<PAGE>
As filed with the Securities and Exchange Commission on September 25, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ALZA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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<TABLE>
<S> <C>
Delaware 77-0142070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1900 Charleston Road P.O. Box 7210
Mountain View, California 94039-7210
(650) 564-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
PETER D. STAPLE, ESQ.
Executive Vice President and
General Counsel
1900 Charleston Road
P. O. Box 7210
Mountain View, CA 94039-7210
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
ALAN JACOBS, ESQ.
Heller Ehrman White & McAuliffe LLP
4250 Executive Square, 7th Floor
La Jolla, California 92037-9103
Telephone: (858) 450-8400
Facsimile: (858) 450-8499
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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 of 1933 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 of 1933 check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Amount to be Offering Price Aggregate Registration
Title of Securities to be Registered Registered Per Share Offering Price Fee
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zero Coupon Convertible Subordinated Deben-
tures due July 28, 2020..................... $600,873,400 100%(1) $600,873,400 $158,631(2)
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Common Stock, $.01 par value................. (3) (3) (3) (4)
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</TABLE>
(1)Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2)This fee is calculated on the basis of the offering price of the
debentures.
(3) Includes 7,644,715 shares of common stock issuable upon conversion of the
debentures at the rate of 7.0135 shares of common stock for each $1,000
principal amount at maturity of the debentures. Pursuant to Rule 416 under
the Securities Act of 1933, such number of shares of common stock
registered hereby shall include an indeterminate number of shares of
common stock that may be issued pursuant to the antidilution provisions of
the debentures.
(4) Pursuant to Rule 457(i), there is no additional filing fee with respect to
the shares of common stock issuable upon conversion of the debentures
because no additional consideration will be received in connection with
the exercise of the conversion privilege.
--------------
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 that 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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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there by any sale of these +
+securities in any state in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such state. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 2000
PROSPECTUS
[LOGO OF ALZA CORPORATION APPEARS HERE]
ALZA CORPORATION
Zero Coupon Convertible Subordinated Debentures due July 28, 2020
and
7,644,715 Shares of Common Stock Issuable Upon Conversion of the Debentures
-----------
The debenture holders may sell the debentures or the shares of common stock
issuable upon conversion of the debentures. See "Plan of Distribution."
The Debentures:
. Aggregate principal amount at maturity: $1,090,000,000.
. Issue Price: $551.26 on July 28, 2000.
. Yield to Maturity: 3.0% per year.
. Common stock into which debentures are convertible: initially 7,644,715
shares, subject to adjustment in certain events.
. Maturity: July 28, 2020.
Redemption:
. We may redeem the debentures in whole or in part at any time on or after
July 28, 2003.
Conversion:
. Conversion rate: 7.0135 shares of our common stock per debenture, subject
to adjustment in certain events.
. Holders may convert at any time prior to maturity, unless debentures have
been previously redeemed or repurchased.
Repurchase:
. Holders may require us to repurchase the debentures at a price per
debenture on July 28, 2003 of $602.77, on July 28, 2008 of $699.54 and on
July 28, 2013 of $811.85.
. We may choose to pay the repurchase price in cash, shares of our common
stock, or a combination of both.
. Holders may also require us to repurchase the debentures upon a change in
control.
Common Stock:
. Our common stock is listed on the New York Stock Exchange under the symbol
"AZA."
. On September 21, 2000, the closing price of our common stock as reported
on the New York Stock Exchange was $82.63 per share.
Investing in the debentures and the common stock offered in this prospectus
involves a high amount of risk. Beginning on page 4, we have listed several
"Risk Factors" which you should consider. You should read the entire prospectus
carefully before you make your investment decision.
The Securities and Exchange Commission and state regulatory authorities have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
-----------
The date of this prospectus is , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
About ALZA.................................................................. 1
Where You Can Find More Information......................................... 2
Incorporation of Certain Documents by Reference............................. 2
Special Note Regarding Forward-Looking Statements........................... 3
Risk Factors................................................................ 4
Use of Proceeds............................................................. 10
Ratio of Earnings to Fixed Charges.......................................... 10
</TABLE>
<TABLE>
<S> <C>
Description of Capital Stock................................................ 11
Description of the Debentures............................................... 15
Selling Security Holders.................................................... 30
Certain United States Federal Income Tax Considerations..................... 36
Plan of Distribution........................................................ 41
Legal Matters............................................................... 42
Experts..................................................................... 42
</TABLE>
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<PAGE>
ABOUT ALZA
ALZA is a research-based pharmaceutical company with leading drug delivery
technologies. We apply our technologies to develop pharmaceutical products
with enhanced therapeutic value for our own portfolio and for many of the
world's leading pharmaceutical companies. Our sales and marketing efforts are
focused on urology, oncology and central nervous system ("CNS") products.
Before the 1990s, our business consisted almost exclusively of product
development activities undertaken pursuant to development and
commercialization agreements with large pharmaceutical companies. Among the
ALZA-developed products commercialized to date by partner companies under
these arrangements are Duragesic(R) (fentanyl) CII for the management of
chronic pain, NicoDerm(R) CQ(R) (nicotine transdermal system) for use as an
aid in smoking cessation, Glucotrol XL(R) (glipizide) for the treatment of
Type II diabetes, Procardia XL(R) /Adalat CR(R) (nifedipine) for the treatment
of angina and hypertension, and Transderm-Nitro(R) (nitroglycerin) for the
prevention and treatment of angina.
Beginning in the early 1990s, we embarked on a new strategy to become a
fully-integrated commercial pharmaceutical company. Although we have continued
our traditional product development arrangements with partner companies, and
currently have products in development with a number of major pharmaceutical
companies, we have developed our own commercialization capabilities and
activities. ALZA Pharmaceuticals, our sales and marketing division, now
markets more than a dozen urology and oncology products in the United States,
and has recently launched a product in the CNS area. ALZA Pharmaceuticals has
a field force of approximately 700 professionals in the United States and
Canada, organized into specialty sales forces targeting urology, oncology, CNS
and primary care providers. In addition, approximately 360 representatives
from UCB Pharma, Inc. and approximately 100 representatives from Bayer
Corporation promote Ditropan XL(R) (oxybutynin hydrochloride), and
approximately 300 representatives from McNeil Consumer Health Care, a Johnson
& Johnson company, promote Concerta(TM) (methylphenidate HCl).
Our principal executive offices are located at 1900 Charleston Road, P.O.
Box 7210, Mountain View, CA 94039-7210, and our telephone number is (650) 564-
5000. As used in this prospectus, "we" means ALZA Corporation, a Delaware
corporation, and its subsidiaries, unless otherwise expressly stated or the
context otherwise requires.
1
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You can read and copy
any materials we file with the SEC at the SEC's public reference room at 450
Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at
the SEC's regional offices located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at Seven World Trade Center, New York, New York
10048. You can obtain information about the operation of the SEC's public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site that contains information we file electronically with the SEC, which
you can access over the Internet at http://www.sec.gov. You can also obtain
information about us at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005 ("NYSE").
This prospectus is part of a registration statement that we filed with the
SEC (Registration No. 333- ). The registration statement contains more
information than this prospectus regarding ALZA and the debentures and common
stock offered by this prospectus, including certain exhibits and schedules.
You can get a copy of the registration statement from the SEC at the address
listed above or from its web site.
You should rely only on the information contained, or incorporated by
reference, in this prospectus or the registration statement. We have not
authorized anyone to provide you with information different from that
contained in this prospectus. The selling holders are offering to sell, and
seeking offers to buy, debentures and shares of our common stock issuable upon
their conversion only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of this prospectus or
of any sale of the debentures and shares.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information may include documents filed after the date of
this prospectus which update and supersede the information you read in this
prospectus. We incorporate by reference the documents listed below, except to
the extent information in those documents is different from the information
contained in this prospectus, and all future documents filed with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934 until we terminate the offering of the debentures and shares of common
stock offered by this prospectus.
. Our Annual Report on Form 10-K for the year ended December 31, 1999;
. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000
and June 30, 2000;
. Our Current Reports on Form 8-K filed August 10, 2000, September 6, 2000
and September 13, 2000; and
. The description of the common stock in our registration statements on
Form 8-A filed on July 10, 1996 and December 21, 1999, as amended.
You may request a copy of these filings (other than an exhibit to the
filings unless we have specifically incorporated that exhibit by reference in
the filing) at no cost, by writing or telephoning us at the following address:
ALZA Corporation
Corporate and Investor Relations
1900 Charleston Road, P.O. Box 7210
Mountain View, CA 94039-7210
Telephone: (650) 564-5222
2
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and documents incorporated by reference in this prospectus
contain forward-looking statements. All statements other than statements of
historical fact are, or may be deemed to be, forward-looking statements. The
occurrence of the events described, and the achievement of the intended
results, are subject to the future occurrence of many events, some or all of
which are not predictable or within our control; therefore, actual results may
differ materially from those anticipated in any forward-looking statements.
Many risks and uncertainties are inherent in the pharmaceutical industry;
others are more specific to our business. Forward-looking statements include
statements about, but are not limited to, the following subjects:
. our sales and marketing plans;
. potential product approvals and launches;
. our product development activities and plans; and
. other statements that are not historical facts.
Forward-looking statements in this prospectus or any documents incorporated
by reference into this prospectus may include, but are not limited to,
statements that are not historical facts, and statements including forms of
the following words and other similar words:
<TABLE>
<C> <S>
.""anticipate'' .""may''
.""believe'' .""might''
.""budget'' .""plan''
.""could'' .""predict''
.""estimate'' .""project''
.""expect'' .""should''
.""forecast'' .""intend''
.""possible'' .""will''
</TABLE>
Our forward-looking statements speak only as of the date of this prospectus
and are based on currently available industry, financial and economic data and
our current operating plans. They are also inherently uncertain, and investors
must recognize that events could turn out to be materially different from our
expectations. Factors that could cause or contribute to these differences
include:
. risks inherent in technology and product development;
. risks relating to clinical development;
. regulatory clearance to market products and medical acceptance of
products;
. risks associated with introducing and commercializing new pharmaceutical
products;
. product marketing risks;
. changes in the health care marketplace, including third-party
reimbursement and pharmaceutical pricing controls;
. competition;
. patent and intellectual property matters;
. regulatory risks;
. manufacturing issues; and
. other risk factors as may be discussed in our reports filed with the
Securities and Exchange Commission.
These above factors and others are discussed in more detail in "Risk
Factors" and the documents incorporated in this prospectus. You should not
place undue reliance on forward-looking statements.
We disclaim any obligation or undertaking to disseminate any updates or
revisions to our statements, forward-looking or otherwise, to reflect changes
in our expectations or any change in events, conditions or circumstances on
which any of those statements are based.
3
<PAGE>
RISK FACTORS
In deciding whether to purchase the debentures and the common stock
issuable upon conversion of the debentures, you should consider carefully the
following risk factors, along with the other information contained or
incorporated by reference in this prospectus. These factors, among others, may
cause actual results, events or performance to differ materially from those
expressed in any forward-looking statements we make or incorporate by
reference in this prospectus.
Risks Related to the Debentures
You cannot be sure that an active trading market will develop for the
debentures.
The debentures comprise a new issue of securities for which there is
currently no public market. If the debentures are traded, they may trade at a
discount from their initial offering price to investors, depending on
prevailing interest rates, the market for similar securities, our performance
and other factors. To the extent that an active trading market for the
debentures does not develop, the liquidity and trading prices for the
debentures may be adversely affected.
We may not have the ability to raise the funds necessary to finance the
change in control or other repurchases required by the indenture.
Upon the occurrence of certain specified change of control events and on
the July 28, 2003, July 28, 2008, or July 28, 2013 purchase dates, holders of
debentures will have the right to require us to repurchase their debentures.
In addition, we have and may in the future incur other indebtedness with
similar change in control provisions permitting its holders to accelerate or
to require us to repurchase that indebtedness upon the occurrence of similar
events or on certain specified dates. It is possible that we will not have
sufficient funds at such time to make the required repurchase of debentures or
our other outstanding indebtedness or that restrictions in other potential
credit arrangements or indebtedness will not allow such repurchases. Our
failure to purchase tendered debentures would constitute an event of default
under the indenture, whether or not repurchase is permitted by the related
subordination provisions, which could affect our other debt, if any. In
addition, certain important corporate events, such as leveraged
recapitalizations or other transactions that would increase the level of our
indebtedness, would not constitute a "change in control" under the indenture.
The term "change in control" is limited to certain specified transactions and
may not include other events that might adversely affect our financial
condition. See "Description of the Debentures--Repurchase Right" and "--Change
of Control."
The debentures are subordinated and there are no financial covenants.
The debentures are unsecured and subordinated in right of payment to any
senior indebtedness. As a result of this subordination, in the event of our
bankruptcy, liquidation or reorganization or certain other events, our assets
will be available to pay obligations on the debentures only after all senior
indebtedness has been paid in full. After repaying any senior indebtedness, we
may not have enough assets to repay the debentures. The debentures will be
effectively subordinated to all our subsidiaries' indebtedness and other
liabilities, including trade payables. We are not prohibited from incurring
debt under the indenture. We may incur additional debt.
The indenture does not contain any financial covenants or restrictions on
the payment of dividends. The indenture does not restrict the issuance or
repurchase of securities by us or our subsidiaries. The indenture contains no
covenants or other provisions to afford you protection in the event of a
highly leveraged transaction or a change in control except as described under
"Description of the Debentures--Change of Control."
The price at which our common stock may be purchased on the New York Stock
Exchange may be lower than the conversion price of the debentures.
Prior to electing to convert debentures, debentureholders should compare
the price at which our common stock is trading in the market to the conversion
price of the debentures. Our common stock trades on the NYSE
4
<PAGE>
under the symbol "AZA". On September 21, 2000, the last reported sale price of
our common stock on the NYSE was $82.63 per share. The initial conversion
price of the debentures is $78.60 per share based on the initial issue price
of the debentures. The market prices of our securities are subject to
significant fluctuations in response to variations in quarterly operating
results, announcements of new products by us or our 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 our securities, including our common
stock and the debentures.
Risks Related to ALZA's Business
Our expanded sales and marketing organization and pharmaceutical sales
business are new and may not be successful.
We have significantly expanded our sales and marketing organization over
the last several years, and the profitability of our operations will depend on
our ability to use this expanded sales force effectively. Our expanded sales
and marketing organization may not succeed in increasing our revenues or
profits.
Many of the products we sell have been introduced during the last few
years. Some are products that had no established market when they were
introduced. Others are used for the treatment of conditions that doctors may
under-diagnose or not completely understand. There can be no assurance that we
will successfully achieve adequate market acceptance and sales levels for our
products.
