pectoris due to coronary artery disease,
and Nicoderm-Registered Trademark- (nicotine), an aid in smoking cessation for
relief of nicotine withdrawal symptoms.
The United States health care industry has changed dramatically in the last
several years. Pharmaceutical companies have reduced sales forces, acquired
pharmacy benefit companies, and built alliances in an effort to cut costs,
secure market share, and improve research and development productivity. In this
environment, every new pharmaceutical product must add value to the health care
marketplace. These changes have created a unique opportunity for ALZA.
Beginning in the early 1990s and accelerating over the past several years,
ALZA has embarked on a three-part strategy to capitalize on the opportunities
created by the new health care marketplace. First, ALZA has continued its
traditional product development arrangements with client companies.
Second, ALZA has expanded its commercialization capabilities and activities
through its ALZA Pharmaceuticals division. In 1994, ALZA Pharmaceuticals
introduced in the United States Testoderm-Registered Trademark-(testosterone
transdermal system) CIII for hormone replacement therapy in males for conditions
associated with a deficiency or absence of endogenous testosterone. Also during
1994, ALZA's sales force began to co-promote in the United States two products
developed by ALZA under agreements with client companies -- Duragesic-Registered
Trademark- with Janssen Pharmaceutica, Inc. ("Janssen"), and Glucotrol
XL-Registered Trademark- with Pfizer Inc. ("Pfizer"). In April 1996, ALZA
Pharmaceuticals launched in the United States Ethyol-Registered Trademark-
(amifostine), a unique agent developed by U.S. Bioscience, Inc., indicated for
the reduction of cumulative renal toxicity associated with repeated
administration of the chemotherapeutic drug cisplatin in patients with advanced
ovarian cancer or advanced non-small cell lung cancer. ALZA has exclusive rights
to market the product for five years, with an option to extend for one
additional year; U.S. Bioscience co-promotes the product with ALZA. As part of
its strategy to expand its commercialization activities, and in order to
decrease ALZA's dependence on client
3
<PAGE>
companies, ALZA formed Therapeutic Discovery Corporation ("TDC") in 1993 to
develop, with ALZA, a pipeline of products for commercialization by ALZA. At the
end of 1995, ALZA and TDC had more than 20 products in various stages of
development, including a number in Phase III clinical evaluation.
Third, in order to extend ALZA's leadership in drug delivery technology,
ALZA formed the ALZA Technology Institute ("ATI") in 1994. ATI is increasing
ALZA's investment in the research and development of therapeutic systems,
including systems for the delivery of biotechnology compounds and for use in
gene therapy.
ALZA's principal executive offices are located at 950 Page Mill Road, P.O.
Box 10950, Palo Alto, California 94303-0802 and its telephone number is (415)
494-5000.
THE OFFERING
<TABLE>
<S> <C>
The Debentures......................... $435,000,000 aggregate principal amount
($500,250,000 aggregate principal amount if the
Underwriter's over- allotment option is exercised
in full) of 5% Convertible Subordinated Debentures
due 2006.
Payment of Interest.................... The Debentures will bear interest at the rate of 5%
per annum. Interest will be payable semi-annually
on May 1 and November 1 of each year, commencing
November 1, 1996. See "Description of Debentures --
General."
Conversion Rights...................... The Debentures are convertible, at the option of
the holder, at any time on or prior to maturity,
unless previously redeemed or repurchased, into
shares of Common Stock, at a conversion price of
$38.19 per share, subject to certain anti-dilution
adjustments. See "Description of Debentures --
Conversion of Debentures."
Optional Redemption by ALZA............ The Debentures are redeemable at the option of
ALZA, in whole or in part, at any time on or after
May 1, 1999, at the redemption prices set forth
herein, in each case plus accrued and unpaid
interest, if any, to the redemption date; provided
that the Debentures may not be redeemed by ALZA
prior to May 1, 2000, unless the average of the
Closing Prices of the Common Stock for all of the
Trading Days during a period of 30 consecutive
calendar days ending not more than 10 days prior to
ALZA's notice to the Trustee of such redemption
equals or exceeds 150% of the conversion price then
in effect. See "Description of Debentures --
Optional Redemption by ALZA."
Repurchase at Option of Holders Upon
Change in Control..................... In the event a Change in Control occurs, each
holder of Debentures may require ALZA to repurchase
all or a portion of such holder's Debentures at
100% of the principal amount thereof, together with
accrued interest to the repurchase date. If a
Change in Control were to occur, there can be no
assurance that ALZA would have sufficient funds to
pay the repurchase price for all Debentures
tendered by the holders thereof. See "Description
of Debentures -- Repurchase at Option of Holders
Upon Change in Control."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Subordination.......................... The Debentures will be subordinated to all existing
and future Senior Indebtedness of ALZA, the
principal amount of which as of December 31, 1995
was $850,000. The Debentures will rank pari passu
with ALZA's outstanding LYONs, which had an
accreted value of $362,944,000 at December 31, 1995
($948,750,000 principal amount at maturity in
2014). The Debentures will not restrict the
incurrence of Senior Indebtedness by ALZA, or the
incurrence of other indebtedness or liabilities by
ALZA or its subsidiaries. See "Capitalization" and
"Description of Debentures -- General" and "--
Subordination of Debentures."
Use of Proceeds........................ ALZA will use the net proceeds of the offering for
general corporate purposes. See "Use of Proceeds."
Listing................................ The Debentures have been approved for listing on
the New York Stock Exchange, subject to official
notice of issuance, under the symbol "AZA 06". The
Common Stock is currently traded on the New York
Stock Exchange under the symbol "AZA".
</TABLE>
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
Set forth below are summary consolidated financial data for ALZA at the
dates and for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
STATEMENT OF OPERATIONS DATA:
Total revenues.................................... $ 350,624 $ 278,756 $ 234,182 $ 250,519 $ 162,349
Net income (loss)................................. 72,408(1) 58,120 45,612(2) 72,170 (62,076)(3)
Net income (loss) per share....................... 0.88 0.71 0.57 0.90 (0.88 )
BALANCE SHEET DATA:
Working capital (deficiency)...................... $ 510,120 $ 436,445 $ (87,767 (2) $ 188,744 $ 227,950
Total assets...................................... 937,215 806,252 621,824 698,381 580,490
Commercial paper.................................. -- -- 249,520 (2) -- --
5 1/4% zero coupon convertible subordinated
debentures (LYONs)............................... 362,944 344,593 -- -- --
7 1/2% zero coupon convertible subordinated
debentures....................................... -- -- -- 228,966 213,220
Other long-term liabilities....................... 51,770 41,192 28,969 22,723 23,607
Total stockholders' equity........................ 454,553 364,479 306,677 (4) 407,543 322,854
OTHER DATA:
Ratio of earnings to fixed charges (5)............ 5.5x 5.5x 3.9x 6.3x -- (6)
</TABLE>
- --------------------------
(1) Includes a pre-tax benefit of $7 million from the reversal of a reserve
established after a patent infringement suit was filed by Ciba-Geigy
Corporation against ALZA and Marion Merrell Dow, Inc. (now Hoechst Marion
Roussel, Inc.) and a pre-tax charge of $7 million for a portion of the
payment ALZA made to U.S. Bioscience, Inc. under the marketing and
distribution agreement for Ethyol-Registered Trademark-.
