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This filing is made pursuant to Rule 424(b)(3)
under the Securities Act of 1933 in
connection with Registration No. 333-85339
PROSPECTUS
$345,000,000
[IDEC PHARMACEUTICALS CORPORATION LOGO]
LIQUID YIELD OPTION(TM) NOTES DUE 2019
(ZERO COUPON -- SUBORDINATED)
AND
COMMON STOCK ISSUABLE UPON
CONVERSION OF THE LYONS
We issued the LYONs in a private placement in February 1999 at an issue
price of $337.85 per LYON. This prospectus will be used by Selling
Securityholders to resell their LYONs and the common stock issuable upon
conversion of their LYONs.
The LYONs are convertible at any time prior to maturity into common stock
at a conversion rate of 6.734 shares of common stock per LYON, subject to
adjustment in certain events.
We will not pay interest on the LYONs prior to maturity. The issue price
represents a yield to maturity of 5 1/2% per year.
We may redeem all or a portion of the LYONs on or after February 16, 2004.
Holders may require us to repurchase their LYONs at a price of $443.14 per LYON
on February 16, 2004, $581.25 per LYON on February 16, 2009 and $762.40 per LYON
on February 16, 2014. In addition, Holders may require us to repurchase the
LYONs upon a change in control on or before February 16, 2004.
The last reported sales price of our common stock on The Nasdaq Stock
Market on November 9, 1999 was 129 3/4 per share. Our common stock is traded on
The Nasdaq Stock Market under the symbol "IDPH."
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We will not receive any of the proceeds from the sale of the LYONs or the
common stock by the Selling Securityholders. The LYONs and the common stock may
be offered in negotiated transactions or otherwise, at market prices prevailing
at the time of sale or at negotiated prices. In addition, the common stock may
be offered from time to time through ordinary brokerage transactions on The
Nasdaq Stock Market. See "Plan of Distribution." The Selling Securityholders may
be deemed to be "Underwriters" as defined in the Securities Act. If any
broker-dealers are used by the Selling Securityholders, any commissions paid to
broker-dealers and, if broker-dealers purchase any LYONs or common stock as
principals, any profits received by such broker-dealers on the resale of the
LYONs or common stock, may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any profits realized by the Selling
Securityholders may be deemed to be underwriting commissions.
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((TM)) Trademark of Merrill Lynch & Co.
The date of this prospectus is November 12, 1999
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including statements
regarding, among other items:
- our continuing efforts to commercialize our product, Rituxan, with our
partner, Genentech, Inc. ("Genentech");
- continued development of our current product candidates;
- conducting clinical trials with respect to Rituxan and our product
candidates;
- seeking regulatory approvals;
- expanding our manufacturing capacity and use of current facilities;
- engaging third-party manufacturers to supply our clinical trials and
commercial requirements;
- maintaining and expanding our marketing, sales and distribution
capability; and
- evaluating additional product candidates for acquisition and subsequent
clinical and commercial development.
We have based these forward-looking statements largely on our expectations.
Forward-looking statements are subject to a number of risks and uncertainties,
certain of which are beyond our control. Actual results could differ materially
from those anticipated as a result of the factors described in "Risk Factors."
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus might not occur.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements, information statements, and other
information with the Securities and Exchange Commission (the "Commission") in
accordance with the Securities Exchange Act of 1934 (the "Exchange Act"). You
may read and copy our reports, proxy and information statements and other
information filed by us at the public reference facilities of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or
at its regional office located at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036. Copies of such materials may also be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, DC 20549. Our reports, proxy and information
statements and other information is available to the public over the Internet at
the Commission's World Wide Web site at http://www.sec.gov. The materials
described above may also be inspected at the offices of Nasdaq Operations, 1735
K Street, N.W., Washington, DC 20006.
This prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by us with the Commission under
the Securities Act, omits certain of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to us and the LYONs and the common stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained in this prospectus
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concerning the contents of any contract or any other document referred to are
not necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to or incorporated by reference in the
Registration Statement. Each such statement is qualified in all respects by such
reference to such exhibit. The Registration Statement, including all exhibits
and schedules thereto, may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from such office after payment of fees prescribed by the Commission.
The Commission allows us to "incorporate by reference" the information we
filed with them, which means that we can disclose important information by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until our offering is complete.