Product development efforts may not yield successful products.
Our future business success will depend on our ability to successfully
develop and obtain regulatory approval to market new pharmaceutical products.
Development of a product requires substantial technical, financial and human
resources even if the product is not successfully completed. There are many
risks and uncertainties inherent in this process, and it should be expected
that many of the products we initially develop will not become commercial
products. We may not choose product candidates that will be successful, we may
not be able to execute development in a timely manner and we may not be able
to fully fund development programs necessary to complete development.
Our drug delivery systems can be costly and require years of research and
development activities.
Our drug delivery systems can be quite complex, with many different
components. Their development over the many years required to take a
technology from its earliest stages to its incorporation in a product that is
sold commercially can cost a substantial amount of money. Significant
technical challenges are common as products incorporating our technologies
progress through development, particularly in the first product incorporating
a new technology. Delays or unanticipated increases in costs of development at
any stage of development, or failure to solve a technical challenge, could
adversely affect our operating results. In addition, there can be no assurance
that any particular system will perform in the same manner when used with
different therapeutic agents and therefore these systems may not prove to be
as useful or valuable as originally thought. Substantial funding and other
resources may be required to continue the development of our systems for use
with additional therapeutic agents.
Results of clinical trials to demonstrate the safety and efficacy of products
are uncertain.
Before obtaining regulatory approvals for the sale of any of our products,
we must demonstrate through preclinical studies and clinical trials that the
product is safe and effective for each intended use. Clinical studies may not
demonstrate the safety and effectiveness of a product. Even promising results
from preclinical and early clinical studies do not always accurately predict
results in later, large-scale trials. Failure to demonstrate safety
5
<PAGE>
and efficacy will result in our failure to obtain regulatory approvals which
will adversely effect our results of operations and financial condition.
The rate of patient enrollment sometimes delays completion of clinical
studies. There is substantial competition to enroll patients in clinical
trials for oncology products, and such competition has delayed clinical
development of our products in the past. Delays in planned patient enrollment
can result in increased development costs and delays in regulatory approval.
Our operations depend on compliance with complex governmental regulations.
The products that we develop and sell are subject to extensive regulation
by the United States Food and Drug Administration ("FDA") and comparable
agencies in other countries. These regulations govern a range of activities
including clinical testing, marketing approval, manufacturing, quality
assurance, labeling, advertising and record-keeping. Any delay at any point in
the regulatory process could adversely affect the commercial potential of a
product. Regulatory authorities may not approve a product for the uses that we
propose, thereby limiting our ability to market the product. In addition, it
is possible to fulfill all FDA submission requirements, but subsequently fail
an FDA pre-approval inspection of the manufacturing facility, which can result
in significant delay in obtaining FDA approval to market a product. Even after
approvals are obtained, further delays may occur before the products become
commercially available in countries requiring pricing approvals. Failure to
obtain, or delays in obtaining, regulatory clearances to market new products
or existing products for new indications, as well as other regulatory actions
and recalls, could adversely affect our results of operations.
Pharmaceutical pricing and reimbursement pressures may reduce profitability.
As pressures for cost containment increase, particularly in the United
States and Canada, there can be no assurance that the prices we can charge for
the products we market will be as favorable as historical pharmaceutical
product prices. Reimbursement by payors such as government and managed care
organizations has become increasingly important, as has the listing of new
products on large formularies, such as those of managed care organizations,
pharmaceutical benefit providers and group buying organizations. Failure of
one or more products to be included on formulary lists, or to be reimbursed by
government or managed care organizations, could have a negative impact on our
results of operations. In addition, in many international markets, the
government controls the prices of prescription pharmaceuticals.
Furthermore, there are currently a number of competing proposals for new
U.S. legislation covering government programs involving drug reimbursement
benefits for seniors, including alternative proposals made by presidential
candidates. The different proposals could have very different effects on the
sales and profitability of our products and legislation that would impose
mechanisms for government control of prices could have an adverse impact on
our business. Also, the politically-charged public debate about these
legislative proposals could itself adversely affect our stock price due to
increased uncertainty regarding future profitability.
We may be forced to lower prices to compete with other products. Lower
prices and competitors' attempts to gain market share could adversely affect
our business, financial condition and results of operations.
We face intense competition from other companies whose products may gain
greater market acceptance than our products.
Most or all of the products we develop or commercialize will face
competition from different therapeutic agents intended for treatment of the
same indications or from other products incorporating drug delivery
technologies. The competition potentially includes all of the pharmaceutical
companies in the world. Many of these pharmaceutical companies have greater
financial resources, technical staff and manufacturing and marketing
capabilities than we do. To the extent that we develop or market products
incorporating drugs that are off-patent, or are being developed by multiple
companies, we will face competition from other companies developing and
marketing similar products.
6
<PAGE>
Pharmaceutical companies are increasingly using advertising, including
direct-to-consumer advertising, in marketing their products. The costs of such
advertising are very high and are increasing. It may be difficult for our
company to compete with larger companies investing greater resources in these
marketing activities.
Other pharmaceutical companies are aggressively seeking to obtain new
products by licensing products or technology from other companies. We will be
competing to license or acquire products or technology with companies with far
greater financial and other resources.
Our success depends upon physician and patient acceptance of our products.
Significant efforts will be required to educate physicians and other health
care practitioners, as well as patients, concerning some of our products, in
order that the full potential of the products can be realized. Elmiron(R)
(pentosan polysulfate sodium) is used in the treatment of interstitial
cystitis, a disease that is often undiagnosed or misdiagnosed. The
Testoderm(R) TTS (testosterone) line of products is used to treat testosterone
deficiency in men, a condition that is believed to be largely undiagnosed.
Doxil(R) (doxorubicin HCI liposome injection) is the first commercial product
to incorporate the STEALTH(R) liposomal technology. Concerta, which was
approved by the FDA in July 2000, is used to treat attention deficit
hyperactivity disorder, a disease that can be difficult to diagnose. In
addition, there is some controversy associated with the diagnosis and
treatment of this disease in the United States. Finally, Viadur(TM)
(leuprolide), approved by the FDA in March 2000, is the first product
incorporating ALZA's DUROS(R) implant technology. The Viadur product will
compete with other forms of therapy and there can be no assurance that doctors
and patients will accept the product.
We depend on relationships with other companies for revenues and access to
technologies, and failure to maintain these relationships would hurt our
business.
A substantial portion of our net income currently results from royalties,
fees and commercial supply prices paid by other companies selling products
incorporating our technologies. These revenues vary from quarter to quarter as
a result of changing levels of product sales by these companies. Because our
partner companies make the decisions regarding commercializing these products,
we do not directly control most of the variables that affect these revenues.
In addition, these revenues can be adversely affected by competition and
pressures for cost containment on partner companies.
We currently receive a substantial portion of our product development
revenues from Crescendo Pharmaceuticals Corporation ("Crescendo"), a company
we formed in 1997 by contributing $300 million of cash to Crescendo and
distributing Crescendo's Class A common stock to our stockholders. Crescendo
is required to spend substantially all of the funds initially contributed by
us, plus interest, to conduct product development activities at ALZA. We
expect that, if funding were to continue at current rates, Crescendo will have
expended all of its available funds before the end of 2000. At that time,
product development revenues are expected to decrease substantially, and we
will need to fund ongoing development of our products. The decrease in product
development revenues, and the expense of funding product development may have
a negative impact on our financial results and stock price.
We also rely on relationships with other companies for access to
proprietary technology needed for product development, including proprietary
rights to drugs that may be incorporated into our drug delivery systems. Our
business could be adversely affected if we are unable to access these
proprietary technologies and drugs.
Government regulation and technical or other problems may affect our ability
to manufacture our products.
The manufacturing process for pharmaceutical products is highly regulated,
and regulators may shut down manufacturing facilities that they believe do not
comply with regulations. The FDA's current Good Manufacturing Practices are
extensive and govern manufacturing processes, stability testing, record-
keeping and quality standards. Similar, but not identical, regulations are in
effect in other countries.
Substantially all of our products are manufactured at a single facility. A
shutdown in any of our product manufacturing facilities due to technical,
regulatory or other problems could result in an interruption in supply of one
or more of our products and could have an adverse impact on our financial
results.
7
<PAGE>
Some of the critical materials and components used in our developed
products are sourced from a single supplier. An interruption in supply of a
key material could significantly delay the manufacturing of one or more of our
products. Because the suppliers of key components and materials must be named
in the New Drug Application filed with the FDA for a product, significant
delays can occur if the qualification of a new supplier is required.
Special materials must often be manufactured for the first time for use in
drug delivery systems, or materials may be used in the systems in a manner
different from their customary commercial uses.
Special materials or components must be fabricated for use in our drug
delivery systems, or materials may be used in the systems in a manner
different from their customary commercial uses. The quality of materials can
be critical to the performance of a drug delivery system, so a reliable source
of a consistent supply of materials is important. Materials or components
needed for our drug delivery systems may be difficult to obtain on
commercially reasonable terms, particularly when relatively small quantities
are required, or if the materials traditionally have not been used in
pharmaceutical products.
Patents and other intellectual property protection may be difficult to obtain
or ineffective, allowing other companies to more easily produce products
similar to ours.
Patent protection generally has been important in the pharmaceutical
industry. Our existing patents may not cover future products, additional
patents may not be issued, and current patents or patents issued in the future
may not provide meaningful protection or prove to be of commercial benefit. We
also commercialize several products we have acquired or in-licensed from other
companies. The extent to which those products are protected by patent rights
varies significantly from product to product. If patent protection is not
available, we may face greater competition or pricing pressures than expected.
In the United States, patents are granted for specified periods of time.
Some of our earlier patents covering various aspects of certain oral and
transdermal dosage forms have expired, or will expire, over the next several
years. In 2003, certain patents are due to expire that relate to our OROS(R)
systems and the Procardia XL (nifedipine) product (which uses an OROS delivery
system).
Other companies may successfully challenge our patents in the future. In
some cases, other companies have initiated reexamination by the United States
Patent and Trademark Office of patents issued to us, and have opposed our
patents in other jurisdictions. Others have also challenged the validity or
enforceability of our patents in litigation. If any challenge is successful,
other companies may then be able to use the invention covered by the patent
without payment. In addition, if other companies are able to obtain patents
that cover any of our technologies or products, we may be subject to liability
for damages and our activities could be blocked by legal action unless we can
obtain licenses to those patents.
In addition, we utilize significant unpatented proprietary technology and
rely on unpatented trade secrets and proprietary know-how to protect certain
aspects of our products and technologies and the methods used to manufacture
them. Other companies have or may develop similar technology which will
compete with our technology.
Generic pharmaceutical manufacturers will increase competition for certain
products.
Generic competitors generally are able to obtain regulatory approval for
drugs no longer covered by patents without investing in costly and time-
consuming clinical trials, and need only demonstrate that their product is
equivalent to the drug they wish to copy. Because of their substantially
reduced development costs, generic companies are often able to charge much
lower prices for their products than the original developer of a new product.
Several generic companies have filed for approval to market generic versions
of the ALZA-developed Procardia XL product, and there is now generic
competition in the market. This generic competition could significantly reduce
our royalties from this product. A number of our products incorporate chemical
entities that are not covered by patents. These products may be subject to
competition from generic drugs.
8
<PAGE>
Product liability claims may increase costs and decrease profits.
Testing, manufacturing, marketing and use of our pharmaceutical products
involve substantial risk of product liability claims. In the past, product
liability exposure has been modest and we have been indemnified by partner
companies that market ALZA-developed products. However, due to the expansion
of our sales and marketing activities, the exposure to potential product
liability claims has increased significantly. Although we maintain product
liability insurance, a single product liability claim could exceed coverage
limits, and multiple claims are possible. If that happens, the insurance
coverage we have may not be adequate, and in the future such insurance may not
be renewed at an acceptable cost or at all. Our business, financial condition
and results of operations could be materially and adversely affected by one or
more successful product liability claims.
Risk of impact of changes in accounting standards.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. We are
continuing to evaluate SAB 101's potential future impact on our financial
position and results of operations with respect to up-front fees and milestone
payments we earn under distribution agreements, agreements with partner
companies and certain other agreements. We expect that, under SAB 101, certain
of these fees will be required to be deferred and recognized as revenue over
future periods rather than immediately on a one-time basis. The SEC has
delayed the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999, which for us
will be the fourth quarter of 2000.
9
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling holders of
the debentures or the shares of common stock issuable upon their conversion.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes and
cumulative effect of accounting changes plus fixed charges less capitalized
interest) by fixed charges (interest expense plus capitalized interest,
amortization of debt issuance costs, and the portion of operating lease rental
expense that represents the interest factor). Our ratio of earnings to fixed
charges for each of the periods shown is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
Six Months
Ended
June 30, 2000 1999 1998 1997 1996 1995
------------- ----- ----- ---- ----- -----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges......................... 4.22x 2.93x 3.67x --(1) 3.68x 4.08x
</TABLE>
--------
(1) In 1997, ALZA recognized pre-tax charges of $376.8 million, including a
$247.0 million charge and $8.0 million of interest expense related to
ALZA's distribution of shares of Crescendo Pharmaceuticals Corporation and
$108.5 million for acquired in-process research and development. As a
result of these charges, earnings for 1997 were insufficient to cover
fixed charges by $234.9 million.
10
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of
. 300,000,000 shares of common stock, $0.01 par value; and
. 100,000 shares of preferred stock, $0.01 par value, issuable in series.
As of September 15, 2000, there were 118,083,799 shares of common stock
issued and outstanding. As of the date of this prospectus, there are no shares
of preferred stock issued or outstanding. Except as described below under
"Rights Plan," holders of our capital stock are not entitled to preemptive
rights to purchase or subscribe for shares of any class or any other
securities unless our board of directors so states. Subject to stockholder
approval, our Board approved an amendment to our restated certificate of
incorporation to effect a 2-for-1 stock split, an increase in the number of
authorized shares of common stock from 300,000,000 to 1,000,000,000 shares,
and a change in the par value of each share of common stock from $0.01 to
$0.005. We plan to hold the stockholders meeting to approve this proposal on
October 31, 2000.
We have summarized selected provisions of our capital stock in this
section. This summary is not complete. You should read the provisions of our
restated certificate of incorporation and our bylaws currently in effect for
provisions that may be important to you.
Common Stock
The holders of our common stock have the right to receive dividends if they
are declared by our board of directors and there are sufficient funds to
legally pay dividends, subject to the rights of the holders of any outstanding
preferred stock to receive preferential dividends. Upon the liquidation of
ALZA, holders of common stock would share ratably in any assets available for
distribution to stockholders after payment of all of our obligations and the
aggregate liquidation preference (including accrued and unpaid dividends) of
any outstanding preferred stock.