(2) Includes pre-tax charges and allowances of $28 million ($0.23 per share on
an after-tax basis) related primarily to manufacturing activities. Also
includes $7 million ($0.08 per share) in one-time benefits resulting from
the adoption of Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, and a $4 million ($0.05 per share)
extraordinary refinancing charge relating to the redemption of ALZA's
7 1/2% zero coupon convertible subordinated debentures. The 7 1/2% zero
coupon convertible subordinated debentures were replaced with commercial
paper which was classified as short-term debt, thereby reducing working
capital.
(3) In 1991 ALZA incurred a one-time pre-tax charge of $101 million ($1.38 per
share on an after-tax basis) relating to the purchase of in-process
technology in connection with the acquisition of Bio-Electro Systems, Inc.,
a company acquired by ALZA in early 1992.
(4) Total stockholders' equity decreased from December 31, 1992 to December 31,
1993 primarily due to the special dividend paid in 1993 to stockholders in
connection with the formation of TDC, which reduced stockholders' equity by
$250 million.
(5) The ratios of earnings to fixed charges were calculated by dividing the sum
of (i) income (loss) before income taxes and the extraordinary refinancing
charge and cumulative effect of the accounting change described in (2)
above and (ii) fixed charges (reduced by capitalized interest costs), by
fixed charges. Fixed charges consist of interest (expensed and
capitalized), amortization of debt issue expense and the estimated interest
portion of rent expense.
(6) Earnings for the year ended December 31, 1991 were insufficient to cover
fixed charges by $43 million. See (3) above.
6
<PAGE>
RISK FACTORS
Statements made in this Prospectus relating to product development,
manufacturing and marketing, or that otherwise relate to future periods, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
risks described below or elsewhere in this Prospectus (including ALZA's Annual
Report on Form 10-K for 1995 and other documents incorporated herein by
reference). Such risks should be considered carefully in evaluating the
Debentures and ALZA before purchasing the Debentures offered hereby.
DEPENDENCE ON RELATIONSHIPS WITH CLIENT COMPANIES. ALZA's net income
currently results primarily from royalties and fees paid by client companies.
Royalties and fees are derived from sales by the clients of products
incorporating ALZA technologies, and therefore vary from quarter to quarter as a
result of changing levels of product sales by client companies. Because ALZA's
clients make all marketing and other commercialization decisions with respect to
such products (including, in many cases, taking responsibility for obtaining
necessary regulatory approvals), most of the variables that affect ALZA's
royalties and fees are not directly within ALZA's control. In addition, ALZA's
royalties and fees could be adversely affected by competition and pressures for
cost containment. For the year ended December 31, 1995, Procardia XL-Registered
Trademark-, marketed by Pfizer, accounted for more than 40% of ALZA's royalties
and fees.
UNCERTAINTIES RELATING TO RECENT AND PLANNED EXPANSION OF MARKETING AND
MANUFACTURING ACTIVITIES. ALZA has recently expanded its commercialization
activities. ALZA began marketing the Testoderm-Registered Trademark- CIII
transdermal therapeutic system in 1994, and is co-promoting Duragesic-Registered
Trademark- CII with Janssen and Glucotrol XL-Registered Trademark- with Pfizer.
ALZA has also recently launched Ethyol-Registered Trademark- (amifostine). ALZA
intends to expand its commercialization activities as a result of its
arrangements with TDC, and under additional arrangements with third parties
(which could include the acquisition or license of products and/or
technologies). While the activities with TDC and other third parties are
intended to result in a valuable pipeline of products for marketing by ALZA,
there can be no assurance that this will be the case, nor can there be any
assurance generally that ALZA's commercialization activities will be successful.
ALZA also has expanded and is continuing to expand its manufacturing facilities
in anticipation of future manufacturing needs. Utilization of these facilities
in any quarter depends on many factors, including client orders, product
approvals, product launches and sales levels, most of which are outside of
ALZA's control. There can be no assurance that ALZA's manufacturing activities
will be profitable.
VOLATILITY OF SECURITIES PRICES. The market prices of ALZA's securities are
subject to significant fluctuations in response to variations in quarterly
operating results, announcements of new commercial products by ALZA or its
competitors, developments or disputes concerning patent or proprietary rights,
regulatory developments in both the U.S. and foreign countries, health care
reform and regulation, and economic and other external factors. In addition, the
pharmaceutical sector of the stock market has in recent years experienced
significant price fluctuations. Such fluctuations, as well as economic
conditions generally, may adversely affect the market price of ALZA's
securities, including its Common Stock and the Debentures.
UNCERTAINTIES CONCERNING EFFECTS OF CHANGES IN U.S. HEALTH CARE MARKET. The
U.S. health care industry has continued to change rapidly as the public,
government, medical practitioners and the pharmaceutical industry focus on ways
to expand medical coverage while controlling the growth in health care costs.
Legislative changes continue to be proposed, many of which, if enacted, could
put significant pressures on the prices charged for pharmaceutical products.
Similarly, prescription drug reimbursement practices and the growth of large
managed care organizations, as well as generic and therapeutic substitution
(substitution of a different product for the same indication), could
significantly affect ALZA's business.
ARRANGEMENTS POTENTIALLY INHIBITING A CHANGE IN CONTROL OF ALZA. Certain
provisions of ALZA's Certificate of Incorporation, the LYONs and the Debentures
may inhibit a change in control of ALZA. The provisions of ALZA's Certificate of
Incorporation granting the Board of Directors the authority to issue shares of
Preferred Stock with such terms as the Board of Directors may determine,
classifying ALZA's Board of Directors, preventing stockholders from calling
special meetings of ALZA's stockholders and requiring supermajority votes in the
event of certain proposed business combinations may inhibit any change
7
<PAGE>
in control of ALZA. Provisions in the Debentures and the outstanding LYONs grant
the holders of these securities the right to require ALZA to repurchase all or
any part of the Debentures and the LYONs in the event of a change in control,
which may also inhibit any change in control of ALZA. See "Description of
Debentures -- Repurchase at Option of Holders Upon Change in Control" and
"Description of Capital Stock."