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998, Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1999, June 30, 1999 and September 30, 1999 and our Current Reports on
Form 8-K filed with the Commission on January 4, 1999 and February 3,
1999.
- Our definitive Proxy Statement dated April 15, 1999 filed in connection
with our 1999 Annual Meeting of Stockholders.
- Our Form S-8 Registration Statement filed with the Commission on June 25,
1999.
- Our definitive Proxy Statement dated November 5, 1999 filed in connection
with our Special Meeting of Stockholders.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Investor Relations
IDEC Pharmaceuticals Corporation
11011 Torreyana Road
San Diego, California 92121
(858) 431-8500
TRADEMARKS
IDEC Pharmaceuticals(R), Rituxan(R) and PRIMATIZED(R) are our registered
United States trademarks. ZEVALIN(TM) and PROVAX(TM) are our trademarks. Other
trademarks used herein belong to various third parties as identified in the
text.
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SUMMARY
Because this is a summary, it may not contain all the information that may
be important to you. You should read this entire prospectus, including the
information incorporated by reference and the financial data and related notes,
before making an investment decision.
THE COMPANY
IDEC Pharmaceuticals Corporation ("IDEC Pharmaceuticals" or the "Company,"
or "we," "our" or "us") is a biopharmaceutical company engaged primarily in the
research, development and commercialization of targeted therapies for the
treatment of cancer and autoimmune diseases. Our first commercial product,
Rituxan, and our most advanced product candidate, ZEVALIN (formerly IDEC-Y2B8),
are for use in the treatment of certain B-cell non-Hodgkin's lymphomas ("B-cell
NHLs"). B-cell NHLs afflict approximately 260,000 patients in the United States.
We are also developing products for the treatment of various autoimmune diseases
(such as lupus and psoriasis).
In November 1997, Rituxan became the first monoclonal antibody approved by
the Food and Drug Administration (the "FDA") for a cancer therapy indication.
Since that time, Rituxan, marketed pursuant to a copromotion arrangement between
us and Genentech, achieved U.S. net sales of approximately $157.2 million
through December 31, 1998, making it the best-selling (based on first-year
dollar volume sales) cancer drug ever approved for marketing in the United
States. In June 1998, F. Hoffman La-Roche, Ltd. ("Roche") received approval to
begin marketing Rituxan (under the trade name MabThera) in the fifteen European
Union countries. Roche has launched MabThera in each of these countries, and we
receive a royalty on sales of MabThera.
Delivered intravenously as a treatment for B-cell NHL, Rituxan offers a
favorable side effect profile. Treatment with Rituxan is given as four weekly
intravenous infusions over a twenty-two day period as compared to chemotherapy,
which is typically given in repeated cycles for up to four to eight months.
Thus, Rituxan offers the possibility of increased quality of life during the
treatment of cancer, while maintaining a response rate that compares favorably
with conventional treatments. In its pivotal Phase III clinical trial involving
166 evaluable patients, Rituxan, administered as a single agent achieved a
partial (at least 50% tumor shrinkage) or complete response to therapy in
forty-eight percent (48%) of patients on an intent to treat basis (80 of 166
patients). Eighty-seven percent of evaluable patients demonstrated at least a
quantifiable shrinkage in tumor size. For the 80 patients achieving a partial or
complete response, the median time of regrowth of the tumor was 11.6 months from
the onset of response, and we believe 19 of such 80 patients are experiencing
ongoing remissions. Because of its favorable safety profile, we believe that
Rituxan is a strong candidate for combination therapy, and we are currently
researching its possible uses in this role.
Beyond Rituxan, we have four product candidates in various stages of
clinical testing. The most advanced of these is ZEVALIN, a radioimmunotherapy
for treatment of B-cell NHL currently in Phase III human clinical testing. We
believe that ZEVALIN in the commercial setting will be used in a fashion that is
complementary to Rituxan for patients requiring more aggressive treatment.
Patients receiving ZEVALIN are first treated with Rituxan, and then with
ZEVALIN, which delivers a radioisotope, yttrium-90, to tumor sites throughout
the body. Yttrium-90 has been shown in earlier stage clinical trials to be
useful in inducing significant remissions of disease in advanced stage lymphoma
patients.