Except as described below under "Rights Plan," our common stock is not
redeemable and has no preemptive, subscription or conversion rights. Shares of
common stock currently outstanding are, and the common stock to be issued upon
conversion of the debentures will be, validly issued, fully paid and
nonassessable.
EquiServe L.P. is transfer agent and registrar for the ALZA common stock.
Preferred Stock
The authorized ALZA preferred stock is available for issuance from time to
time at the discretion of our board of directors without stockholder approval.
Our board of directors has authority to prescribe for each series of preferred
stock it establishes the number of shares in that series, the dividend rate,
and the voting rights, conversion privileges, redemption, sinking fund and
liquidation rights, if any, and any other rights, preferences, qualifications
and limitations of the particular series. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of common stock or adversely affect the rights and powers,
including voting rights, of the holders of common stock. We have no present
plans to issue any preferred stock. Under our Rights Plan described below, our
board of directors has reserved 30,000 shares of the preferred stock for
issuance.
Rights Plan
On December 17, 1999, our board of directors adopted a Rights Agreement
(the "Rights Plan") that is designed to deter hostile takeover attempts,
including the accumulation of shares in the open market or through private
transactions, and to prevent an acquirer from gaining control of ALZA without
offering a fair price to all of our stockholders. Under the Rights Plan,
rights were distributed as a dividend at the rate of one right (an "ALZA
Right") for each share of our common stock held by stockholders of record as
of the close of business on January 5, 2000 and thereafter. Each holder of
shares of common stock is entitled to an ALZA Right in
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<PAGE>
respect of each share held by such stockholder. The ALZA Rights will expire on
December 17, 2009. Under the Rights Plan, each ALZA Right initially entitles
stockholders to buy one unit of a share of preferred stock for $200. Subject
to certain exceptions specified in the Rights Plan, the ALZA Rights will be
exercisable only if a person or group acquires beneficial ownership of 15% or
more of our common stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% or more
of our common stock.
If any person becomes the beneficial owner of 15% or more of our common
stock, other than pursuant to a tender or exchange offer for all outstanding
shares approved by a majority of the independent directors not affiliated with
such person, then each ALZA Right not owned by such person or related parties
will entitle its holder to purchase, at the ALZA Right's then current exercise
price, shares of common stock (or, in certain circumstances as determined by
our board of directors, cash, other property or other securities) having a
value of twice the ALZA Right's then current exercise price. In addition, if
after any person has become a 15% stockholder, ALZA is involved in a merger or
other business combination transaction with a 15% stockholder or a person
affiliated or associated with such 15% stockholder in which we do not survive
or in which common stock is changed or exchanged, or if we sell 50% or more of
our assets or earning power to a 15% stockholder or a person affiliated or
associated with such 15% stockholder, each ALZA Right will entitle its holder
to purchase, at the ALZA Right's then current exercise price, shares of common
stock of such 15% stockholder or person affiliated or associated with such 15%
stockholder having a value of twice the ALZA Right's then current exercise
price.
ALZA is generally entitled to redeem the ALZA Rights at $0.001 per ALZA
Right at any time prior to the acquisition of a 15% position by a person or
group.
Voting Rights
Holders of our common stock have one vote per share on all matters
submitted to a vote of stockholders. Stockholders do not have cumulative
voting rights.
Some business transactions, as defined in our bylaws, require more than a
simple majority vote. These business transactions are discussed under
"Business Transactions Requiring More Than a Majority Vote" below.
Classification of Board of Directors
Our restated certificate of incorporation provides for three classes of
directors: Class I, Class II and Class III. Only one class of directors is
elected at each annual meeting of our stockholders, with each director elected
to a three-year term.
Classification of our board of directors could:
. make it more difficult for a substantial stockholder to rapidly change
control of our company;
. entrench management;
. make it more difficult to effect a merger or similar transaction even if
the transaction is favored by a majority of independent stockholders;
and
. discourage actions to acquire control of us by extending the time needed
to effect a change in control of our board of directors because only a
minority of the directors are elected at each annual meeting.
Business Transactions Requiring More Than a Majority Vote
Our bylaws provide that certain transactions, including mergers,
consolidations, substantial asset sales, recapitalizations, securities
issuances or other business combinations with third parties who beneficially
own 20%
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<PAGE>
or more of the voting interests of ALZA, require the affirmative vote of the
holders of at least 80% of the outstanding shares of stock entitled to vote
for the election of directors unless:
. the transaction is approved by a majority vote of the directors who are
unaffiliated with the 20% owner and who were members of our board of
directors immediately prior to the time that the 20% owner involved in
the transaction became a 20% owner;
. the transaction is solely between ALZA and another corporation, provided
that ALZA, directly or indirectly, owns 100% of the voting stock of that
corporation; or
. the transaction is a merger or consolidation and the aggregate
consideration per share to be received in the transaction is at least
equal to the highest per share price paid by the 20% owner in acquiring
any of its holdings of our common stock.
The super-majority requirement described above could:
. cause a delay, deferral or prevention of a change in control of our
company;
. entrench management; and
. make it more difficult to effect a business transaction even if such
transaction is favored by a majority of our independent stockholders.
Limitation on Directors' Liability
Delaware has adopted a law that allows corporations to limit the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations allowed by the law,
directors are accountable to corporations and their stockholders for monetary
damages for acts of gross negligence. Although the Delaware law does not
change directors' duty of care, it allows corporations to limit available
relief to equitable remedies such as injunction or rescission. Our restated
certificate of incorporation limits the liability of our directors to the
fullest extent permitted by this law. Specifically, our directors will not be
personally liable for monetary damages for any breach of their fiduciary duty
as a director, except for liability:
. for any breach of their duty of loyalty to ALZA or our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under provisions relating to unlawful payments of dividends or unlawful
stock repurchases or redemption; or
. for any transaction from which the director derived an improper personal
benefit.
This limitation may have the effect of reducing the likelihood of
derivative litigation against directors, and may discourage or deter
stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited our stockholders.
Delaware Anti-takeover Statute
We are a Delaware company and are subject to Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prevents an "interested
stockholder" (generally a person owning 15% or more of our outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with us for three years following the time that person becomes a 15%
stockholder unless either:
. before that person became a 15% stockholder, our board of directors
approved the transaction in which the stockholder became a 15%
stockholder or approved the business combination;
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<PAGE>
. upon completion of the transaction that resulted in the stockholder's
becoming a 15% stockholder, the stockholder owned at least 85% of our
voting stock outstanding at the time the transaction began (excluding
stock held by directors who are also officers and by employee stock
plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer); or
. after the transaction in which that person became a 15% stockholder, the
business combination is approved by our board of directors and
authorized at a stockholder meeting by at least two-thirds of the
outstanding voting stock not owned by the 15% stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by a 15% stockholder following the disclosure of an
extraordinary transaction with a person who was not a 15% stockholder during
the previous three years or who became a 15% stockholder with the approval of
a majority of our directors. This exception applies only if that extraordinary
transaction is approved or not opposed by a majority of our directors who were
directors in the previous three years before any person became a 15%
stockholder, or the successors of these directors.
14
<PAGE>
DESCRIPTION OF THE DEBENTURES
General
The debentures were issued under the indenture, dated as of July 28, 2000,
governing the debentures.
The following summary of the material provisions of the indenture and the
registration rights agreement does not purport to be complete. We urge you to
read the indenture and the registration rights agreement, which you may obtain
from us upon request. As used under this caption "Description of the
Debentures," all references to our company or to us mean ALZA Corporation,
excluding, unless otherwise expressly stated or the context otherwise
requires, its subsidiaries.
The debentures are general unsecured subordinated obligations of our
company having an aggregate principal amount at maturity of $1.09 billion and
the debentures will mature on July 28, 2020. The debentures are subordinated
to all of our existing and future senior indebtedness. The debentures rank on
a parity with all of our other unsecured and subordinated indebtedness.
The debentures are offered and sold at a discount from their value at
maturity. We initially issued the debentures at a price to investors of
$551.26 per debenture. Over time, the amount payable on each debenture will
increase in value until it reaches its maturity value of $1,000 on July 28,
2020. The debentures are issued only in denominations of $1,000 payable at
maturity and integral multiples of $1,000 payable at maturity.
You have the option to convert your debentures into shares of our common
stock at any time prior to maturity, unless the debentures have been
previously redeemed or repurchased. The initial conversion rate is 7.0135
shares of common stock per debenture. This is equivalent to an initial
conversion price of $78.60 per share of common stock based on the initial
issue price of the debentures. The conversion rate is subject to adjustment if
certain events occur. Upon conversion, you will receive only shares of common
stock and cash in lieu of fractional shares. You will not receive any cash
payment for the accrued original issue discount to the conversion date.
Interest
We will not pay cash interest on the debentures unless we elect to do so
following a tax event as described below. You should be aware that original
issue discount accruing for the period you hold the debentures must be
included in your gross income for federal income tax purposes. Original issue
discount is generally the difference between the adjusted issue price and the
$1,000 principal amount of the debenture at maturity. See "Certain United
States Federal Income Tax Considerations."
Redemption Rights
On or after July 28, 2003, we can redeem all or part of the debentures at
any time, upon not less than 15 nor more than 60 days' notice by mail to
holders of debentures, for a price equal to $551.26 per debenture plus accrued
original issue discount at a rate of 3.0% per annum compounded semi-annually
through the date of redemption, on the basis of a 360-day year consisting of
twelve 30-day months. We can also convert the debentures to interest-bearing
debentures upon the occurrence of certain tax events described below. See "--
Tax Event."
15
<PAGE>
The table below shows redemption prices of debentures at July 28, 2003, at
each following July 28 prior to maturity and at maturity on July 28, 2020. The
prices reflect the accrued original issue discount calculated through each
date. The redemption price of a debenture redeemed between these dates would
include an additional amount reflecting the additional original issue discount
accrued since the immediately preceding date in the table through the actual
redemption date.
<TABLE>
<CAPTION>
(2) (3)
(1) Accrued Original Redemption
Debenture Issue Discount Price
Redemption Date Issue Price at 3.0% (1) + (2)
--------------- ----------- ---------------- ----------
<S> <C> <C> <C>
July 28, 2003........................... $551.26 $ 51.51 $ 602.77
July 28, 2004........................... $551.26 $ 69.73 $ 620.99
July 28, 2005........................... $551.26 $ 88.50 $ 639.76
July 28, 2006........................... $551.26 $107.84 $ 659.10
July 28, 2007........................... $551.26 $127.76 $ 679.02
July 28, 2008........................... $551.26 $148.28 $ 699.54
July 28, 2009........................... $551.26 $169.43 $ 720.69
July 28, 2010........................... $551.26 $191.21 $ 742.47
July 28, 2011........................... $551.26 $213.65 $ 764.91
July 28, 2012........................... $551.26 $236.77 $ 788.03
July 28, 2013........................... $551.26 $260.59 $ 811.85
July 28, 2014........................... $551.26 $285.13 $ 836.39
July 28, 2015........................... $551.26 $310.40 $ 861.67
July 28, 2016........................... $551.26 $336.45 $ 887.71
July 28, 2017........................... $551.26 $363.28 $ 914.54
July 28, 2018........................... $551.26 $390.92 $ 942.18
July 28, 2019........................... $551.26 $419.40 $ 970.66
At stated maturity...................... $551.26 $448.74 $1,000.00
</TABLE>
From and after the date a tax event occurs and we elect to pay interest at
3.0% per year on the debentures instead of accruing original issue discount,
the principal amount for redemption will be restated, and will be calculated
by adding the issue price and the original issue discount which had accrued up
until the date on which we exercise the option to commence paying cash
interest. See "-Tax Event."
If we decide to redeem fewer than all of the outstanding debentures, the
trustee will select the debentures to be redeemed by lot, on a pro rata basis
or by another method the trustee considers fair and appropriate.
If the trustee selects a portion of your debentures for partial redemption
and you convert a portion of the same debentures, the converted portion will
be deemed to be from the portion selected for redemption. Each debenture will
be redeemed in whole.
Conversion Rights
You may convert a debenture into shares of common stock at any time until
the close of business on the last business day prior to July 28, 2020. If a
debenture has been called for redemption, you will be entitled to convert the
debenture until the close of business on the business day preceding the date
of redemption. You may convert fewer than all of your debentures so long as
the debentures converted are an integral multiple of $1,000 principal amount.
The initial conversion rate is 7.0135 shares of common stock for each
debenture. This is equivalent to an initial conversion price of $78.60 per
share of common stock based on the initial issue price of the debentures. You
will not receive any cash payment representing accrued original issue discount
upon conversion of a debenture. Instead, upon conversion we will deliver to
you a fixed number of shares of common stock and any cash payment to account
for fractional shares. The cash payment for fractional shares will be based on
the closing price of the shares of common stock on the trading day immediately
prior to the conversion date.
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<PAGE>
Delivery of shares of common stock will be deemed to satisfy our obligation
to pay the principal amount of the debenture, including accrued original issue
discount. Accrued original issue discount will be deemed paid in full rather
than canceled, extinguished or forfeited. We will not adjust the conversion
rate to account for the accrued original issue discount.
The conversion rate will be subject to adjustment upon the following
events:
. issuance of shares of common stock of ALZA as a dividend or distribution
on the common stock;
. subdivision or combination of the outstanding common stock (including
the planned 2-for-1 stock split of our common stock which is contingent
on approval by our stockholders at a special meeting planned to be held
on October 31, 2000);
. issuance to all stockholders of rights or warrants that allow the
holders to purchase shares of common stock of ALZA at less than the
current market price; provided that, no adjustment will be made if
holders of the debentures may participate in the transactions on a basis
and with notice that our board of directors determines to be fair and
appropriate or in certain other cases;
. distribution to all stockholders of debt or other assets but excluding
distributions of rights and warrants described above and all-cash
distributions; provided that, no adjustment will be made if holders of
the debentures may participate in the transactions on a basis and with
notice that our board of directors determines to be fair and appropriate
or in certain other cases;
. the distribution to all or substantially all stockholders of all-cash
distributions in an aggregate amount that, together with (1) any cash
and the fair market value of any other consideration payable in respect
of any tender offer by us or any of our subsidiaries for shares of our
common stock consummated within the preceding 12 months not triggering a
conversion price adjustment and (2) all other all-cash distributions to
all or substantially all stockholders made within the preceding 12
months not triggering a conversion price adjustment, exceeds an amount
equal to 12.5% of the market capitalization of our common stock on the
business day immediately preceding the day on which we declare such
distribution; and
. the purchase of shares of our common stock pursuant to a tender offer
made by us or any of our subsidiaries to the extent that the same
involves aggregate consideration that, together with (1) any cash and
the fair market value of any other consideration payable in respect of
any tender offer by us or any of our subsidiaries for shares of common
stock consummated within the preceding 12 months not triggering a
conversion price adjustment and (2) all-cash distributions to all or
substantially all stockholders made within the preceding 12 months not
triggering a conversion price adjustment, exceeds an amount equal to
12.5% of the market capitalization of our common stock on the expiration
date of such tender offer.