SUBORDINATION. The Debentures will be unsecured and subordinated in right
of payment in full to all existing and future Senior Indebtedness of ALZA. As a
result of such subordination, in the event of any insolvency, liquidation or
reorganization of ALZA or upon acceleration of the Debentures due to an Event of
Default, the assets of ALZA will be available to pay obligations on the
Debentures and any other subordinated indebtedness of ALZA only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Debentures and any other
subordinated indebtedness of ALZA then outstanding. The Indenture does not
prohibit or limit the incurrence of Senior Indebtedness or the incurrence of
other indebtedness and other liabilities by ALZA or its subsidiaries, and the
incurrence of additional indebtedness and other liabilities by ALZA or its
subsidiaries could adversely affect ALZA's ability to pay its obligations on the
Debentures. ALZA anticipates that from time to time it will incur additional
indebtedness, including Senior Indebtedness. See "Description of Debentures --
Subordination of Debentures."
ABSENCE OF ESTABLISHED MARKET FOR DEBENTURES. Prior to the offering of the
Debentures, there has been no public market for the Debentures. Although the
Debentures have been approved for listing on the New York Stock Exchange
(subject to official notice of issuance), there can be no assurance that an
active public market will develop for the Debentures or that, if such market
develops, the market price will equal or exceed the public offering price set
forth on the cover page of this Prospectus. The initial public offering price of
the Debentures will be determined by negotiation between ALZA and the
Underwriter and may not be indicative of the market price of the Debentures
after the offering of the Debentures hereby.
8
<PAGE>
USE OF PROCEEDS
The aggregate net proceeds to ALZA from the sale of the Debentures offered
hereby are estimated to be approximately $424.7 million (or approximately $488.5
million if the Underwriter's over-allotment option is exercised in full). ALZA
will use the net proceeds for general corporate purposes, which may include
expansion of ALZA's pharmaceutical business (including its sales and marketing
activities), expansion of its research and development and manufacturing
facilities, expenditures under existing or future joint ventures, partnerships
or other similar agreements, the completion or continuation of the development
of TDC products, the acquisition of assets, technologies, products and
businesses to expand ALZA's operations, and working capital. Pending such uses,
ALZA will invest the net proceeds of the offering in marketable securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
ALZA's Common Stock is traded on the New York Stock Exchange under the
symbol "AZA". The following table sets forth the high and low per share sales
price for the Common Stock as reported on the composite tape for the quarters
indicated. The last reported sale price for the Common Stock on the New York
Stock Exchange on April 23, 1996 was $29 3/8. These prices do not include retail
mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1994
First Quarter......................... $ 30 3/4 $ 21
Second Quarter........................ 26 5/8 20 1/4
Third Quarter......................... 24 1/8 20 1/8
Fourth Quarter........................ 20 3/4 17
1995
First Quarter......................... 24 1/8 18 1/8
Second Quarter........................ 24 5/8 18 3/8
Third Quarter......................... 27 22 1/8
Fourth Quarter........................ 25 1/8 20 1/4
1996
First Quarter......................... 34 7/8 24 3/8
Second Quarter (through April 23)..... 32 1/2 29 1/8
</TABLE>
ALZA has never paid a cash dividend on its Common Stock and does not
anticipate doing so in the foreseeable future.
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization and short-term debt of
ALZA and its consolidated subsidiaries at December 31, 1995, and as adjusted to
give effect to the sale of the Debentures offered by this Prospectus (assuming
no exercise of the Underwriter's over-allotment option).
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ACTUAL
----------
AS ADJUSTED(1)
--------------
(UNAUDITED)
Short-term debt (2)............................... $ 869 $ 869
<S> <C> <C>
---------- --------------
---------- --------------
Long-term liabilities:
5 1/4% zero coupon convertible subordinated
debentures (LYONs)............................. $362,944 $ 362,944
5% convertible subordinated debentures offered
hereby......................................... -- 435,000
Other long-term liabilities..................... 51,770 51,770
---------- --------------
Total long-term liabilities................. 414,714 849,714
---------- --------------
Stockholders' equity:
Common Stock, $.01 par value, 300,000,000 shares
authorized; 82,506,419 shares issued and
outstanding (3)................................ 825 825
Additional paid-in capital...................... 310,451 310,451
Unrealized gains on available-for-sale
securities (net of $1,313 tax effect).......... 1,886 1,886
Retained earnings............................... 141,391 141,391
---------- --------------
Total stockholders' equity.................... 454,553 454,553
---------- --------------
Total capitalization........................ $869,267 $1,304,267
---------- --------------
---------- --------------
</TABLE>
- ------------------------
(1) Adjusted to reflect the issuance of the Debentures, assuming no exercise of
the Underwriter's over-allotment option.
(2) Short-term debt consists entirely of the current portion of long-term debt.
(3) Excludes 4,863,868 shares reserved for issuance pursuant to ALZA's stock
option and stock purchase plans, 12,321,416 shares reserved for issuance
upon conversion of the LYONs, 966,803 shares reserved for issuance upon the
exercise of outstanding warrants exercisable at $65 per share on or before
December 31, 1999 issued in connection with the formation of TDC, 1,000,000
shares reserved for issuance upon exercise of outstanding warrants
exercisable at $25 per share on or before January 31, 1996 (which warrants
were exercised subsequent to December 31, 1995) and 11,390,416 shares
reserved for issuance upon conversion of the Debentures (assuming no
exercise of the Underwriter's over-allotment option).
10
<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures will be issued under an Indenture, dated as of April 23, 1996
(the "Indenture"), between ALZA and The Chase Manhattan Bank, N.A., as trustee
(the "Trustee"). A copy of the form of the Indenture is filed as an exhibit to
the Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Debentures and the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Debentures and the Indenture,
including the definitions therein of certain terms. Wherever particular
provisions or defined terms of the Indenture (or the form of Debenture which is
a part thereof) are referred to, such provisions or defined terms are
incorporated herein by reference. As used in the "Description of Debentures"
references to "ALZA" refer to ALZA Corporation and not to any of its
subsidiaries.
GENERAL
The Debentures will represent unsecured general obligations of ALZA
subordinate in right of payment to certain other obligations of ALZA as
described under "-- Subordination of Debentures" and convertible into Common
Stock as described under "-- Conversion of Debentures." The Debentures will be
limited to $435,000,000 aggregate principal amount ($500,250,000 if the
over-allotment option is exercised in full), will be issued only in
denominations of $1,000 or any integral multiple thereof and will mature on May
1, 2006, unless earlier redeemed at the option of ALZA or repurchased by ALZA at
the option of the holder upon a Change in Control (as defined in the Indenture)
or converted.