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Unlike Rituxan, we believe that radioimmunotherapies, including ZEVALIN, will be
used primarily by nuclear medicine specialists and radiation oncologists at
major medical centers in the United States.
We currently have three other product candidates in various stages of
clinical development for treatment of autoimmune diseases:
- IDEC-151 was first clinically tested in Phase I and Phase I/II clinical
trials for rheumatoid arthritis in collaboration with our partner,
SmithKline Beecham, p.l.c. ("SmithKline Beecham"). In February 1999, we
announced that SmithKline Beecham was discontinuing development efforts
for IDEC-151 in rheumatoid arthritis. The Company and SmithKline Beecham
are currently re-evaluating the clinical strategies for IDEC-151,
including responsibility for development and whether or not to pursue
studies in psoriasis, rheumatoid arthritis and/or other potential
indications. We are also discussing with SmithKline Beecham the return of
all anti-CD4 program rights to us. This would allow us to proceed
independently, if at all, on new development strategies for IDEC-151 and
related anti-CD4 products.
- IDEC-131 is being developed as a treatment for systemic lupus
erythematosus ("SLE"). This antibody is currently in a Phase II safety,
dose tolerance and efficacy study with approximately 80 patients.
- IDEC-114 is being developed as a treatment for psoriasis and is currently
in Phase I/II, human safety clinical trials.
We are also developing antibodies for allergy, asthma and inflammatory
conditions although these are earlier in the product pipeline.
In August 1999, we announced the termination of our development of
9-aminocamptothecin ("9-AC"), following a Phase II clinical trial. We concluded
that 9-AC would not yield the desired benefits to solid-tumor cancer patients.
We acquired 9-AC from Pharmacia & Upjohn S.p.A. ("Pharmacia & Upjohn") and would
have paid $6.0 million to Pharmacia & Upjohn had we taken 9-AC into a Phase III
clinical trial and $7.0 million if 9-AC had been approved by the FDA.
All of our product candidates are biological macromolecules ("biologics")
as compared to the small molecules that are generated by chemical synthesis. We
have developed commercial-scale biologics manufacturing capacity which we used
for the manufacture of bulk Rituxan until the transfer of all manufacturing
activities for bulk Rituxan to Genentech in September 1999. We intend to
manufacture certain of our future biologic products in-house with existing and
expanded manufacturing capacity. This core competency will allow us to better
control the manufacture of our products, reducing our reliance on contract
manufacturers, as well as to reduce commercial risk.
We were originally incorporated in California in July 1985. In June 1997,
we were reincorporated in Delaware. Our principal executive offices are located
at 11011 Torreyana Road, San Diego, California 92121. Our telephone number is
(858) 431-8500.
RISK FACTORS
Prospective purchasers should carefully consider the factors discussed
under "Risk Factors."
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THE OFFERING
LYONS........................ $345,000,000 aggregate principal amount at
maturity of LYONs due February 16, 2019. We will
not pay interest on the LYONs prior to maturity.
Each LYON was originally issued at a price of
$337.85 per LYON and a principal amount at
maturity of $1,000.
MATURITY..................... February 16, 2019
YIELD TO MATURITY OF LYONS... 5 1/2% per year (computed on a semi-annual bond
equivalent basis) calculated from February 16,
1999.
CONVERSION RIGHTS............ Holders may convert the LYONs at any time on or
before the maturity date, unless the LYONs have
previously been redeemed or purchased. For each
LYON converted, we will deliver 6.734 shares of
our common stock. The conversion rate may be
adjusted for certain reasons, but will not be
adjusted for accrued Original Issue Discount.
Upon conversion, the Holder will not receive any
cash payment representing accrued Original Issue
Discount; such accrued Original Issue Discount
will be deemed paid by the shares of common
stock received by the Holder of LYONs on
conversion. See "Description of LYONs --
Conversion Rights."
SUBORDINATION................ The LYONs will be subordinated to all of our
existing and future Senior Indebtedness. As of
September 30, 1999, we had approximately $2.6
million of Senior Indebtedness outstanding. The
LYONs will also be effectively subordinated to
all our other liabilities, including trade
payables, of our subsidiary. The term "Senior
Indebtedness" is defined in the "Description of
LYONs -- Subordination" section of this
prospectus. See "Description of LYONs --
Subordination."