There shall not be any adjustment to the conversion rate as a result of any
of the following events under our Rights Plan:
. the issuance of the ALZA Rights;
. the distribution of separate certificates representing the ALZA Rights;
or
. the termination or invalidation of the ALZA Rights.
We may increase the conversion rate as permitted by law for at least 20
days, so long as the increase is irrevocable during the period. We are not
required to adjust the conversion rate until adjustments greater than 1% have
occurred.
If, after we have elected to exercise our option to pay interest instead of
accruing original issue discount, you submit your debentures for conversion
between a record date for interest payment and the opening of business on the
next interest payment date (except for debentures or portions of debentures
called for redemption on a redemption date occurring during such period), you
must pay funds equal to the interest payable on the converted principal
amount.
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<PAGE>
Repurchase Right
You have the right to require us to repurchase the debentures on July 28,
2003, July 28, 2008 and July 28, 2013. We will be required to repurchase any
outstanding debenture for which you deliver a written repurchase notice to the
paying agent. This notice must be delivered during the period beginning at any
time from the opening of business on the date that is 20 business days prior
to the relevant repurchase date until the close of business on the repurchase
date. If the repurchase notice is given and withdrawn during the period, we
will not be obligated to repurchase the related debentures. Our repurchase
obligation will be subject to certain additional conditions. Also, our ability
to satisfy our repurchase obligations may be affected by the factors described
in "Risk Factors" under the caption "We may not have the ability to raise the
funds necessary to finance the change in control or other repurchases required
by the indenture."
The repurchase price payable will be equal to the initial issue price of
$551.26, plus accrued original issue discount through the repurchase date. The
table below shows the repurchase prices of a debenture as of each of the
repurchase dates.
<TABLE>
<CAPTION>
Repurchase Price
----------------
<S> <C>
July 28, 2003............................................... $602.77
July 28, 2008............................................... $699.54
July 28, 2013............................................... $811.85
</TABLE>
We may, at our option, elect to pay the repurchase price in cash, in shares
of our common stock, or any combination thereof. For a discussion of the tax
treatment of a holder receiving cash, shares of common stock or any
combination thereof, see "Certain United States Federal Income Tax
Considerations--U.S. Holders--Sale, Exchange or Retirement of the Debentures"
and "--Exercise of Repurchase Right."
If we have previously exercised our option to pay interest instead of
accruing original issue discount on the debentures following a tax event, the
repurchase price will be equal to the restated principal amount plus the
accrued and unpaid interest that accrued from the date we exercise our option
through the repurchase date. See "--Tax Event."
We will be required to give notice on a date not less than 20 business days
prior to each repurchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
. whether we will pay the repurchase price of the debentures in cash, in
shares of our common stock, or any combination thereof, specifying the
percentages of each;
. if we elect to pay all or part in shares of common stock, the method of
calculating the market price of the common stock; and
. the procedures that holders must follow to require us to repurchase
their debentures.
Your notice electing to require us to repurchase your debentures must
state:
. if certificated debentures have been issued, the debenture certificate
numbers, or if not certificated, your notice must comply with
appropriate DTC procedures;
. the portion of the principal amount at maturity of debentures to be
repurchased, in multiples of $1,000;
. that the debentures are to be repurchased by us pursuant to the
applicable provisions of the indenture; and
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<PAGE>
. in the event we elect, pursuant to the notice that we are required to
give, to pay the repurchase price in shares of common stock, in whole or
in part, but the repurchase price is ultimately to be paid to the holder
entirely in cash because any of the conditions to payment of the
repurchase price or portion of the repurchase price in shares of common
stock is not satisfied prior to the close of business on the repurchase
date, as described below, whether the holder elects:
(1) to withdraw the repurchase notice as to some or all of the
debentures to which it relates, or
(2) to receive cash in respect of the entire repurchase price for
all debentures or portions of debentures subject to such
repurchase notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder will be deemed
to have elected to receive cash in respect of the entire repurchase price for
all debentures subject to the repurchase notice in these circumstances. For a
discussion of the tax treatment of a holder receiving cash instead of shares
of common stock, see "Certain United States Federal Income Tax
Considerations--U.S. Holders--Sale, Exchange or Retirement of the Debentures."
You may withdraw any repurchase notice by a written notice of withdrawal
delivered to the paying agent prior to the close of business on the repurchase
date. The notice of withdrawal must state:
. the principal amount at maturity of the withdrawn debentures;
. if certificated debentures have been issued, the certificate numbers of
the withdrawn debentures, or if not certificated, your notice must
comply with appropriate DTC procedures; and
. the principal amount at maturity, if any, which remains subject to the
repurchase notice.
If we elect to pay the repurchase price, in whole or in part, in shares of
common stock, the number of shares to be delivered by us will be equal to the
portion of the repurchase price to be paid in common stock divided by the
market price of one share of common stock as determined by us in our
repurchase notice. We will pay cash based on the market price for all
fractional shares.
The "market price" means the average of the sale prices of the common stock
for the five trading day period ending on the third business day prior to the
applicable repurchase date (if the third business day prior to the applicable
repurchase date is a trading day, or if not, then on the last trading day
prior to such third business day), appropriately adjusted to take into account
the occurrence, during the period commencing on the first of such trading days
during such five trading day period and ending on such repurchase date, of
certain events that would result in an adjustment of the conversion rate with
respect to the common stock.
The "sale price" of the common stock on any date means the closing per
share sale price of common stock (or if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and the average ask prices) on such date as
reported in composite transactions for the principal United States securities
exchange on which the common stock is traded or, if the common stock is not
listed on a United States national or regional securities exchange, as
reported by the Nasdaq System.
Because the market price of the common stock is determined prior to the
applicable repurchase date, holders of debentures bear the market risk with
respect to the value of the common stock to be received from the date such
market price is determined to such repurchase date. We may pay the repurchase
price or any portion of the repurchase price in shares of common stock only if
our stock is listed on the NYSE or quoted on the Nasdaq National Market
System.
Upon determination of the actual number of shares of common stock to be
issued in accordance with the foregoing provisions, we will publish such
determination in a newspaper of national circulation.
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Our right to repurchase debentures, in whole or in part, with shares of
common stock is subject to our satisfying various conditions, including:
. the registration of the shares of common stock under the Securities Act
and the Exchange Act, if required; and
. any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to the
close of business on the repurchase date, we will pay the repurchase price of
the debentures of the holder entirely in cash. See "Certain United States
Federal Income Tax Considerations--U.S. Holders--Sale, Exchange or Retirement
of the Debentures." We may not change the form or components or percentages of
components of consideration to be paid for the debentures once we have given
the notice that we are required to give to holders of debentures, except as
described in the first sentence of this paragraph.
Our ability to repurchase debentures with cash may be limited by the terms
of our then-existing credit agreements. The indenture will prohibit us from
repurchasing debentures for cash in connection with the holders' repurchase
right if any event of default under the indenture has occurred and is
continuing, except a default in the payment of the repurchase price with
respect to the debentures.
A holder must either effect book-entry transfer or deliver the debenture,
together with necessary endorsements, to the office of the paying agent after
delivery of the repurchase notice to receive payment of the repurchase price.
You will receive payment in cash or common stock promptly following the later
of (1) the repurchase date and (2) the time of book-entry transfer or the
delivery of the debenture. If the paying agent holds money or securities
sufficient to pay the repurchase price of the debenture on the business day
following the repurchase date, then:
. the debenture will cease to be outstanding; and
. original issue discount (or, if the debentures have been converted to
interest-bearing debentures following a tax event, interest) will cease
to accrue; and
. all other rights of the holder will terminate.
This will be the case whether or not entry transfer of the debenture is
made or whether or not the debenture is delivered to the paying agent.
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act which may be applicable at the time. We will file
a Schedule TO or any other schedule required in connection with any offer by
us to repurchase the debentures at your option.
Tax Event
We have the option to convert the debentures to interest-bearing debentures
if a tax event (as defined below) occurs. From and after the date a tax event
occurs, we may elect to pay interest at 3.0% per year on the debentures
instead of accruing original issue discount. The principal amount, which will
be restated, will be calculated by adding the issue price and the original
issue discount which had accrued up until the date on which we exercise the
option. This restated principal amount will be the amount due at maturity. If
we elect this option, interest will be based on a 360-day year comprised of
twelve 30-day months. Interest will accrue from the option exercise date and
will be payable semiannually on July 28 to holders of record on the
immediately preceding July 13 and on January 28 to holders of record on the
immediately preceding January 13.
A tax event occurs when we receive an opinion from an experienced
independent tax counsel stating that, as a result of either:
. any amendment, change or announced prospective change in the laws or
regulations of the United States or any of its political subdivisions or
taxing authorities of the United States; or
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. any amendment, change, interpretation or application of the laws or
regulations by any legislative body, court, government agency or
regulatory authority;
there is more than an insubstantial risk that interest, including original
issue discount, payable on the debentures either would not be deductible on a
current accrual basis; or would not be deductible under any other method, in
whole or in part, by us for United States federal income tax purposes.
Change of Control
If we undergo a change in control, you will have the option to require us
to purchase your debentures 35 business days after the change in control. We
will pay a purchase price equal to the initial issue price of $551.26 plus
accrued original issue discount through the purchase date or, if the
debentures have been converted to interest-bearing debentures following a tax
event, the restated principal amount plus accrued and unpaid interest through
the purchase date. You may require us to purchase all or any part of the
debentures so long as the principal amount at maturity of the debentures being
purchased is an integral multiple of $1,000.
A change in control occurs in the following situations:
. any person or group (other than ALZA or its subsidiaries) after the
first issuance of debentures becomes the beneficial owner of our voting
stock representing more than 50% of the total voting power of all of our
classes of voting stock entitled to vote generally in the election of
the members of our board of directors; or
. we consolidate with or merge into another person (other than a
subsidiary), we sell, convey, transfer or lease our properties and
assets substantially as an entirety to a person (other than a
subsidiary), or any person (other than a subsidiary) consolidates with
or merges with or into our company, and our outstanding common stock is
reclassified into, exchanged for or converted into the right to receive
any other property or security, provided that none of these
circumstances will be a change in control if, after a transaction, the
persons that beneficially owned our voting stock immediately prior to
the transaction beneficially own, in substantially the same proportion,
shares with a majority of the total voting power of all outstanding
voting securities of the surviving or transferee person that are
entitled to vote generally in the election of that person's board of
directors;
unless, in each case, at least 80% of the consideration, other than cash
payments for fractional shares, in the transaction or transactions
constituting the change in control, consists of shares of voting common stock
of the person that are, or upon issuance will be, traded on a national
securities exchange or approved for trading on an established automated over-
the-counter trading market in the United States.
You must deliver a written notice to the paying agent prior to the close of
business on the business day prior to the date on which the debentures are to
be purchased to exercise the repurchase right upon a change in control. This
notice must specify the debentures submitted for repurchase. You may withdraw
the notice by delivering a written notice of withdrawal to the paying agent
before the same date.
Within 15 business days after a change in control, we will publish and mail
to the trustee and to each holder of the debentures a written notice of the
change in control which specifies the terms and conditions and the procedures
required for exercise of a holder's right to require us to purchase its
debentures.
If a change in control were to occur, we may not have enough funds to pay
the change in control purchase price. In addition, we have, and may in the
future incur, other indebtedness with similar change of control provisions
permitting its holders to accelerate or to require us to repurchase our
indebtedness upon the occurrence of similar events or on certain specified
dates. If we fail to repurchase the debentures when required following a
change in control, we will be in default under the indenture whether or not
repurchase is permitted by the related subordination provisions. See "Risk
Factors--We may not have the ability to raise the funds necessary to finance
the change in control or other repurchases required by the indenture."
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Subordination
The debentures are subordinated to all existing and future senior
indebtedness. The holders of senior indebtedness will be entitled to receive
payment in full before the holders of debentures will be entitled to receive
any payment on the debentures if we pay or distribute assets in any of the
following circumstances:
. dissolution;
. winding up;
. bankruptcy;
. insolvency;
. liquidation or reorganization, whether voluntary or involuntary; or
. assignment for the benefit of creditors or other similar proceeding.
If we default in payment on any senior indebtedness, we will not make
payments on the debentures until:
. we have paid in full the senior indebtedness;
. we have cured or received a waiver from the holder(s) of senior
indebtedness; or
. the default has ceased.
Upon an event of default on any senior indebtedness, other than a payment
default, which permits a holder of senior indebtedness to accelerate its
maturity, and if a holder of senior indebtedness provides written notice of
such default to the trustee, then we will not make payments on the debentures
until the default has been cured, waived or has ceased to exist.
We may, however, resume payments, not otherwise prohibited by the above
provisions regarding payment, on the debentures after a period of 180 days
after the notice of default is given, unless the maturity of the senior
indebtedness has been accelerated. If the senior indebtedness has been
accelerated, we will not make any payment on the debentures until the
acceleration has been waived, rescinded or annulled, or until the senior
indebtedness has been paid in full.
Holders of senior indebtedness may not give more than one default notice
with respect to the same issue of senior indebtedness within a period of 360
consecutive days. If a default existed on the date of any default notice and
the default was known to the holders of senior indebtedness, they may not make
the default the basis for giving a subsequent default notice.
In the event that the trustee, any paying agent or any holder of debentures
receives any payment or distribution of assets from us in violation of these
subordination provisions before all senior indebtedness is paid in full, the
payment or distribution will be held in trust for holders of senior
indebtedness or their representatives to the extent necessary to make payment
in full of all senior indebtedness.
If we file for bankruptcy, dissolve or reorganize, holders of senior
indebtedness may receive more ratably, and holders of the debentures may
receive less ratably, than other of our creditors. The subordination will not
prevent the occurrence of any event of default under the indenture.