The Debentures will bear interest at the annual rate set forth on the cover
page hereof from April 29, 1996, payable semi-annually on May 1 and November 1
of each year, commencing November 1, 1996, to holders of record at the close of
business on the preceding April 15 and October 15, respectively (other than with
respect to a Debenture or portion thereof called for redemption on a redemption
date, or repurchased in connection with a Change in Control on a Repurchase Date
(as defined below) during the period from the record date to (but excluding) the
next succeeding interest payment date (in which case accrued interest shall be
payable to the extent required to the holder of the Debenture or portion thereof
redeemed or repurchased), or converted after the record date and before the next
succeeding interest payment date except to the extent that at the time such
Debenture or portion thereof is submitted for conversion, such Debenture or
portion thereof was required to be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal amount so
converted; see "-- Conversion of Debentures" below). Interest will be paid by
check mailed to such holders. Interest will be computed on the basis of a
360-day year composed of twelve 30-day months.
Principal and premium, if any, will be payable, and the Debentures may be
presented for conversion, registration of transfer and exchange, without service
charge, at the office of ALZA or its agent maintained for such purposes in The
City of New York, which shall initially be an office or agency of the Trustee.
The Debentures will be convertible at the aforesaid offices of ALZA or its agent
maintained for such purpose.
The Debentures will be issued only in fully registered form without coupons,
in denominations of $1,000 and any integral multiple thereof. The Debentures are
exchangeable and transfers thereof will be registered without charge therefor,
but ALZA may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
When issued, the Debentures will be a new issue of securities with no
established trading market. Although the Debentures have been approved for
listing on the New York Stock Exchange (subject to official notice of issuance),
there can be no assurance that an active public market will develop for the
Debentures or that, if such market develops, the market price will equal or
exceed the public offering price set forth on the cover page of this Prospectus.
The initial public offering price of the Debentures will be determined by
negotiation between ALZA and the Underwriter and may not be indicative of the
market price of the Debentures after the offering of the Debentures hereby.
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness or the issuance
or repurchase of securities of ALZA. The Indenture
11
<PAGE>
contains no covenants or other provisions to afford protection to holders of
Debentures in the event of a highly leveraged transaction or a change in control
of ALZA except to the extent described under
"-- Repurchase at Option of Holders Upon Change in Control."
CONVERSION OF DEBENTURES
The holders of Debentures will be entitled, at any time prior to the close
of business on the final maturity date of the Debentures, subject to prior
redemption or repurchase, to convert any Debentures or portions thereof (in
denominations of $1,000 or multiples thereof) into Common Stock of ALZA, at the
conversion price set forth on the cover page hereof, subject to adjustment as
described below. Except as described below, no adjustment will be made on
conversion of any Debentures for interest accrued thereon or for dividends on
any Common Stock issued. If any Debentures not called for redemption are
converted after a record date for the payment of interest and prior to the next
succeeding interest payment date, such Debentures must be accompanied by funds
equal to the interest payable on such succeeding interest payment date on the
principal amount so converted. ALZA is not required to issue fractional shares
of Common Stock upon conversion of Debentures and, in lieu thereof, will pay a
cash adjustment based upon the market price of Common Stock on the last Trading
Day (as defined in the Indenture) prior to the date of conversion. In the case
of Debentures called for redemption, conversion rights will expire at the close
of business on the business day preceding the date fixed for redemption unless
ALZA defaults in payment of the redemption price. A Debenture in respect of
which a holder is exercising its option to require repurchase upon a Change in
Control may be converted only if such holder withdraws its election to exercise
its repurchase option in accordance with the terms of the Indenture.
The initial conversion price is subject to adjustment (under formulae set
forth in the Indenture) in certain events, including: (i) the issuance of Common
Stock as a dividend or distribution on Common Stock of ALZA; (ii) certain
subdivisions and combinations of the Common Stock; (iii) the issuance to all
holders of Common Stock of certain rights or warrants to purchase Common Stock;
(iv) the distribution to all holders of Common Stock of shares of capital stock
of ALZA (other than Common Stock) or evidences of indebtedness of ALZA or assets
(including securities, but excluding those rights, warrants, dividends and
distributions referred to above or paid in cash); (v) distributions consisting
of cash, excluding any cash dividends or other distributions on the Common Stock
made in any 12-month period which, when combined with (A) all such all-cash
distributions made within such 12-month period in respect of which no adjustment
has been made plus (B) any cash and the fair market value of other consideration
payable in respect of any tender offers by ALZA or any of its subsidiaries for
Common Stock concluded within such 12-month period in respect of which no
adjustment has been made, do not exceed 15% of ALZA's market capitalization
(being the product of the Current Market Price (as defined in the Indenture) of
the Common Stock times the number of shares of Common Stock then outstanding) on
the record date for such dividend or distribution, and excluding any dividend or
distribution in connection with the liquidation, dissolution or winding up of
ALZA; and (vi) payment in respect of a tender or exchange offer by ALZA or any
subsidiary of ALZA for the Common Stock to the extent that the cash and value of
any other consideration included in such payment per share of Common Stock
exceeds the Current Market Price (as defined in the Indenture) per share of
Common Stock on the Trading Day next succeeding the last date on which tenders
or exchanges may be made pursuant to such tender or exchange offer.
No adjustment will be made with respect to clause (iii) or (iv) above if the
Debenture holders are to participate in such issuance or distribution on a basis
and with notice that ALZA's Board of Directors determines to be fair and
appropriate in light of the basis on which holders of Common Stock participate.
In addition, no adjustment will be made with respect to clause (iv) above if, in
lieu of such adjustment, the Debenture holders, upon conversion, will be
entitled to receive, in addition to the shares of Common Stock into which such
Debentures are convertible, the kind and amount of shares, evidences of
indebtedness or assets comprising the distribution that such holders would have
received had they converted their Debentures immediately prior to the record
date for determining the stockholders entitled to receive such distribution.
12
<PAGE>
In addition, the Indenture provides that if ALZA implements a stockholder
rights plan, such rights plan must provide that upon conversion of the
Debentures the holders will receive, in addition to the Common Stock issuable
upon such conversion, the rights issued under such plan (notwithstanding the
occurrence of an event causing such rights to separate from the Common Stock at
or prior to the time of conversion).
In the case of (i) any reclassification or change of the Common Stock or
(ii) a consolidation, merger or combination involving ALZA or a sale or
conveyance to another person of the property and assets of ALZA as an entirety
or substantially as an entirety, in each case as a result of which holders of
Common Stock shall be entitled to receive stock, other securities, other
property or assets (including cash) with respect to or in exchange for such
Common Stock, the holders of the Debentures then outstanding will be entitled
thereafter to convert such Debentures into the kind and amount of shares of
stock, other securities or other property or assets which they would have owned
or been entitled to receive upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Debentures been converted into
Common Stock immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming that a holder of Debentures
would not have exercised any rights of election as to the stock, other
securities or other property or assets receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of Debentures may, in certain circumstances, be deemed to have received
a distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
ALZA from time to time may to the extent permitted by law reduce the
conversion price by any amount for any period of at least 20 business days, in
which case ALZA shall give at least 15 days' notice of such reduction. ALZA may,
at its option, make such reductions in the conversion price, in addition to
those set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "Certain Federal Income Tax
Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
OPTIONAL REDEMPTION BY ALZA
The Debentures are not entitled to any sinking fund. At any time on or after
May 1, 1999, the Debentures will be redeemable at ALZA's option in whole, or
from time to time in part, on at least 30 and not more than 60 days' notice
given to the holders at the following prices (expressed as percentages of the
principal amount), together, in each case, with accrued interest to, but
excluding, the date fixed for redemption.