ORIGINAL ISSUE DISCOUNT...... We offered each LYON at an Original Issue
Discount for U.S. federal income tax purposes
equal to the principal amount at maturity of
each LYON less the issue price to investors. You
should be aware that, although we will not pay
interest on the LYONs, U.S. investors must
include accrued Original Issue Discount in their
gross income for U.S. federal income tax
purposes prior to the conversion, redemption,
sale or maturity of the LYONs (even if such
LYONs are ultimately not converted, redeemed,
sold or paid at maturity). See "Federal Income
Tax Considerations -- Original Issue Discount."
SINKING FUND................. None.
OPTIONAL REDEMPTION.......... We may redeem all or a portion of the LYONs for
cash at any time on or after February 16, 2004,
at the redemption prices set forth in this
prospectus. See
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"Description of LYONs -- Redemption of LYONs at
the Option of the Company."
PURCHASE OF THE LYONS AT THE
OPTION OF THE HOLDER....... Holders may require us to purchase their LYONs
on any of the following dates at the following
prices:
- on February 16, 2004 at a price of $443.14 per
LYON;
- on February 16, 2009 at a price of $581.25 per
LYON; and
- on February 16, 2014 at a price of $762.40 per
LYON.
We may choose to pay the purchase price in cash
or shares of common stock or a combination of
cash and shares of common stock. See
"Description of LYONs -- Purchase of LYONs at
the Option of the Holder."
CHANGE OF CONTROL............ Upon a change of control of IDEC Pharmaceuticals
occurring on or before February 16, 2004, each
Holder may require us to repurchase all or a
portion of such Holder's LYONs at a price equal
to the issue price of such LYONs plus accrued
Original Issue Discount to the date of
repurchase. The term "change of control" is
defined in the "Description of LYONs -- Change
of Control Permits Purchase of LYONs at the
Option of the Holder" section of this
prospectus.
OPTIONAL CONVERSION TO
SEMIANNUAL COUPON NOTE UPON
TAX EVENT.................. From and after a Tax Event Date, at our option,
interest in lieu of future Original Issue
Discount shall accrue on each LYON from the
Option Exercise Date at 5 1/2% per year on the
Restated Principal Amount and shall be payable
semiannually on each Interest Payment Date to
Holders of record at the close of business on
each Regular Record Date immediately preceding
such Interest Payment Date. Interest will be
computed on the basis of a 360-day year
comprised of twelve 30-day months and will
accrue from the most recent date to which
interest has been paid or, if no interest has
been paid, from the Option Exercise Date. In
such event, the Redemption Price, Purchase Price
and Change in Control Purchase Price shall be
adjusted as described herein. However, there
will be no changes in the Holder's conversion
rights. See "Description of LYONs -- Optional
Conversion to Semiannual Coupon Note upon Tax
Event."
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USE OF PROCEEDS.............. IDEC Pharmaceuticals will not receive any of the
proceeds from the sale by Selling
Securityholders of the LYONs or the underlying
common stock.
TRADING...................... The LYONs sold using this prospectus will no
longer be eligible for trading in the PORTAL
system and no assurance can be given as to the
liquidity of or trading markets for the LYONs.
Our common stock is quoted on The Nasdaq Stock
Market under the symbol "IDPH." See "Description
of LYONs -- Absence of Public Market."
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In October 1999, our board of directors approved a proposed amendment and
restatement of our Amended and Restated Certificate of Incorporation to increase
the number of shares of authorized common stock from 50,000,000 shares to
200,000,000 shares, to halve the par value of the common stock from $0.001 per
share to $0.0005 per share and to effect a two-for-one stock split of our common
stock. All stockholders of record of our common stock at the close of business
on October 18, 1999 will be entitled to vote on the proposed amendment and
restatement at a special meeting of stockholders to be held on December 1, 1999.
Except as otherwise specified in this prospectus, all information in this
prospectus, including the conversion ratio of and other information relating to
the LYONs, does not take into effect the proposed increase in number of shares
of common stock, change in par value or stock split.