As of September 15, 2000, we had approximately $48 million of indebtedness
outstanding that would constitute senior indebtedness. We expect from time to
time to incur additional indebtedness. The indenture does not limit or prohibit
us from incurring senior indebtedness or additional indebtedness. Your
debentures will rank equally with our other existing subordinated debt which
includes, as of September 15, 2000, approximately $456 million aggregate
principal amount of subordinated indebtedness issued in our 5 1/4% zero coupon
convertible subordinated debentures due 2014. The 5 1/4% debentures are
presently redeemable at our option. See "Risk Factors--If we are unable to pay
our debts, then you will receive payments on your debentures only after we have
paid our existing and future senior indebtedness."
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Definitions relating to Subordination
The term "indebtedness" with respect to any person means:
. all liabilities for borrowed money or for the deferred purchase price of
property or services, excluding any trade accounts payable and other
current liabilities incurred in the ordinary course of business;
. all obligations evidenced by bonds, notes, debentures or other similar
instruments;
. all capitalized lease obligations;
. all guarantees of indebtedness;
. all obligations in respect of currency agreements and interest rate
protection obligations; and
. any amendment or modification of any liability of the types referred to
above.
The term "senior indebtedness" means the principal of and premium, if any,
interest and other amounts payable on or in respect of any of our current or
future indebtedness unless the instrument creating or evidencing the
indebtedness expressly provides that the indebtedness will not be senior in
right of payment to, will be junior in right of payment to, or will be on the
same basis in right of payment with, the debentures. However, the term senior
indebtedness will not include:
. indebtedness evidenced by the debentures; and
. indebtedness to our subsidiaries.
Consolidation, Merger and Sale of Assets
The indenture generally permits a consolidation or merger between us and
another entity. It also permits the sale by us of all or substantially all of
our assets. We have agreed, however, that we will not consolidate with or
merge with or into any entity or transfer or dispose of all or substantially
all of our assets to any entity unless:
. if we are not the continuing corporation, the resulting entity (i) is
organized and existing under the laws of any United States jurisdiction
and (ii) assumes by supplemental indenture the due and punctual payments
on the debentures and the performance of our covenants and obligations
under the indenture and the debentures and provides for conversion
rights in accordance with applicable provisions of the indenture; or
. if we are the continuing corporation, but as a result of the
transaction, 80% or more of our capital stock is owned by a parent
corporation, the parent corporation (i) is organized and existing under
the laws of any United States jurisdiction and (ii) assumes by
supplemental indenture all of our obligations as described above; and
. in either case, immediately after giving effect to the transaction, no
default or event of default would occur and be continuing or would
result from the transaction.
Events of Default
The following are events of default with respect to the debentures:
. our failure for 30 days to pay any interest on the debentures (after any
conversion of the debentures to interest-bearing debentures following a
tax event);
. our failure to pay principal of the debentures at maturity (or, if the
debentures have been converted to interest-bearing debentures following
a tax event, the restated principal amount), issue price plus accrued
original discount, redemption price, repurchase price or change in
control price, if and when the same becomes due and payable;
. our failure to comply with any of our covenants or agreements in the
debentures or the indenture (other than an agreement or covenant that we
have included in the indenture solely for the benefit of other
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series of debt securities) for 90 days after written notice by the
trustee or by the holders of at least 25% in principal amount of all
outstanding debentures affected by that failure;
. we default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by us having an aggregate outstanding
principal amount in excess of $25,000,000, which results in the
indebtedness being accelerated, without the indebtedness being
discharged or the acceleration rescinded or annulled within 30 days
after receipt of notice as provided in the indenture;
. we fail to deliver shares of common stock following conversion of the
debentures in accordance with the terms of the indenture and such
default continues for five business days after receipt of notice; or
. certain events involving bankruptcy, insolvency or reorganization of
ALZA Corporation.
The trustee may withhold notice to the holders of the debentures of any
default or event of default (except in any payment on the debentures) if the
trustee considers it in the interest of the holders of the debentures to do
so.
If an event of default for the debentures occurs and is continuing, the
trustee or the holders of at least 25% in principal amount of outstanding
debentures may require us to pay the issue price plus accrued original issue
discount on the debentures. However, if an event of default relating to
certain events of bankruptcy, insolvency or reorganization occurs, the issue
price plus accrued original issue discount on the debentures will become
immediately due and payable without any action on the part of the trustee or
any holder. The holders of a majority in principal amount of the outstanding
debentures may in some cases rescind this accelerated payment requirement. If
we exercise our option to pay interest instead of accruing original issue
discount on the debentures following a tax event, the declaration of
acceleration referred to above will make the restated principal amount plus
accrued and unpaid interest immediately payable.
A holder of debentures may pursue any remedy under the indenture only if:
. the holder gives the trustee written notice of a continuing event of
default for the debentures;
. the holders of at least 25% in principal amount of the outstanding
debentures make a written request to the trustee to pursue the remedy;
. the holder offers to the trustee indemnity reasonably satisfactory to
the trustee;
. the trustee fails to act for a period of 60 days after receipt of notice
and offer of indemnity; and
. during that 60-day period, the holders of a majority in principal amount
of the debentures do not give the trustee a direction inconsistent with
the request.
This provision does not, however, affect the right of a holder of
debentures to sue for enforcement of any overdue payment.
In most cases, holders of a majority in principal amount of the outstanding
debentures may direct the time, method and place of conducting any proceeding
for any remedy available to the trustee or exercising any trust or power
conferred on the trustee not relating to or arising under an event of default.
The indenture requires us to file with the trustee each year a written
statement as to our compliance with the covenants contained in the indenture.
Modification and Waiver
We may amend or supplement the indenture if the holders of a majority in
principal amount of the debentures consent to it. Without the consent of the
holder of each debenture, however, no modification may:
. reduce the amount of debentures whose holders must consent to an
amendment, supplement or waiver;
. alter the accrual rate of original issue discount;
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. reduce the rate of or change the time for payment of interest on the
debenture;
. reduce the principal of the debenture, issue price, restated principal
amount, repurchase price or change of control price or change its stated
maturity;
. change the definition of change in control or change in control purchase
date;
. modify the subordination provisions in a manner adverse to the debenture
holders;
. make payments on the debenture payable in currency other than as
originally stated in the debenture;
. impair the holder's right to institute suit for the enforcement of any
payment on the debenture;
. make any change in the percentage of principal amount of debentures
necessary to waive compliance with certain provisions of the indenture
or to make any change in this provision for modification;
. waive a continuing default or event of default regarding any payment on
the debentures; or
. adversely affect the conversion or repurchase provisions in the
indenture.
The holders of a majority in principal amount of the outstanding debentures
may waive any existing or past default or event of default with respect to the
debentures. Those holders may not, however, waive any default or event of
default regarding any payment on any debenture or compliance with a provision
that cannot be amended or supplemented without the consent of each holder
affected.
We may amend or supplement the indenture or waive any provision of it
without the consent of any holders of debentures in certain circumstances,
including:
. to cure any ambiguity, defect or inconsistency;
. to provide for the assumption of our obligations under the indenture by
a successor or a parent corporation or entity upon any merger,
consolidation or asset transfer;
. to provide any security for or guarantees of the debentures;
. to comply with any requirement to effect or maintain the qualification
of the indenture under the Trust Indenture Act of 1939;
. to add covenants that would benefit the holders of debentures or to
surrender any rights we have under the indenture;
. to add events of default with respect to the debentures; or
. to make any change that does not adversely affect any outstanding
debenture in any material respect.
Governing Law
New York law governs the indenture and the debentures.
Trustee
If an event of default occurs and is continuing, the trustee will be
required to use the same degree of care and skill as a prudent man in the
conduct of his own affairs. The trustee will become obligated to exercise any
of its powers under the indenture at the request of any of the holders of any
debentures only after those holders have offered the trustee indemnity
reasonably satisfactory to it.
If the trustee becomes one of our creditors, it will be subject to
limitations in the indenture on its rights to obtain payment of claims or to
realize on certain property received for any such claim, as security or
otherwise. The trustee is permitted to engage in other transactions with us.
If, however, it acquires any conflicting interest, it must eliminate that
conflict or resign.
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Form, Exchange, Registration and Transfer
We will issue the debentures in registered form, without interest coupons.
We will not charge a service charge for any registration of transfer or
exchange of the debentures. We may, however, require the payment of any tax or
other governmental charge payable for that registration.
Once certificated, debentures will be exchangeable for other debentures,
for the same total principal amount and for the same terms but in different
authorized denominations in accordance with the indenture. Holders may present
debentures for registration of transfer at the office of the registrar or any
transfer agent we designate. The registrar or transfer agent will effect the
transfer or exchange when it is satisfied with the documents of title and
identity of the person making the request.
We have appointed the trustee as registrar for the debentures. We may at
any time rescind that designation or approve a change in the location through
which any registrar acts. We are required to maintain an office or agency for
transfers and exchanges in each place of payment. We may at any time designate
additional registrars for the debentures.
In the case of any redemption, the registrar will not be required to
register the transfer or exchange of any debenture either:
. during a period beginning 15 business days prior to the mailing of the
relevant notice of redemption and ending on the close of business on the
day of mailing of such notice; or
. if the debentures have been called for redemption in whole or in part,
except the unredeemed portion of any debenture being redeemed in part.
The registrar or transfer agent will not be required to register any
debentures or portions thereof for which a change in control purchase notice
or repurchase notice has been delivered and not withdrawn by the holder
thereof.
Payment and Paying Agents
Payments on the debentures will be made in U.S. dollars at the office of
the trustee. At our option, however, we may make payments by check mailed to
the holder's registered address or, with respect to global debentures, by wire
transfer. We will make interest payments to the person in whose name the
debenture is registered at the close of business on the record date for the
interest payment.
The trustee will be designated as our paying agent for payments on
debentures. We may at any time designate additional paying agents or rescind
the designation of any paying agent or approve a change in the office through
which any paying agent acts.
Subject to the requirements of any applicable abandoned property laws, the
trustee and paying agent shall pay to us upon written request any money held
by them for payments on the debentures that remain unclaimed for one year
after the date upon which that payment has become due. After payment to us,
holders entitled to the money must look to us for payment. In that case, all
liability of the trustee or paying agent with respect to that money will
cease.
Book-Entry System
The debentures are represented by one or more Global Securities (each a
"Global Security"). Each Global Security has been deposited with, or on behalf
of, the Depository Trust Company ("DTC") and is registered in its name or the
name of Cede & Co., its nominee. Except under circumstances described below,
the debentures will not be issued in certificated form.
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Upon the transfer of debentures represented by a Global Security, DTC will
credit on its book-entry registration and transfer system the accounts of
persons designated by the transferor with the appropriate principal amount of
the debentures represented by the Global Security. Ownership of beneficial
interests in a Global Security is limited to persons that have accounts with
DTC or its nominee ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests in a Global Security is shown
on, and the transfer of that ownership is effected only through, records
maintained by DTC or its nominee (with respect to interests of persons other
than participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in certificated form.
Such limits and such laws may impair the ability to transfer beneficial
interests in a Global Security.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the debentures represented by that Global Security for all purposes
under the indenture. Except as provided below, owners of beneficial interests
in a Global Security will not be entitled to have debentures represented by
that Global Security registered in their names, will not receive or be
entitled to receive physical delivery of debentures in certificated form and
will not be considered the owners or holders thereof under the indenture.
Principal and interest payments, if any, on debentures registered in the name
of DTC or its nominee will be made to DTC or its nominee, as the case may be,
as the registered owner of the relevant Global Security. Neither our company,
the trustee, any paying agent or the registrar for the debentures will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a Global Security or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest, if any, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the relevant Global Security as shown on the records
of DTC or its nominee. We also expect that 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 the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
If DTC is at any time unwilling or unable to continue as a depositary and a
successor depositary is not appointed by us within 90 days, we will issue
debentures in certificated form in exchange for the entire Global Security or
all Global Securities for the debentures. In addition, we may at any time and
in our sole discretion determine not to have debentures represented by a
Global Security and, in such event, will issue debentures in certificated form
in exchange for the entire Global Security or all Global Securities relating
to such debentures. In any such instance, an owner of a beneficial interest in
a Global Security will be entitled to physical delivery of debentures in
certificated form represented by such Global Security equal in principal
amount to such beneficial interest and to have such debentures registered in
its name. Debentures so issued in certificated form will be issued as
registered debentures in denominations of $1,000 and integral multiples
thereof, unless otherwise specified by us.
Registration Rights
We have entered into a registration rights agreement with the initial
purchasers of the debentures. Under this agreement, we have agreed, for the
benefit of the holders of the debentures and the common stock issuable upon
conversion of the debentures, that we will, at our cost:
. within 90 days after the first date of original issuance of the
debentures, file a registration statement on Form S-3 covering resales
of the debentures and the common stock issuable upon conversion of the
debentures pursuant to Rule 415 under the Securities Act;
. use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act within 180
days after the first date of original issuance of the debentures; and
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. use our reasonable best efforts to keep the shelf registration statement
effective after its effective date until the date which is the earlier
of:
(1) the second anniversary of the effective date of the registration
statement; and
(2) such time as all of the registrable securities have been sold
pursuant to the shelf registration statement, transferred pursuant to
Rule 144 under the Securities Act or are eligible for sale pursuant
to Rule 144(k) under the Securities Act or any successor rule
thereto.
Notwithstanding the foregoing, we may suspend the use of the prospectus
that is a part of the shelf registration statement for up to 60 days in any
individual instance, if, among other things, we determine that the prospectus
is materially misleading or omits to state any material information, and we
give the registered holders written notice of such suspension.
If we file a shelf registration statement, we will, among other things:
. provide to each holder of securities for whom the shelf registration
statement was filed a copy of the registration statement and the number
of copies of the prospectus which is a part of the shelf registration
statement that are requested by such holder;
. notify each such holder of securities when the shelf registration
statement has become effective; and
. take certain other actions as are required to permit resales of the
debentures and the common stock issuable upon the conversion of the
debentures by such holders to third parties, provided that (i) we will
not be required to facilitate an underwritten offering of less than $100
million aggregate principal amount of the debentures or the common stock
issuable upon conversion of the debentures and (ii) we will not be
required to facilitate more than five underwritten offerings.
A holder who elects to sell any securities pursuant to the shelf
registration statement:
. will be required to be named as selling securityholder;
. will be required to deliver a prospectus to purchasers;
. will be subject to the civil liability provisions under the Securities
Act in connection with any sales; and
. will be bound by the provisions of the registration rights agreement
which are applicable, including certain indemnification obligations.