If redeemed during the 12-month period beginning May 1:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------------------- -----------
<S> <C>
1999................................................................... 102.857%
2000................................................................... 102.143
2001................................................................... 101.429
2002................................................................... 100.714
2003 and thereafter.................................................... 100.000
</TABLE>
provided that any semi-annual payment of interest becoming due on the date fixed
for redemption shall be payable to the holders of record on the relevant record
date of the Debentures being redeemed; provided further, that ALZA may not
redeem the Debentures prior to May 1, 2000, unless the average of the Closing
13
<PAGE>
Prices (as defined in the Indenture) of the Common Stock for all of the Trading
Days (as defined in the Indenture) during a period of 30 consecutive calendar
days ending not more than 10 days prior to ALZA's notice to the Trustee of such
redemption equals or exceeds 150% of the Conversion Price then in effect.
If fewer than all the Debentures are to be redeemed, the Trustee will select
the Debentures to be redeemed pro rata or by lot, or by any other method not
prohibited by any stock exchange on which the Debentures are listed at the time
of such redemption. If any Debenture is to be redeemed in part only, a new
Debenture or Debentures in principal amount equal to the unredeemed principal
portion thereof will be issued. If a portion of a holder's Debentures are
selected for partial redemption and, prior to such redemption, such holder has
elected to convert a portion of such Debentures, such converted portion shall be
deemed to be taken from the portion selected for redemption.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL
The Indenture provides that if a Change in Control occurs, each holder of
Debentures shall have the right to require ALZA to repurchase all of such
holder's Debentures, or any portion of the principal amount thereof that is an
integral multiple of $1,000, on the date (the "Repurchase Date") that is 30 days
after the date of the Company Notice (as defined below), for cash at a price
equal to 100% of the principal amount thereof (the "Repurchase Price") plus
accrued and unpaid interest to, but excluding, the Repurchase Date; provided
that any semi-annual payment of interest becoming due on the Repurchase Date
shall be payable to the holders of record on the relevant record date of the
Debentures being repurchased.
Within 15 days after the occurrence of a Change in Control, ALZA or at
ALZA's request the Trustee is obligated to give to all holders of record of
Debentures a notice (the "Company Notice") of the occurrence of such Change in
Control and of the repurchase right arising as a result thereof. ALZA must also
deliver a copy of the Company Notice to the Trustee. To exercise the repurchase
right, a holder of such Debentures must deliver to the Trustee on or before the
30th day after the date of the Company Notice written notice of the holder's
exercise of such right, together with the Debentures with respect to which the
right is being exercised.
A "Change in Control" will be deemed to have occurred at such time after the
original issuance of Debentures as:
(i) there is a report filed by any Person (as defined in the Indenture,
and including any syndicate or group deemed to be a "person" under Section
13(d)(3) of the Exchange Act), other than ALZA, any subsidiary of ALZA, or
any employee benefit plan of ALZA or any such subsidiary, on Schedule 13D or
14D-1 pursuant to the Exchange Act, disclosing that such Person has become
the beneficial owner, directly or indirectly, through a purchase or other
acquisition transaction or series of transactions (other than a merger or
consolidation involving ALZA), of shares of capital stock of ALZA that
entitle such Person to exercise in excess of 50% of the total voting power
of all shares of capital stock of ALZA entitled to vote generally in the
election of directors; or
(ii) there occurs any consolidation of ALZA with, or merger of ALZA
into, any other Person, any merger of another Person into ALZA, or any sale
or transfer of all or substantially all of the assets of ALZA to another
Person (other than (a) any such transaction pursuant to which the holders of
the Common Stock immediately prior to such transaction have, directly or
indirectly, shares of capital stock of the continuing or surviving
corporation immediately after such transaction which entitle such holders to
exercise in excess of 50% of the total voting power of all shares of capital
stock of the continuing or surviving corporation entitled to vote generally
in the election of directors and (b) any merger (1) which does not result in
any reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock or (2) which is effected solely to change the
jurisdiction of incorporation of ALZA and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into
shares of common stock).
The term "beneficial owner" shall be determined in accordance with Rule
13d-3 promulgated by the Commission under the Exchange Act. To the extent
applicable, ALZA will comply with the provisions of
14
<PAGE>
Rule 13e-4 or any other tender offer rules, and will file a Schedule 13E-4 or
any other schedule required under such rules, in connection with any repurchase
of Debentures by ALZA at the option of the holders thereof upon a Change in
Control.
The Change in Control feature of the Debentures may in certain circumstances
make more difficult or discourage a takeover of ALZA and, thus, the removal of
incumbent management. The repurchase right is not the result of management's
knowledge of any effort to accumulate any Common Stock or to obtain control of
ALZA by means of a merger, tender offer, solicitation, or otherwise, or part of
a plan by management to adopt a series of anti-takeover provisions. Instead,
this right is the result of negotiations between ALZA and the Underwriter.
ALZA's ability to repurchase Debentures upon the occurrence of a Change in
Control is subject to limitations. If a Change in Control were to occur, there
can be no assurance that ALZA would have sufficient financial resources, or
would be able to arrange financing, to pay the repurchase price for all
Debentures tendered by holders thereof. Any future credit agreements or other
agreements relating to other indebtedness (including Senior Indebtedness) to
which ALZA becomes a party may contain similar restrictions and provisions. In
the event a Change in Control occurs at a time when ALZA is prohibited from
repurchasing Debentures, ALZA could seek the consent of its lenders to
repurchase the Debentures or could attempt to refinance the borrowings or lease
arrangements that contain such prohibition. If ALZA does not obtain such a
consent or repay such borrowings or lease arrangements, ALZA would be prohibited
under the terms of such agreements from repurchasing Debentures. Moreover, the
occurrence of a Change in Control or the repurchase of Debentures upon a Change
in Control may cause an event of default under Senior Indebtedness of ALZA. As a
result, in each case, any repurchase of the Debentures would, absent a waiver,
be prohibited under the subordination provisions of the Indenture until the
Senior Indebtedness is paid in full. See "-- Subordination of Debentures" below
and "Risk Factors -- Subordination." Any failure by ALZA to repurchase the
Debentures when required following a Change in Control would result in an Event
of Default under the Indenture whether or not such repurchase is prohibited by
the terms of any other agreement or by the subordination provisions of the
Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of ALZA.