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RISK FACTORS
An investment in the securities offered hereby is speculative in nature,
involves a high degree of risk and should not be made by an investor who cannot
afford the loss of his, her or its entire investment. The following risk factors
should be considered carefully in addition to the other information contained or
incorporated by reference in this prospectus before purchasing the LYONs or the
common stock offered hereby. In addition to the historical information contained
herein, the discussion in this prospectus contains certain forward-looking
statements, within the meaning of Section 27A of the Securities Act and Section
27E of the Exchange Act, that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include those discussed below as
well as those cautionary statements and other factors set forth elsewhere or
incorporated by reference herein.
OUR REVENUES RELY SIGNIFICANTLY ON RITUXAN SALES
Our revenues currently depend largely upon continued U.S. sales of a single
commercialized product, Rituxan. We cannot be certain that Rituxan will continue
to be accepted in the United States or in any foreign markets. A number of
factors may affect the rate and level of market acceptance of Rituxan,
including:
- the perception by physicians and other members of the health care
community of its safety and efficacy or that of competing products, if
any;
- the effectiveness of our and Genentech's sales and marketing efforts in
the United States and the effectiveness of Roche's sales and marketing
efforts in Europe;
- unfavorable publicity concerning Rituxan or comparable drugs;
- its price relative to other drugs or competing treatments;
- the availability of third party reimbursement; and
- regulatory developments related to the manufacture or continued use of
Rituxan.
We incurred annual operating losses from our inception in 1985 through
fiscal 1997. Given our current reliance upon Rituxan as the principal source of
our revenue, any material adverse developments with respect to the
commercialization of Rituxan may cause us to incur losses in the future.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly revenues, expenses and operating results have fluctuated in
the past and are likely to fluctuate significantly in the future. Fluctuation
may result from a variety of factors, including:
- our achievement of product development objectives and milestones;
- demand and pricing for our commercialized products, such as Rituxan;
- our ability to utilize excess manufacturing capacity by obtaining
contract manufacturing relationships;
- timing and nature of contract manufacturing and contract research and
development payments and receipts;
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- hospital and pharmacy buying decisions;
- clinical trial enrollment and expenses;
- physician acceptance of our products;
- government or private healthcare reimbursement policies;
- our manufacturing performance and capacity and that of our partners;
- the amount and timing of sales orders of Rituxan by Genentech to
customers in the United States and by Roche to customers in Europe;
- rate and success of product approvals;
- collaboration obligations and copromotion payments we make or receive;
- foreign currency exchange rates; and
- overall economic conditions.
Our operating results during any one quarter do not necessarily suggest
those of future quarters. These results fluctuate periodically because our
revenues are driven by certain events such as achievement of product development
milestone events and the applicable profit sharing allocation between us and
Genentech, based upon our copromotion arrangement.
VOLATILITY OF OUR STOCK PRICE
The market prices for our common stock and for securities of other
companies engaged primarily in biotechnology and pharmaceutical development,
manufacture and distribution are highly volatile. For example, the market price
of our common stock fluctuated between $27 3/8 per share and $145 1/2 per share
during the twelve months ended October 31, 1999. Because the LYONs are
convertible into shares of our common stock, fluctuations in the price of our
common stock will affect the price of the LYONs. The market price of our common
stock will likely continue to fluctuate due to a variety of factors, including:
- material public announcements;
- the announcement and timing of new product introductions by us or others;
- technical innovations or product development by us or our competitors;
- regulatory approvals or regulatory issues;
- developments relating to patents, proprietary rights and orphan drug
status;
- actual or potential clinical results with respect to our products under
development or those of our competitors;
- political developments or proposed legislation in the pharmaceutical or
healthcare industry;
- economic and other external factors or other disaster or crisis;
- hedge and/or arbitrage activities by Holders of the LYONs;
- period to period fluctuations in our financial results;
- the proposed two-for-one stock split of our common stock and proposed
increase in the number of authorized shares of our common stock; and
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- market trends relating to or affecting stock prices throughout our
industry, whether or not related to results or news regarding us or our
competitors.
WE FACE UNCERTAIN RESULTS OF CLINICAL TRIALS OF OUR POTENTIAL PRODUCTS
Our future success depends in large part upon the results of clinical
trials designed to assess the safety and efficacy of our potential products. The
completion rate of these clinical trials depends significantly upon the rate of
patient enrollment. Factors that affect patient enrollment include:
- size of patient population for the targeted disease;
- eligibility criteria;
- proximity of eligible patients to clinical sites;
- clinical trial protocols; and
- the existence of competing protocols (including competitive financial
incentives for patients and clinicians) and existing approved drugs
(including Rituxan).