If:
. after the 90th day after the first date of original issuance of the
debentures, the shelf registration statement has not been filed with the
SEC;
. after the 180th day after the first date of original issuance of the
debentures, the SEC has not declared the shelf registration statement
effective; or
. after the shelf registration statement has been declared effective, we
fail to keep the shelf registration statement effective or usable in
accordance with and during the periods specified in the registration
rights agreement (this requirement is subject to exceptions described in
the registration rights agreement, including our right to suspend the
use of the shelf registration statement for up to 60 days in any
individual instance);
(we refer to each such event referred to in the three bullets above as a
registration default), then additional interest will accrue on the debentures
and/or any shares of common stock into which any debentures have been
previously converted that are, in each case, transfer restricted securities,
from and including the date on which any registration default occurs through
the date preceding the date on which all registration defaults have been
cured, at a rate of:
. 0.25% per annum for the first 90-day period from and including the date
of the registration default, and
28
<PAGE>
. thereafter at a rate of 0.50% per annum.
The applicable additional interest will be calculated on the aggregate
issue price plus accrued original issue discount of the outstanding debentures
which are transfer restricted securities and, if applicable, the aggregate
applicable conversion price (as defined below) of any issued and outstanding
shares of common stock which are transfer restricted securities into which any
debentures have been previously converted. The term "applicable conversion
price" means the original issue price of a debenture plus accrued original
discount to the date of calculation divided by the conversion rate of the
debentures as then in effect. Any amount of additional interest will be paid
in cash as it accrues on each July 28 and January 28. The indebtedness
represented by the additional interest will be subordinated in right of
payment to all of our existing and future senior indebtedness and to the same
extent as the debentures.
This summary of certain 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, all the provisions of the registration rights
agreement, a copy of which is filed as an exhibit to the registration
statement of which this prospectus is a part.
29
<PAGE>
SELLING SECURITY HOLDERS
We originally issued the debentures in a private placement. The debentures
were resold by the initial purchasers to qualified institutional buyers within
the meaning of Rule 144A under the Securities Act in transactions exempt from
registration under the Securities Act. The debentures and the shares of common
stock issuable upon their conversion, or conversion shares, that may be
offered pursuant to this prospectus will be offered by the selling holders,
which includes their transferees, pledgees or donees or their successors.
The following table sets forth the principal amount of debentures
beneficially owned by each selling holder and the number of conversion shares
that may be offered from time to time by each selling holder under this
prospectus. The information is based on information provided by or on behalf
of the selling holders. The number of conversion shares shown in the table
below assumes conversion of the full amount of debentures held by the holder
at the initial conversion rate of 7.0135 shares per $1,000 principal amount at
maturity of debentures. This conversion rate is subject to adjustment in
certain events. Accordingly, the number of conversion shares may increase or
decrease from time to time. Because the selling holders may offer all or some
portion of the debentures or the conversion shares, no estimate can be given
as to the amount of the debentures or the conversion shares that will be held
by the selling holders upon termination of any sales. The column showing
ownership after completion of the offering assumes that the selling holders
will sell all of the securities offered by this prospectus. In addition, the
selling holders identified below may have sold, transferred or otherwise
disposed of all or a portion of their debentures since the date on which they
provided the information regarding their debentures in transactions exempt
from the registration requirements of the Securities Act. As of September 15,
2000, we had 118,083,799 shares of common stock outstanding.
<TABLE>
<CAPTION>
Principal Amount at
Maturity of Debentures Shares of
Beneficially Conversion Shares Common Stock
Owned that that Owned After
Name May Be Offered May Be Offered the Offering
---- ---------------------- ----------------- ------------
<S> <C> <C> <C>
1976 Distribution Trust
FBO A.R.
Lauder/Zinterhoffer..... $ 15,000 105 --
1976 Distribution Trust
FBO Jane A. Lauder...... 30,000 210 --
Aerin Lauder
Zinterhoffer............ 15,000 105 --
AIG/National Union Fire
Insurance............... 1,530,000 10,730 --
Allstate Insurance
Company................. 7,500,000 52,601 8,800
Allstate Life Insurance
Company................. 18,300,000 128,347 130,470(1)
American Fidelity
Assurance Company....... 400,000 2,805 --
American Masters Fund "AG
Absolute Return Series"
Limited................. 1,600,000 11,221
Amerisure
Companies/Michigan
Mutual Insurance
Company................. 1,250,000 8,766 --
Angelo, Gordon & Co.,
L.P..................... 1,600,000 11,221
Arkansas PERS............ 3,300,000 23,144 --
Associated Electric & Gas
Insurance Services
Limited................. 1,500,000 10,520 --
Aventis Pension Master
Trust................... 440,000 3,085 --
Bankers Life Insurance
Co...................... 150,000 1,052 --
Bankers Life Insurance
Co. LA & Co. Single
Premium................. 160,000 1,122 --
Bankers Trust Co. TTEE
for DaimlerChrysler
Corp. Emp. #1 Pension
Plan DTD 4/1/89......... 6,140,000 43,062 --
Bay County PERS.......... 450,000 3,156 --
Black Diamond Offshore,
Ltd..................... 4,751,000 33,321 --
Blue Cross Blue Shield of
Florida................. 5,000,000 35,067 --
Boilermaker Blacksmith
Pension Trust........... 5,000,000 35,067 --
Boulder II Limited....... 3,000,000 21,040 --
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Principal Amount at
Maturity of Debentures Shares of
Beneficially Conversion Shares Common Stock
Owned that that Owned After
Name May Be Offered May Be Offered the Offering
---- ---------------------- ----------------- ------------
<S> <C> <C> <C>
British Virgin Islands
Social Security Board.. 82,000 575 --
BS Debt Income Fund--
Class A................ 20,000 140 --
CALAMOS(R) Convertible
Fund--CALAMOS(R)
Investment Trust....... 3,850,000 27,001 --
CALAMOS(R) Convertible
Portfolio--CALAMOS(R)
Advisors Trust......... 205,000 1,437 --
CALAMOS(R) Global
Convertible Fund--
CALAMOS(R) Investment
Trust.................. 275,000 1,928 --
CapitalCare, Inc........ 70,000 490 --
CareFirst of Maryland,
Inc.................... 275,000 1,928 --
CGU Life Insurance of
America................ 2,000,000 14,027 --
Champion International
Corporation Master
Retirement Trust....... 1,200,000 8,416 --
Chrysler Corporation
Master Retirement
Trust.................. 12,560,000 88,089 --
CIBC World Markets
International
Arbitrage.............. 13,000,000 91,175 --
City of Albany Pension
Plan................... 230,000 1,613 --
City of Birmingham
Retirement & Relief
System................. 1,500,000 10,520 --
City of Knoxville
Pension System......... 660,000 4,628 --
City University of New
York................... 151,000 1,059 --
Commonwealth
Professional Assurance
Company c/o Income
Research & Management.. 1,475,000 10,344 --
Conseco Annuity
Assurance--Multi Bucket
Annuity Convertible
Bond Fund.............. 3,000,000 21,040 --
Credit Suisse First
Boston Corporation..... 37,915,000 265,916 --
Delta Airlines Master
Trust.................. 5,000,000 35,067 --
Delta Air Lines Master
Trust (c/o Oaktree
Capital Management,
LLC)................... 4,585,000 32,156 --
Deluxe Corporation...... 2,000,000 14,027 --
Dorinco Reinsurance
Company................ 1,750,000 12,273 --
Double Black Diamond
Offshore, LDC.......... 19,332,000 135,584 --
Elf Aquitaine........... 350,000 2,454 --
Employee Benefit
Convertible Securities
Fund................... 522,000 3,661 --
F&G Life Insurance Co... 13,600,000 95,383 --
Finance Factors
Limited................ 300,000 2,104 --
First Republic Bank..... 350,000 2,454 --
Franklin and Marshall
College................ 415,000 2,910 --
FreeState Health Plan,
Inc.................... 80,000 561 --
Genesee County
Employees' Retirement
System................. 1,000,000 7,013 --
Grady Hospital
Foundation............. 231,000 1,620 --
Greek Catholic Union.... 70,000 490 --
Greek Catholic Union
II..................... 35,000 245 --
Group Hospitalization
and Medical Services,
Inc.................... 325,000 2,279 --
Hamilton Partners
Limited................ 12,500,000 87,668 --
Healthcare Underwriters
Mutual Insurance
Company(2)............. 1,200,000 8,416 --
HealthNow New York,
Inc.................... 550,000 3,857 --
H.K. Porter Company,
Inc.................... 95,000 666 --
Hull Overseas, Ltd...... 500,000 3,506 --
IL Annuity & Insurance
Co..................... 24,000,000 168,324 --
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Principal Amount at
Maturity of Debentures Shares of
Beneficially Conversion Shares Common Stock
Owned that that Owned After
Name May Be Offered May Be Offered the Offering
---- ---------------------- ----------------- ------------
<S> <C> <C> <C>
Independence Blue Cross.. 224,000 1,571 --
Island Holdings.......... 90,000 631 --
Island Insurance
Convertible Account..... 325,000 2,279 --
Jackson County Employees'
Retirement System....... 600,000 4,208 --
J.M. Hull Associates,
L.P..................... 500,000 3,506 --
J.P. Morgan Securities,
Inc..................... 11,005,000 77,183 --
Joyce Foundation......... 1,000,000 7,013 --
Kerr-McGee Corporation... 1,950,000 13,676 --
Kettering Medical Center
Funded Depreciation
Account................. 165,000 1,157 --
Key Asset Management,
Inc. as Agent for
Aerojet Inc Fdn......... 180,000 1,262 --
Key Asset Management,
Inc. as Agent for the
Charitable Income Fund.. 270,000 1,893 --
Key Asset Management,
Inc. as Agent for the
Charitable Securities
Fund.................... 3,075,000 21,566 --
Key Asset Management,
Inc. as Agent for the EB
Convertible Sec. Fd..... 4,570,000 32,051 --
Key Asset Management,
Inc. as Agent for the
Field Fdn of Illinois... 225,000 1,578 --
Key Asset Management,
Inc. as Agent for the
Int'l Licensing Ind Mch
Assoc #2................ 50,000 350 --
Key Asset Management,
Inc. as Agent for the
Key Tr. Convertible Sec.
Fd...................... 875,000 6,136 --
Key Asset Management,
Inc. as Agent for the
Key Trust Fixed Income
Fund.................... 415,000 2,910 --
Key Asset Management,
Inc. as Agent for the
Omnova Solutions........ 335,000 2,349 --
Key Asset Management,
Inc. as Agent for the
Parker
Society/Convertible..... 1,135,000 7,960 --
Key Asset Management,
Inc. as Agent for the
Union Security Life
Insurance Co............ 100,000 701 --
Key Asset Management,
Inc. as Agent for the
Victory Convertible
Securities Fund......... 250,000 1,753 --
Key Asset Management,
Inc. as Agent for the
Victory Invest Quality
Bond Fund............... 170,000 1,192 --
Key Asset Management,
Inc. as Agent for Tote
Convertible Bonds....... 50,000 350 --
Key Asset Management,
Inc. as Investment
Manager for the
Potlatch-First Trust Co.
of St. Paul............. 2,300,000 16,131 --
Key Asset Management,
Inc. as Investment
Manager for the Standard
Insurance Company....... 1,000,000 7,013 --
Knoxville Utilities Board
Retirement System....... 400,000 2,805 --
Kreditbank S.A.
Luxembourg A/C Jefferies
Umbrella Fund........... 2,300,000 16,131 --
Laborers District Council
& Contractors........... 1,000,000 7,013 --
Lehman Brothers Inc...... 33,930,000 237,968 --
Lipper Convertibles
Series II, L.P.......... 1,000,000 7,013 --
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Amount at
Maturity of Debentures Shares of
Beneficially Conversion Shares Common Stock
Owned that that Owned After
Name May Be Offered May Be Offered the Offering
---- ---------------------- ----------------- ------------
<S> <C> <C> <C>
Lipper Convertibles,
L.P.................... 25,000,000 175,337 --
Lipper Offshore
Convertibles L.P. #2... 1,000,000 7,013 --
Lipper Offshore
Convertibles, L.P...... 3,000,000 21,040 --
Local Initiatives
Union.................. 101,000 708 --
Lockheed Martin Corp.
Master Retirement...... 4,000,000 28,054 --
Louisiana Workers'
Compensation
Corporation............ 550,000 3,857 --
Lutheran Brotherhood.... 14,000,000 98,189 38,961(3)
Macomb County Employees'
Retirement System...... 400,000 2,805 --
Mag Mutual Insurance
Company(2)............. 350,000 2,454 --
Medical Liability Mutual
Insurance Company(2)... 41,500,000 291,060 --
Merrill Lynch Insurance
Group.................. 533,000 3,738 --
Michael Angelo, L.P..... 3,200,000 22,443
Morgan Stanley Dean
Witter Convertible
Securities Trust....... 5,000,000 35,067 --
Motion Picture Industry
Health Plan--Active
Member Fund............ 1,465,000 10,274 --
Motion Picture Industry
Health Plan -- Retiree
Member Fund............ 730,000 5,119 --
Nalco Chemical Corp.