SUBORDINATION OF DEBENTURES
Indebtedness evidenced by the Debentures will be subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full of all
existing and future Senior Indebtedness. "Senior Indebtedness" means the
principal of (and premium, if any) and unpaid interest on all present and future
(i) indebtedness of ALZA for borrowed money; (ii) obligations of ALZA evidenced
by bonds, debentures, notes or similar instruments; (iii) indebtedness incurred,
assumed or guaranteed by ALZA in connection with the acquisition by it or a
subsidiary of any business, properties or assets (except purchase money
indebtedness classified as accounts payable under generally accepted accounting
principles); (iv) obligations of ALZA as lessee under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles and leases of property or assets made as part of any sale
and lease-back transaction to which ALZA is a party; (v) reimbursement
obligations of ALZA in respect of letters of credit relating to indebtedness of
other obligations of ALZA that qualify as indebtedness or obligations of the
kind referred to in clauses (i) through (iv) above; and (vi) obligations of ALZA
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (v) above, in each case unless, in
the instrument creating or evidencing the indebtedness or obligation or pursuant
to which the same is outstanding, it is provided that such indebtedness or
obligation is not superior in right of payment to the Debentures. The Debentures
will rank pari passu in right of payment with the outstanding LYONs.
By reason of such subordination, in the event of dissolution, insolvency,
bankruptcy or other similar proceedings, upon any distribution of assets, (i)
the holders of Senior Indebtedness will be entitled to be paid in full before
payment may be made on the Debentures and the holders of Debentures will be
required to pay over their share of such distribution in respect of the
Debentures to the holders of Senior Indebtedness
15
<PAGE>
until such Senior Indebtedness is paid in full and (ii) unsecured creditors of
ALZA and its subsidiaries who
are not holders of the Debentures or holders of Senior Indebtedness may recover
less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the holders of the Debentures.
No payment of the principal, premium, if any, or interest with respect to
any Debentures (including but not limited to the Redemption Price, the
Repurchase Price, or on account of purchase or other acquisition of Debentures)
may be made, nor may ALZA pay cash with respect to the purchase price or upon
conversion of any Debenture (other than cash in lieu of fractional shares) or
acquire any Debentures except as set forth in the Indenture, if there shall have
occurred and be continuing (i) a default in any payment with respect to any
Senior Indebtedness of ALZA or (ii) an event of default with respect to any
Senior Indebtedness of ALZA permitting the holders thereof to accelerate the
maturity thereof.
As of December 31, 1995, the principal amount of Senior Indebtedness was
$850,000. There are no restrictions in the Indenture on the creation of
additional indebtedness, including Senior Indebtedness. In addition, the
Debentures will be effectively subordinated to all liabilities, including trade
payables and capitalized lease obligations, if any, of ALZA's subsidiaries. Any
right of ALZA to receive assets of any of its subsidiaries upon liquidation or
reorganization of the subsidiary (and the consequent right of the holders of the
Debentures to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except to
the extent that ALZA is itself recognized as a creditor of such subsidiary, in
which case the claims of ALZA would still be subordinated to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by ALZA.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: default in payment
when due of the principal of or premium, if any, on the Debentures (including
any failure to repurchase the Debentures on a Repurchase Date); default for 30
days in payment of any installment of interest on the Debentures; default by
ALZA for 60 days after notice in the observance or performance of any other
covenants in the Indenture; failure of ALZA to make any payment at maturity,
including any applicable grace period, in respect of indebtedness for borrowed
money of ALZA, which payment is in an amount in excess of $30 million, and
continuance of such failure for 30 days after notice; default by ALZA with
respect to any indebtedness for borrowed money of ALZA, which default results in
acceleration of any such indebtedness which is in an amount of in excess of $30
million without such indebtedness having been paid or discharged, or there
having been deposited in trust a sum of money sufficient to discharge such
indebtedness, or such acceleration having been rescinded or annulled, within 30
days after notice; or certain events involving bankruptcy, insolvency or
reorganization of ALZA. The Indenture provides that the Trustee may withhold
notice to the holders of Debentures of any default (except in payment of
principal, premium, if any, or interest with respect to the Debentures) if the
Trustee considers it in the interest of the holders of the Debentures to do so.
The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Debentures then outstanding may declare the principal of and
accrued interest on the Debentures to be due and payable immediately, but if
ALZA shall cure all defaults (except the nonpayment of principal of, premium, if
any, and interest on any of the Debentures which shall have become due by
acceleration) and certain other conditions are met, with certain exceptions,
such declaration may be annulled and past defaults may be waived by the holders
of a majority of the principal amount of the Debentures then outstanding. In the
case of certain events of bankruptcy or insolvency, the principal of and accrued
interest on the Debentures shall automatically become and be immediately due and
payable.
The holders of a majority in principal amount of the Debentures then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting ALZA and the Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Debentures at the time outstanding, to modify the
16
<PAGE>
Indenture or any supplemental indenture or the rights of the holders of the
Debentures, except that no such modification shall (i) extend the fixed maturity
of any Debenture, reduce the rate or extend the time for payment of interest
thereon, reduce the principal amount thereof or premium, if any, thereon, reduce
any amount payable upon redemption thereof, change the obligation of ALZA to
repurchase any Debenture upon the occurrence of any Change in Control in a
manner adverse to holders of Debentures, impair the right of a holder to
institute suit for the payment thereof, change the currency in which the
Debentures are payable or impair the right to convert the Debentures into Common
Stock subject to the terms set forth in the Indenture, or modify the provisions
of the Indenture with respect to the subordination of the Debentures in a manner
adverse to the holders of the Debentures in any material respect, without the
consent of each holder of a Debenture so affected, or (ii) reduce the aforesaid
percentage of Debentures the holders of which are required to consent to any
such modifications, without the consent of the holders of all of the Debentures
then outstanding.
Under the Indenture, ALZA, when authorized by the resolutions of the Board
of Directors, and the Trustee may, from time to time and at any time, enter into
an indenture or supplemental indentures for one or more of the following
purposes: (i) to make provision with respect to the conversion rights of the
holders of the Debentures or the repurchase obligations of ALZA, in each case,
pursuant to the terms of the Indenture; (ii) subject to the subordination of the
Debentures, to convey, transfer, assign, mortgage or pledge to the Trustee as
security for the Debentures, any property or assets; (iii) to evidence the
succession of another corporation to ALZA, or successive successions, and the
assumption by the successor corporation of the covenants, agreements and
obligations of ALZA pursuant to the Indenture; (iv) subject to certain
limitations, to add to the covenants of ALZA such further covenants,
restrictions or conditions as ALZA and the Trustee shall consider to be for the
benefit of the holders of the Debentures, and to make the occurrence, or the
occurrence and continuance, of a Default (as defined in the Indenture) in any
such additional covenants, restrictions or conditions a Default or an Event of
Default (as defined in the Indenture) permitting the enforcement of all or any
of the several remedies provided in the Indenture; (v) to cure any ambiguity or
to correct or supplement any provision contained in the Indenture or in any
supplemental indenture which may be defective or inconsistent with any other
provision contained in the Indenture or in any supplemental indenture, or to
make such other provisions in regard to matters or questions arising under the
Indenture which shall not adversely affect the interest of any holder of the
Debentures; or (vi) to evidence and provide for the acceptance of appointment by
a successor Trustee with respect to the Debentures.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
ALZA shall not consolidate or merge with or into any other corporation or
corporations or, directly or indirectly, sell, convey or lease all or
substantially all of its property to any other corporation (whether or not
affiliated with ALZA) unless the surviving or successor corporation in the event
of a merger or consolidation, or the corporation to which a sale, conveyance or
lease is made (i) is an entity organized and existing under the laws of the
United States, any state thereof or the District of Columbia and (ii) expressly
assumes by supplemental indenture all the obligations of ALZA under the
Debentures and the Indenture.
DISCHARGE OF INDENTURE
ALZA may terminate substantially all of its obligations under the Indenture
at any time by delivering all outstanding Debentures to the Trustee for
cancellation and paying any other sums payable under the Indenture.
CONCERNING THE TRUSTEE
The Chase Manhattan Bank, N.A., as Trustee under the Indenture, has been
appointed by ALZA as the paying agent, conversion agent, registrar, transfer
agent and custodian with regard to the Debentures. The Trustee or its affiliates
may from time to time in the future provide banking and other services to ALZA
in the ordinary course of its business.
GOVERNING LAW
The Indenture and the Debentures will be governed by and construed in
accordance with the laws of the State of New York.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
ALZA's authorized capital stock consists of 300,000,000 shares of Common
Stock, par value $.01 per share, and 100,000 shares of Preferred Stock, par
value $.01 per share (the "Preferred Stock"). No Preferred Stock is outstanding
as of the date of this Prospectus. For recent prices of Common Stock, see "Price
Range of Common Stock and Dividend Policy."
On December 31, 1995, there were 82,506,419 shares of Common Stock
outstanding. In addition there were (i) 4,863,868 shares reserved for issuance
pursuant to ALZA's stock option and stock purchase plans; (ii) 12,321,416 shares
reserved for issuance upon conversion of the LYONs; (iii) 966,803 shares
reserved for issuance upon the exercise of outstanding warrants exercisable at
$65 per share on or before December 31, 1999 issued in connection with the
formation of TDC; (iv) 1,000,000 shares reserved for issuance upon exercise of
outstanding warrants exercisable at $25 per share on or before January 31, 1996
(which warrants were exercised subsequent to December 31, 1995); and (v)
11,390,416 shares reserved for issuance upon conversion of the Debentures
(13,098,979 shares if the over-allotment option is exercised in full).
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Subject to any superior rights of
Preferred Stock, holders of Common Stock are entitled to share, on a pro rata
basis, in all assets remaining after payment of or provision for liabilities.
The shares of Common Stock are not subject to redemption. ALZA has the corporate
power to repurchase Common Stock.
ALZA's Board of Directors has authority to fix or alter the rights,
preferences, privileges, restrictions and other terms of any series of Preferred
Stock, the number of shares constituting any such series and the designation
thereof. ALZA has no present plans to issue any shares of Preferred Stock.
ALZA has a classified Board of Directors with directors serving staggered
terms of three years each. Directors may not be removed by the stockholders
without cause. Special meetings of the stockholders may be called only by the
Board of Directors, the Chairman of the Board or the President. Nominations for
election of directors may be made by the Board of Directors or by any
stockholder of record entitled to vote for directors, provided that any
stockholder nominating a candidate for director must deliver written notice to
the Secretary of ALZA not later than the close of business 60 days in advance of
the stockholders' meeting or 10 days after the date on which the notice of
meeting is first given to stockholders, whichever is later. The stockholder's
notice must set forth certain information concerning the stockholder and the
stockholder's nominee. No nominations for director shall be presented to any
stockholders' meeting if not made in compliance with such procedures. ALZA's
bylaws also require that advance notice be given and certain other procedures be
followed with regard to any other business to be brought by a stockholder before
a meeting of stockholders. Such procedures include the delivery of notice of
such proposal to the Secretary of ALZA not later than the close of business 60
days in advance of the meeting or 10 days after the date on which the notice of
meeting is first given to stockholders, whichever is later. The notice must set
forth certain information concerning the stockholder and the proposed business,
including any material interest of the stockholder in that business. The
provisions of ALZA's Certificate of Incorporation and bylaws governing the
number and classification of the Board of Directors and certain related matters
cannot be amended without the approval of at least 75% of the Board of Directors
or the affirmative vote of not less than 80% of the voting power of the
outstanding shares of voting capital stock. The affirmative vote of at least 80%
of the voting power of the outstanding shares of voting capital stock is
required to approve certain business combinations.
The provisions of ALZA's Certificate of Incorporation granting the Board of
Directors the authority to issue Preferred Stock with such terms as the Board
may determine, classifying ALZA's Board, preventing stockholders from calling
special meetings of ALZA's stockholders, and requiring supermajority votes in
the event of certain business combinations may inhibit any change in control of
ALZA.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Debentures. This discussion
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, Internal Revenue Service ("IRS") rulings, and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. This discussion does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor's decision to purchase the Debentures, and it is not
intended to be wholly applicable to all categories of investors, some of which,
such as dealers in securities, banks, insurance companies, tax-exempt
organizations and non-United States persons, may be subject to special rules. In
addition, this discussion is limited to persons that purchase the Debentures in
this offering and hold the Debentures as "capital assets" within the meaning of
Section 1221 of the Code.
ALL PROSPECTIVE PURCHASERS OF THE DEBENTURES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE DEBENTURES AND
THE COMMON STOCK.
CONVERSION OF DEBENTURES INTO COMMON STOCK
In general, no gain or loss will be recognized for federal income tax
purposes on a conversion of the Debentures into shares of Common Stock. However,
cash paid by ALZA in lieu of a fractional share of Common Stock will likely
result in taxable gain (or loss), which will be capital gain (or loss), to the
extent that the amount of such cash exceeds (or is exceeded by) the portion of
the adjusted basis of the Debenture allocable to such fractional share. The
adjusted basis of shares of Common Stock received on conversion will equal the
adjusted basis of the Debenture converted, reduced by the portion of adjusted
basis allocated to any fractional share of Common Stock exchanged for cash. The
holding period of a holder in the Common Stock received on conversion will
include the period during which the converted Debentures were held.