Retirement............. 600,000 4,208 --
Nashville Electric
Service................ 250,000 1,753 --
Nations Convertible
Securities Fund........ 8,178,000 57,356 --
Nationwide Life
Insurance Company...... 17,000,000 119,229 --
NCMIC Insurance
Company(2)............. 600,000 4,208 --
New Orleans Firefighters
Pension/Relief Fund.... 244,000 1,711 --
New York Life Insurance
and Annuity
Corporation............ 1,800,000 12,624
New York Life Insurance
Company................ 16,200,000 113,618
NORCAL Mutual Insurance
Company................ 425,000 2,980 --
Northwestern Mutual Life
Insurance Company...... 5,000,000 35,065 399,100
Occidental Petroleum
Corporation............ 412,000 2,889 --
OCM Convertible Trust... 5,295,000 37,136 --
OHIC Insurance
Company(2)............. 900,000 6,312 --
Ohio Bureau of Workers
Compensation........... 287,000 2,012 --
Oppenheimer Connectible
Securities Fund........ 15,000,000 105,202 --
Oxford, Lord Abbett &
Co..................... 1,500,000 10,520 --
Pacific Specialty
(Convertibles)......... 750,000 5,260 --
Partner Reinsurance
Company Ltd............ 2,470,000 17,323 --
Penn Treaty Network
America Insurance
Company................ 500,000 3,506 --
Physicians' Reciprocal
Insurers Account #7.... 3,750,000 26,300 --
Pilgrim Convertible
Fund................... 6,200,000 43,483
Pimco Convertible Fund.. 7,750,000 54,354 --
Port Authority of
Allegheny County
Retirement and
Disability Allowance
Plan for the Employees
Represented by Local 85
of the Amalgamated
Transit Union.......... 2,850,000 19,988 --
PRIM Board.............. 4,910,000 34,436 --
Protective Life
Insurance Company...... 45,500,000 319,114 --
Quattro Fund, LLC....... 2,000,000 14,027 --
Radian Group Inc........ 4,450,000 31,210 --
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Principal Amount at
Maturity of Debentures Shares of
Beneficially Conversion Shares Common Stock
Owned that that Owned After
Name May Be Offered May Be Offered the Offering
---- ---------------------- ----------------- ------------
<S> <C> <C> <C>
Ramius, L.P.............. 2,4000,000 16,832
Raphael II, Ltd.......... 1,600,000 11,221
Raytheon Master Pension
Trust................... 867,000 6,080 --
RCG Baldwin, L.P......... 1,600,000 11,221
RCG Multi-Strategy
Account, L.P............ 4,000,000 28,054
RGA--Reinsurance Trust... 9,000,000 63,121 --
Shell Pension Trust...... 587,000 4,116 --
Silvercreek Limited
Partnership............. 1,000,000 7,013 --
Southern Farm Bureau Life
Insurance Company....... 3,150,000 22,092 --
SPT...................... 2,200,000 15,429 --
Starvest Combined
Portfolio............... 1,850,000 12,974 --
Starvest Managed
Portfolio............... 185,000 1,297 --
State Employees'
Retirement Fund of the
State of Delaware....... 6,350,000 44,535 --
State of Connecticut
Combined Investment
Funds................... 14,130,000 99,100 --
State of Maryland
Retirement Agency....... 5,658,000 39,682 --
State of Oregon Equity... 8,300,000 58,212 --
State Street Bank
Custodian for GE Pension
Trust................... 3,035,000 21,285 --
The Class 1C Company
LTD..................... 3,000,000 21,040 --
The Cockrell Foundation.. 400,000 2,805 --
The Dow Chemical Company
Employees' Retirement
Plan.................... 5,350,000 37,522 --
The Fondren Foundation... 165,000 1,157 --
The Grable Foundation.... 212,000 1,486 --
The Virginia Insurance
Reciprocal(2)........... 450,000 3,156 --
Toronto Dominion (New
York), Inc.............. 20,000,000 140,270 --
Toyota Motor Insurance
Services, Inc........... 1,000,000 7,013 --
Tufts Associated Health
Plan c/o Income Research
& Management............ 2,000,000 14,027 --
Unifi, Inc. Profit
Sharing Plan and Trust.. 250,000 1,753 --
United Food and
Commercial Workers Local
1262 and Employers
Pension Fund............ 1,250,000 8,766 --
University of
Massachusetts c/o Income
Research and
Management.............. 275,000 1,928 --
University of South
Florida................. 2,000,000 14,027 --
Value Line Convertible
Fund, Inc............... 3,000,000 21,040 --
Vanguard Convertible
Securities Fund, Inc.... 14,915,000 104,606 --
Van Waters & Rogers, Inc.
Retirement Plan (f.k.a.
Univar Corporation)..... 785,000 5,505 --
Vermogensverwaltung des
Kantons Zurich.......... 9,500,000 66,628 --
Westfield Insurance
Company................. 4,000,000 28,054 --
Worldwife Transactions,
Ltd..................... 917,000 6,431 --
Any other holder of
debentures or future
transferee from any such
holder(4)(5)............ 397,091,000 2,784,998 --
</TABLE>
--------
(1) Includes 129,870 shares issuable upon conversion of our 5 1/4% zero coupon
convertible subordinated debentures due 2014.
(2) Represents securities over which INVESCO, Inc. ("INVESCO") has sole
dispositive power and voting authority as investment manager. INVESCO
disclaims beneficial ownership of all such securities.
34
<PAGE>
(3) All shares are issuable upon conversion of our 5 1/4% zero coupon
convertible subordinated debentures due 2014.
(4) Information concerning other selling holders will be set forth in
prospectus supplements from time to time, if required.
(5) Assumes that any other holders of debentures, or any future transferees,
do not beneficially own any common stock other than the common stock
issuable upon conversion of the debentures at the initial conversion rate.
None of the above 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 that
Credit Suisse First Boston Corporation, Chase Securities, Inc. and Morgan
Stanley & Co., Incorporated were the initial purchasers in connection with the
offer and sale of the debentures in July 2000. Certain of the initial
purchasers have engaged in transactions with and performed various investment
banking and other services for us in the past and may do so from time to time
in the future.
35
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
considerations to U.S. holders (as described below) and the material U.S.
federal income and estate tax considerations to non-U.S. holders (as described
below) relating to the purchase, ownership and disposition of the debentures
or shares of common stock issued upon conversion of the debentures. This
discussion is limited to holders of debentures who hold the debentures and any
shares of common stock into which the debentures are converted as capital
assets.
This discussion does not contain a complete analysis of all the potential
tax considerations relating to the purchase, ownership and disposition of the
debentures or shares of common stock issued upon conversion of the debentures.
In particular, this discussion does not address all tax considerations that
may be important to you in light of your particular circumstances (such as the
alternative minimum tax provisions) or under certain special rules. Special
rules may apply, for instance, to banks, insurance companies, tax-exempt
organizations, dealers in securities, persons who hold debentures or shares of
common stock as part of a hedge, conversion or constructive sale transaction,
or straddle or other risk reduction transaction, or persons who have ceased to
be United States citizens or to be taxed as resident aliens. In addition, the
discussion does not apply to holders of debentures or shares of common stock
that are partnerships, limited liability companies, or other entities treated
as partnerships for tax purposes. This discussion also does not address the
tax consequences arising under the laws of any foreign, state or local
jurisdiction.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury Regulations, and judicial
decisions and administrative interpretations thereunder, as of the date
hereof, all of which are subject to change or different interpretations,
possibly with retroactive effect. We cannot assure you that the Internal
Revenue Service (the "IRS") will not challenge one or more of the tax results
described herein, and we have not obtained, nor do we intend to obtain, a
ruling from the IRS with respect to the U.S. federal tax consequences of
acquiring, holding or disposing of the debentures or shares of common stock.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF ACQUIRING, HOLDING, CONVERTING OR OTHERWISE DISPOSING
OF THE DEBENTURES AND SHARES OF COMMON STOCK, INCLUDING THE EFFECT AND
APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
U.S. Holders
You are a U.S. holder for purposes of this discussion if you are a holder
of a debenture or common stock, and you are, for U.S. federal income tax
purposes:
. a citizen of the United States;
. a resident of the United States, including an individual deemed to be a
resident under complex rules based on the individual's days of presence
in the United States in the calendar year and the two preceeding years;
. a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof;
. an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
. a trust if (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and (ii) one or
more United States persons (within the meaning of the Code) have the
authority to control all substantial decisions of the trust.
Original Issue Discount on the Debentures. The debentures are being issued
at a substantial discount from their principal amount. For U.S. federal income
tax purposes, the excess of the principal amount of each debenture over its
issue price constitutes original issue discount ("OID"). For this purpose, the
"issue price" of the debentures is the first price at which a substantial
amount of the debentures is sold to investors (not including sales to
underwriters or placement agents). You will be required to include OID in
income as it accrues, in
36
<PAGE>
accordance with a constant yield method, before receipt of the cash or other
payment attributable to such income, regardless of your regular method of
accounting for U.S. federal income tax purposes. Under these rules, you will
have to include in gross income increasingly greater amounts of OID in each
successive accrual period. OID is allocated pro rata to each day in the
related accrual period and the holder of such a debt instrument is required to
include in income the "daily portions" of such OID for each day it holds the
debt instrument, including the purchase date but excluding the disposition
date. Your original tax basis for determining gain or loss on the sale or
other disposition of a debenture will be increased by any accrued OID included
in your gross income.
As discussed above, we will be required to pay additional interest in the
event of a registration default. See "Description of the Debentures--
Registration Rights." The payment of additional interest would change the
yield on the debentures and would therefore change the rate at which OID
accrues. Unless and until a registration default occurs, we intend to report
the accrual of OID on the debentures on the basis that no additional interest
will become payable.
In the event a holder purchases a debenture issued with OID at an
acquisition premium (i.e., at a price in excess of its "adjusted issue price"
but less than its stated redemption price), the amount includible in income in
each taxable year as OID is reduced by that portion of the excess properly
allocable (using a constant yield methodology) to such year. The adjusted
issue price of a debenture is the sum of its issue price plus prior accruals
of OID, reduced by the total payments made with respect to such debenture in
all prior periods. Acquisition premium is allocated on a pro rata basis to
each accrual of OID, so that the holder is allowed to reduce each accrual of
OID by a constant fraction.
Market Discount. The debentures, whether or not issued with OID, will be
subject to the "market discount rules" of Section 1276 of the Code. In
general, these rules provide that if the holder purchases a debenture at a
market discount (that is, a discount from its adjusted issue price) that
exceeds a de minimis amount specified in the Code and thereafter (a)
recognizes gain upon a disposition or (b) receives payments that do not
constitute qualified stated interest, the lesser of (i) such gain or payment
or (ii) the accrued market discount that has not previously been included in
income, will be taxed as ordinary interest income. Generally, market discount
accrues in the ratio of OID accrued for the relevant period to the sum of the
OID accrued for such period plus the remaining OID as of the end of such
period. A holder may elect, however, to determine accrued market discount
under a constant yield method taking into account the holder's acquisition
price and the principal amount of the debenture.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
debenture with accrued market discount. A holder may elect to include market
discount in gross income as it accrues. If such holder makes such an election,
the holder is exempt from the rule deferring deductions. Any such election
will apply to all debt instruments acquired by the taxpayer on or after the
first day of the first taxable year to which such election applies. The
adjusted basis of a debenture subject to such election will be increased to
reflect market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or other taxable disposition.
Election to Treat All Interest as Original Issue Discount. A holder of a
debenture may elect to include in gross income all interest that accrues on
the debenture using the constant yield method described above under the
heading "Original Issue Discount," with modifications described below. For
purposes of this election, interest includes stated interest, acquisition
discount, OID, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium or acquisition premium.
In applying the constant yield method to a debenture with respect to which
this election has been made, the issue price of the debenture will equal the
adjusted basis of the electing holder of the debenture immediately after its
acquisition, the issue date of the debenture will be the date of its
acquisition by the holder, and no payments on the debenture will be treated as
payment of qualified stated interest. This election will generally apply only
to the debenture with respect to which it is made; however, such election is
treated as an election to report accrued market discount income currently or
to amortize bond premium for all debt instruments acquired
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at a market discount or premium in that taxable year or thereafter. Such
election may not be revoked without the consent of the IRS. Holders should
consult their own tax advisors as to the effect in their circumstances of
making this election.
Sale, Exchange or Retirement of the Debentures. Except as described below,
upon the sale, exchange or retirement of a debenture, including a retirement
by redemption, you will recognize gain or loss equal to the difference between
the sale or redemption proceeds and your adjusted tax basis in the debenture.
Your adjusted tax basis in a debenture will generally equal your cost for the
debenture increased by any OID previously included in income with respect to
such debenture. Gain or loss realized on the sale, exchange or retirement of a
debenture will generally be capital gain or loss and will be long-term capital
gain or loss if the debenture is held for more than one year. You should
consult your tax advisors regarding the treatment of capital gains (which may
be taxed at lower rates than ordinary income for taxpayers who are
individuals) and losses (the deductibility of which is subject to
limitations). Our election to pay interest on the debentures instead of
accruing OID as a result of a tax event will not constitute a taxable exchange
of the debentures, although the timing of income recognition could be
affected.
Conversion of the Debentures. The conversion of a debenture into shares of
common stock will generally not be a taxable event, except with respect to
cash received in lieu of a fractional share. Your basis in the shares received
on conversion of a debenture will be the same as your basis in the debenture
at the time of conversion (exclusive of any tax basis allocable to a
fractional share), and your holding period for the shares received on
conversion should include the holding period of the debenture converted,
except that the holding period of shares attributable to OID may commence on
the day following the date of conversion. The receipt of cash in lieu of a
fractional share should generally result in capital gain or loss (measured by
the difference between the cash received for the fractional share interest and
your tax basis in the fractional share interest).
Exercise of Repurchase Right. If you require us to repurchase a debenture
on a repurchase date and if we issue shares of common stock in full
satisfaction of the purchase price, the exchange of a debenture for shares of
common stock will be treated the same as a conversion. If you require us to
repurchase a debenture on a repurchase date and if we deliver a combination of
cash and shares of common stock in payment of the purchase price, then, in
general, (1) you will recognize gain (but not loss) to the extent that the
cash and the value of the shares exceeds your adjusted tax basis in the
debenture, but in no event will the amount of recognized gain exceed the
amount of cash received, (2) your basis in the shares received will be the
same as your basis in the debenture repurchased by us (exclusive of any basis
allocable to a fractional share), decreased by the amount of cash received
(other than cash received in lieu of a fractional share), and increased by the
amount of gain, if any, recognized by you (other than gain with respect to a
fractional share), and (3) the holding period of the shares received in the
exchange will include the holding period for the debenture which was
repurchased, except that the holding period of shares attributable to OID may
commence on the day following the date of conversion.
Constructive Dividend. If at any time we make a distribution of property to
stockholders that would be taxable to such stockholders as a dividend for U.S.
federal income tax purposes (for example, distributions of evidences of
indebtedness or assets of ours, but generally not stock dividends or rights to
subscribe for common stock) and, pursuant to the anti-dilution provisions of
the indenture, the conversion rate of the debentures is increased, such
increase may be deemed to be the payment of a taxable dividend to you. If the
conversion rate is increased at our discretion or in certain other
circumstances, such increase also may be deemed to be the payment of a taxable
dividend to you.
Ownership and Disposition of Shares of Common Stock. If you have converted
debentures into shares of common stock or have received common stock on
exercise of a repurchase right, distributions, if any, paid on such shares of
common stock generally will be includable in your income as ordinary income to
the extent made from our current or accumulated earnings and profits. Upon the
sale, exchange or other disposition of shares of common stock, you generally
will have a capital gain or capital loss equal to the difference between the
amount realized on such sale or exchange and your adjusted tax basis in such
shares. You should consult your
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tax advisors regarding the treatment of capital gains (which may be taxed at
lower rates than ordinary income for taxpayers who are individuals) and losses
(the deductibility of which is subject to limitations).
Non-U.S. Holders
You are a Non-U.S. holder for purposes of this discussion if you are a
holder of a debenture or common stock that is not a U.S. holder, as described
above.