The Conversion Price of the Debentures is subject to adjustment under
certain circumstances. See "Description of Debentures -- Conversion of
Debentures." Section 305 of the Code and the Treasury Regulations issued
thereunder may treat the holders of the Debentures as having received a
constructive distribution if and to the extent that certain adjustments in the
Conversion Price that may occur in limited circumstances (particularly an
adjustment to reflect a taxable dividend to holders of Common Stock) increase
the proportionate interest of a holder of Debentures in the fully diluted Common
Stock, whether or not such holder ever exercises its conversion privilege. As a
result of such a constructive distribution the holders of Debentures may have
ordinary income to the extent of ALZA's current earnings and profits as of the
end of the taxable year to which the constructive distribution relates and/or
ALZA's accumulated earnings and profits. Moreover, if there is not a full
adjustment to the Conversion Price of the Debentures to reflect a stock dividend
or other event increasing the proportionate interest of the holders of
outstanding Common Stock in the assets or earnings and profits of ALZA, then
such increase in the proportionate interest of the holders of the Common Stock
generally will be treated as a distribution to such holders, taxable as ordinary
income to the extent of ALZA's current earnings and profits as of the end of the
taxable year to which the constructive distribution relates and/or ALZA's
accumulated earnings and profits.
SALE, EXCHANGE OR RETIREMENT OF DEBENTURES
Each holder of Debentures generally will recognize gain or loss upon the
sale, exchange, redemption, repurchase, retirement or other disposition (other
than conversion) of the Debentures measured by the difference (if any) between
(i) the amount of cash and the fair market value of any property received
(except to the extent that such cash or other property is attributable to the
payment of accrued interest not previously included in income, which amount will
be taxable as ordinary income) and (ii) the holder's adjusted tax basis in those
Debentures (including any market discount previously included in income by the
holder). Each holder of the Common Stock into which the Debentures are
converted, in general, will recognize gain or loss upon the sale, exchange,
redemption, or other disposition of the Common Stock measured under rules
similar to those described in the preceding sentence for the Debentures. Special
rules may apply to redemptions of Common Stock which may result in different
treatment. Any such gain or
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<PAGE>
loss recognized on the sale, exchange, redemption, repurchase, retirement or
other disposition of a Debenture or share of Common Stock should, in general, be
capital gain or loss, which would be long-term capital gain or loss if the
Debenture or the Common Stock was held for more than one year at the time of the
disposition. A holder's initial basis in a Debenture will be the cash price paid
therefor.
BACK-UP WITHHOLDING
A holder of Debentures or Common Stock may be subject to "back-up
withholding" from a reportable payment at a rate of 31 percent if, among other
things, (i) the holder fails to furnish a social security number or other
taxpayer identification number ("TIN") to ALZA certified under penalties of
perjury within a reasonable time after the request therefor; (ii) the IRS
notifies ALZA that the TIN furnished by the holder is incorrect; (iii) the IRS
notifies ALZA that backup withholding should be commenced because the holder has
failed to properly report interest or dividends; or (iv) when required to do so,
the holder fails to certify under penalties of perjury that such holder is not
subject to backup withholding or that the TIN provided to ALZA is correct.
Reportable payments include interest payments, dividend payments and, under
certain circumstances, principal payments on the Debentures. A holder who does
not provide ALZA with its correct TIN also may be subject to penalties imposed
by the IRS. Any amount withheld from a payment to a holder under the back-up
withholding rules is creditable against the holder's federal income tax
liability. Back-up withholding will not apply, however, with respect to payments
made to certain holders, including corporations, tax-exempt organizations and
certain foreign persons, provided their exemption from back-up withholding is
properly established.
ALZA will report to the holders of Debentures and Common Stock and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
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<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of the Purchase Agreement, to
purchase $435,000,000 aggregate principal amount of the Debentures from ALZA.
The Underwriter has advised ALZA that it proposes to offer the Debentures
directly to the public at the offering price set forth on the cover page of this
Prospectus. After the initial public offering, the offering price may be
changed. The Debentures are offered subject to receipt and acceptance by the
Underwriter and to certain other conditions, including the right to reject
orders in whole or in part.
ALZA has granted the Underwriter an option, exercisable for 30 days after
the date of this Prospectus, to purchase up to an additional $65,250,000
principal amount of Debentures to cover over-allotments, if any, at the initial
public offering price less the underwriting discount as set forth on the cover
page of this Prospectus.
ALZA has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the Underwriter may be required to make in respect thereof.
ALZA has agreed with the Underwriter not to sell, offer to sell, grant any
option for the sale of, or otherwise dispose of or transfer any securities
similar to the Debentures or any Common Stock or any securities convertible into
or exercisable or exchangeable for such securities or Common Stock for a period
of 90 days after the date of this Prospectus without the prior written consent
of the Underwriter other than (i) Common Stock issuable upon the exchange of
Debentures offered hereby; (ii) Common Stock issued or sold pursuant to employee
benefit plans and dividend reinvestment plans; (iii) Common Stock issued upon
exercise of currently outstanding options, warrants or convertible securities;
(iv) certain privately issued restricted securities; or (v) Common Stock issued
in connection with investments in, acquisitions of, or mergers or combinations
with other companies.
The Debentures have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance.
From time to time the Underwriter and certain of its affiliates have
performed, and may in the future perform, investment banking or financial
advisory services for ALZA.
LEGAL MATTERS
The validity of the issuance of the Debentures offered hereby and certain
legal matters with respect to United States federal income tax considerations
will be passed upon for ALZA by Heller Ehrman White & McAuliffe, Palo Alto,
California, ALZA's counsel. Skadden, Arps, Slate, Meagher & Flom, Los Angeles,
California, will act as counsel to the Underwriter. Julian N. Stern, a director
and the Secretary of ALZA, is a member of Heller Ehrman White & McAuliffe. At
April 1, 1996, attorneys in that firm involved in the representation of ALZA
owned beneficially 138,379 shares of Common Stock (including options, but
excluding warrants to purchase Common Stock).
EXPERTS
The consolidated financial statements and financial statement schedule of
ALZA Corporation appearing or incorporated by reference in ALZA's Annual Report
(Form 10-K) for the year ended December 31, 1995, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
or incorporated by reference therein and incorporated herein by reference. Such
consolidated financial statements and financial statement schedule are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY ALZA OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF ALZA SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 9
Price Range of Common Stock and Dividend
Policy........................................ 9
Capitalization................................. 10
Description of Debentures...................... 11
Description of Capital Stock................... 18
Certain Federal Income Tax Considerations...... 19
Underwriting................................... 21
Legal Matters.................................. 21
Experts........................................ 21
</TABLE>
$435,000,000
[LOGO]
5% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2006
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PROSPECTUS
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MERRILL LYNCH & CO.
APRIL 23, 1996
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