Withholding Tax on Payments of Principal and Original Issue Discount on
Debentures. The payment by us or any paying agent of ours to you of principal
(including any OID or market discount included therein) on a debenture will
not be subject to U.S. federal withholding tax, provided that in the case of a
payment in respect of OID:
. you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our shares;
. you are not a controlled foreign corporation that is related to us
within the meaning of the Code; and
. either (A) the beneficial owner of the debenture certifies to the
applicable payor or its agent, under penalties of perjury, that it is
not a U.S. holder and provides its name and address on U.S. Treasury
Form W-8BEN (or a suitable substitute form), or (B) a securities
clearing organization, bank or other financial institution, that holds
customers' securities in the ordinary course of its trade or business
(a "financial institution") and holds the debenture, certifies under
penalties of perjury that such a Form W-8BEN (or a suitable substitute
form) has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes
the payor with a copy thereof.
Except to the extent otherwise provided under an applicable tax treaty, you
generally will be taxed in the same manner as a U.S. holder with respect to
OID or market discount on a debenture if such OID or market discount is
effectively connected with a U.S. trade or business of yours. Effectively
connected OID or market discount received by a Non-U.S. holder that is a
foreign corporation may also be subject to an additional "branch profits tax"
at a 30% rate (or, if applicable, a lower treaty rate), subject to certain
adjustments. Such effectively connected OID or market discount will not be
subject to withholding tax if the holder delivers the appropriate form
(currently IRS Form 4224 and, beginning January 1, 2001, a Form W-8ECI) to the
payor.
Dividends. Dividends, if any, paid on shares of our common stock to you
generally will be subject to a 30% U.S. federal withholding tax, subject to
reduction if you are eligible for the benefits of an applicable income tax
treaty. Currently, for purposes of determining whether tax is to be withheld
at the 30% rate or at a reduced treaty rate, we will ordinarily presume that
dividends paid to an address in a foreign country are paid to a resident of
such country unless we have knowledge that such presumption is not warranted.
Under Treasury Regulations effective for payments after December 31, 2000,
holders will be required to satisfy certain certification requirements to
claim treaty benefits. Except to the extent otherwise provided under an
applicable tax treaty, you generally will be taxed in the same manner as a
U.S. holder on dividends that are effectively connected with your conduct of a
trade or business in the United States. If you are a foreign corporation, you
may also be subject to a U.S. branch profits tax on such effectively connected
income at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty, subject to certain adjustments.
Gain on Disposition of the Debentures and Shares of Common Stock. You
generally will not be subject to U.S. federal income tax on gain realized on
the sale, exchange or redemption of a debenture, including the exchange of a
debenture for shares of common stock, or the sale or exchange of shares of
common stock unless:
. you are an individual present in the United States for 183 days or more
in the year of such sale, exchange or redemption, and certain other
conditions are met (in general, presence in the United States for 183
days would also result in your being a U.S. resident for tax purposes,
and therefore a U.S. holder, under the tests discussed above);
. in the case of an amount that is attributable to OID, you do not meet
the conditions for exemption from U.S. federal withholding tax as
described in "Withholding Tax on Payments of Principal and Original
Issue Discount on Debentures," above;
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. the gain is effectively connected with your conduct of a United States
trade or business; or
. we are a U.S. "real property holding corporation" as defined by the
Code.
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% of
the aggregate fair market value of its worldwide real property interests and
its other assets used or held for use in a trade or business. We do not
believe that we are currently a U.S. real property holding corporation or that
we will become one in the future. If we nevertheless did become a U.S. real
property holding corporation then, among other circumstances, an exemption
would generally apply to a Non-U.S. holder who at no time actually or
constructively owned more than 5% of the outstanding debentures or more than
5% of our outstanding common stock, assuming our common stock is at all times
regularly traded on an established securities market.
U.S. Federal Estate Tax. A debenture held by an individual who at the time
of death is not a citizen or resident of the United States (as specially
defined for U.S. federal estate tax purposes) will not be subject to U.S.
federal estate tax if the individual did not actually or constructively own
10% or more of the total combined voting power of all classes of our stock
and, at the time of the individual's death, payments with respect to such
debenture would not have been effectively connected with the conduct by such
individual of a trade or business in the United States. Common stock held by
an individual who at the time of death is not a citizen or resident of the
United States (as specially defined for U.S. federal estate tax purposes) will
be included in such individual's estate for U.S. federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting
U.S. Holders. Payments of interest or dividends made by us on, or the
proceeds of the sale or other disposition of, the debentures or shares of
common stock may be subject to information reporting and U.S. federal backup
withholding tax at the rate of 31% if the recipient of such payment fails to
supply an accurate taxpayer identification number or otherwise fails to comply
with applicable United States information reporting or certification
requirements. Any amount withheld from a payment to a U.S. holder under the
backup withholding rules is allowable as a credit against the holder's U.S.
federal income tax, provided that the required information is furnished to the
IRS.
Non-U.S. Holders. We must report annually to the IRS and to each Non-U.S.
holder the amount of any dividends paid to, and the tax withheld with respect
to, such holder, regardless of whether any tax was actually withheld. Copies
of these information returns may also be made available under the provisions
of a specific treaty or agreement to the tax authorities of the country in
which the Non-U.S. holder resides.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments of principal, including cash payments in
respect of OID or market discount, on the debentures to a Non-U.S. holder if
the Non-U.S. holder certifies as to its Non-U.S. holder status under penalties
of perjury or otherwise establishes an exemption (provided that neither we nor
our agent has actual knowledge that the holder is a U.S. person or that the
conditions of any other exemptions are not in fact satisfied). The payment of
the proceeds of the disposition of debentures or shares of common stock to or
through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-U.S. holder of debentures
or shares of common stock to or through a foreign office of a broker will not
be subject to backup withholding or information reporting. However, if such
broker is a U.S. person, a controlled foreign corporation for U.S. federal
income tax purposes, a foreign person 50% or more of whose gross income from
all sources for certain periods is effectively connected with a U.S. trade or
business, or, in the case of payments made after December 31, 2000, a foreign
partnership with certain connections to the United States, information
reporting requirements will apply unless such broker has documentary evidence
in its files of the holder's Non-U.S. status and has no actual knowledge to
the contrary or unless the holder otherwise establishes an exemption. Any
amount withheld under the backup withholding rules is allowable as a credit
against the Non-U.S. holder's U.S. federal income tax, provided that the
required information is provided to the IRS.
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PLAN OF DISTRIBUTION
The selling holders and their successors, which includes their transferees,
pledgees or donees or their successors, may sell the debentures and the
conversion shares directly to purchasers or through underwriters, broker-
dealers or agents. Underwriters, broker-dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
selling holders or the purchasers. These discounts, concessions or commissions
may be in excess of those customary in the types of transactions involved.
The debentures and the common stock issuable upon their conversion may be
sold in one or more transactions:
. at fixed prices;
. at prevailing market prices at the time of sale;
. at varying prices determined at the time of sale; or
. at negotiated prices.
Such sales may be effected in transactions in the following manner:
. on any national securities exchange or quotation service on which the
debentures 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 such exchanges or services or in the
over-the-counter market; or
. through the writing of options, whether such options are listed on an
options exchange or otherwise.
Selling holders may enter into hedging transactions with broker-dealers or
other financial institutions which may in turn engage in short sales of the
debentures or the conversion shares and deliver these securities to close out
such short positions, or loan or pledge the debentures or the conversion
shares to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the
debentures or conversion shares will be the purchase price of the debentures
or conversion shares received by the selling holders less any discounts and
commissions. The selling holders reserve the right to accept and, together
with their agents, to reject, any proposed purchase of debentures or
conversion shares to be made directly or through agents. ALZA will not receive
any of the proceeds from this offering.
Our outstanding common stock is listed for trading on the NYSE. We do not
intend to list the debentures for trading on any national securities exchange
or on Nasdaq. We cannot guarantee that any trading market will develop for the
debentures.
The debentures and the conversion shares may be sold in some states only
through registered or licensed brokers or dealers. In addition, in some states
the debentures and the conversion shares may not be sold unless they have been
registered or qualified for sale or an exemption from registration.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the debentures and the conversion shares 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
securities 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, and have agreed that they will not engage in any
transaction in violation of such provisions.
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In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A under the Securities Act may be sold or
transferred under Rule 144 or Rule 144A rather than pursuant to this
prospectus. Each selling holder has represented to ALZA that it will not sell
any debentures or common stock described in this prospectus, except as
described above or pursuant to Rule 144 or Rule 144A.
If required, the specific debentures 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.
LEGAL MATTERS
Heller Ehrman White & McAuliffe LLP, Palo Alto, California has issued an
opinion about the enforceability of the debentures and the validity of the
securities being offered by this prospectus. Shareholders of Heller Ehrman
beneficially own 104,075 shares of common stock of ALZA. Julian N. Stern, a
shareholder of Heller Ehrman, is a director and Secretary of ALZA.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our annual report on Form 10-K for the year
ended December 31, 1999, as set forth in their report, which is incorporated
by reference in this prospectus and elsewhere in the registration statement.
Our consolidated financial statements are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, payable by the
registrant in connection with issuance and distribution of the securities
being registered. All amounts are estimated except the SEC Registration Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $158,631
Printing and Engraving........................................... 60,000
Accounting Fees and Expenses..................................... 10,000
Legal Fees and Expenses.......................................... 25,000
Miscellaneous.................................................... 21,369
--------
Total.......................................................... $275,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his or her fiduciary duty as a director, except in the case where the director
breached his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of Delaware corporate
law or obtained an improper personal benefit. ALZA's Restated Certificate of
Incorporation contains a provision that eliminates directors' personal
liability as set forth above.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she is or was a director, officer, employee
or agent of the corporation or is or was serving at its request in such
capacity in another corporation or business association against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
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 his or her conduct was unlawful.
In addition, Article 8 of ALZA's Restated Certificate of Incorporation
provides as follows:
Limitation of Liability and Indemnification of Directors.
(a) Elimination of Certain Liability of Directors. No director of the
corporation shall be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.
(b) Indemnification and Insurance.
(1) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(a "proceeding"), because he or she, or a person of whom he or she is the
legal representative,
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is or was a director or officer of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans),
whether the basis of the proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the corporation to provide broader
indemnification rights than that law permitted the corporation to provide
before such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, penalties, fines, Employee Retirement Income
Security Act of 1974 excise taxes or penalties, and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith; provided, however, that the corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if the
proceeding (or part thereof) was authorized by the Board of Directors of
the corporation. Such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators. The right to
indemnification conferred by this Section shall be a contract right which
may not be retroactively amended and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by
a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service
with respect to an employee benefit plan) in advance of the final
disposition of the proceeding shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if ultimately it shall be determined that
such director or officer is not entitled to be indemnified under this
Section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the
corporation with the same scope and effect as the indemnification of
directors and officers.
(2) Nonexclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any
statute, provision of this Certificate of Incorporation, bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise.
(3) Insurance. The corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or
not the corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
ALZA has purchased directors and officers liability insurance which would
indemnify the directors and officers of ALZA against damages arising out of
certain kinds of claims which might be made against them based on their
negligent acts or omissions while acting in their capacity as an officer
and/or director.
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Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.1 Indenture, dated as of July 28, 2000, between ALZA Corporation and The
Chase Manhattan Bank and Trust Company, National Association, as
Trustee (1)
4.2 Form of Debenture (included in Exhibit 4.1)
4.3 Registration Rights Agreement, dated July 24, 2000, among ALZA
Corporation, Credit Suisse First Boston Corporation, Chase Securities,
Inc. and Morgan Stanley & Co., Incorporated (1)
5.1 Opinion of Heller Ehrman White & McAuliffe LLP
12.1 Statement re Computation of Ratios
23.1 Consent of Heller Ehrman White & McAuliffe LLP (contained in opinion
filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page II-5)
25.1 Statement of Eligibility of Trustee
</TABLE>
--------
(1) Incorporated by reference to ALZA's Current Report on Form 8-K, filed on
August 10, 2000.
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:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) 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;
(c) 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 paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant
to Section 13 or Section 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 Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offering herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
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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 registrant's Restated Certificate of Incorporation
and Bylaws, and the Delaware General Corporation Law, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 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 a successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person for liabilities
arising under the Act 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 of whether such indemnification by it is against
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
D. The undersigned registrant hereby undertakes to file an application for the
purposes of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the SEC under Section 305(b)(2) of the Act.
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SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in Mountain View, California on September 22, 2000.
Alza Corporation
/s/ Matthew K. Fust
By: _________________________________
Matthew K. Fust
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ernest
Mario and Matthew K. Fust his or her true and lawful attorneys in fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him or her and in his name, place and stead, in any and all capacities, to
sign any or all amendments (including post effective amendments) to the
Registration Statement, and to sign any registration statement for the same
offering covered by this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
and all post effective amendments thereto, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ernest Mario Chairman of the Board, Chief September 22, 2000
_________________________________ Executive Officer and Director
Dr. Ernest Mario (Principal Executive Officer)
/s/ William Brody September 22, 2000
_________________________________
Dr. William Brody Director
/s/ Robert J. Glaser September 22, 2000
_________________________________
Dr. Robert J. Glaser Director
/s/ I. Craig Henderson September 22, 2000
_________________________________
Dr. I. Craig Henderson Director
/s/ Dean O. Morton September 22, 2000
_________________________________
Dean O. Morton Director
/s/ Denise M. O'Leary September 22, 2000
_________________________________
Denise M. O'Leary Director
/s/ Issac Stein September 22, 2000
_________________________________
Isaac Stein Director
/s/ Julian N. Stern September 22, 2000
_________________________________
Julian N. Stern Director
/s/ Matthew K. Fust Senior Vice President and Chief September 22, 2000
_________________________________ Financial Officer (Principal
Matthew K. Fust Financial and Accounting Officer)
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.1 Indenture, dated as of July 28, 2000, between ALZA Corporation and The
Chase Manhattan Bank and Trust Company, National Association, as
Trustee(1)
4.2 Form of Debenture (included in Exhibit 4.1)
4.3 Registration Rights Agreement, dated July 24, 2000, among ALZA
Corporation, Credit Suisse First Boston Corporation, Chase Securities,
Inc. and Morgan Stanley & Co., Incorporated(1)
5.1 Opinion of Heller Ehrman White & McAuliffe LLP
12.1 Statement re Computation of Ratios
23.1 Consent of Heller Ehrman White & McAuliffe LLP (contained in opinion
filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (see page II-5)
25.1 Statement of Eligibility of Trustee
</TABLE>
--------
(1) Incorporated by reference to ALZA's Current Report on Form 8-K filed on
August 10, 2000.