Our inability to enroll patients on a timely basis could result in
increased expenses and product development delays, which could have a material
adverse effect on our business, results of operations and financial condition.
Even if a trial is fully enrolled, significant uncertainties remain as to
whether it will prove successful. For example, we recently terminated our
development of 9-AC following a Phase II clinical trial. We concluded that 9-AC
would not yield the desired benefits to solid-tumor cancer patients. In
addition, IDEC-151 was first clinically tested in Phase I and Phase I/II
clinical trials for rheumatoid arthritis in collaboration with our partner,
SmithKline Beecham. In February 1999, we announced that SmithKline Beecham was
discontinuing development efforts for IDEC-151 in rheumatoid arthritis. The
Company and SmithKline Beecham are currently re-evaluating the clinical
strategies for IDEC-151, including responsibility for development and whether or
not to pursue studies in psoriasis, rheumatoid arthritis and/or other potential
indications. We are also discussing with SmithKline Beecham the return of all
anti-CD4 program rights to us. This would allow us to proceed independently, if
at all, on new strategies for IDEC-151 and related anti-CD4 products.
The FDA regulates clinical trials. Failure to comply with extensive FDA
regulations may result in delay, suspension or cancellation of a trial and/or
the FDA's refusal to accept test results. The FDA may also suspend our clinical
trials at any time if it concludes that the participants are being exposed to
unacceptable risks. Consequently, we cannot ensure that Phase I, Phase II or
Phase III testing will be completed timely or successfully, if at all, with
respect to any of our potential products. Furthermore, we cannot be certain that
patients enrolled in our clinical trials will respond to our product candidates,
that any product candidate will be safe and effective or that data derived from
the trials will be suitable for submission to the FDA or satisfactorily support
a biologics licensing application ("BLA") or a new drug application ("NDA").
WE MAY BE UNABLE TO DEVELOP AND COMMERCIALIZE NEW PRODUCTS
Our future results of operations will depend to a large extent upon our
ability to successfully commercialize new products in a timely manner. As a
result, we must continue to develop, test and manufacture new products and then
must meet regulatory standards and obtain regulatory approvals. Our products
currently in development may not receive the regulatory approvals necessary for
marketing in a timely manner, if at all.
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Additionally, the development and commercialization process is time-consuming
and costly, and we cannot be certain that any of our products, if and when
developed and approved, will be successfully commercialized. Delays or
unanticipated costs in any part of the process, our inability to obtain
regulatory approval for our products or to maintain manufacturing facilities in
compliance with all applicable regulatory requirements could adversely affect
our results of operations.
WE RELY HEAVILY ON CONTRACT MANUFACTURERS
We rely heavily upon third party manufacturers to manufacture significant
portions of our products and product candidates. Our own manufacturing capacity
is limited and we are capable of producing only a limited quantity of bulk
Rituxan and other product candidates. Our manufacturing experience to date has
been limited to the production of preclinical and clinical quantities of product
candidates and to approximately three years of commercial production of bulk
Rituxan. We have no fill/finish experience or capacity and we do not have
experience in the field of chelates or radioisotopes and therefore, we rely
entirely upon third parties for the manufacture of these products and
components. Consequently, we cannot ensure that either our manufacturing
facilities or our ability to sustain ongoing production of our products will be
able to meet our expectations. Nor can we be certain that we will be able to
enter into satisfactory agreements with third party manufacturers. Our failure
to enter into agreements with such manufacturers on reasonable terms, if at all,
or poor manufacturing performance on our part or that of our third party
manufacturers could have a material and adverse effect on our business,
financial condition and results of operations.
In September 1999 we transferred all manufacturing responsibilities for
bulk Rituxan to Genentech. We rely upon Genentech for all Rituxan manufacturing
in order to meet worldwide requirements and to complete all fill/finish
requirements. We cannot ensure that Genentech will manufacture and fill/finish
Rituxan in sufficient quantities and on a timely and cost-effective basis or
that Genentech will obtain and maintain all required manufacturing approvals.
Genentech's failure to manufacture and fill/finish Rituxan or obtain and
maintain required manufacturing approvals could materially and adversely affect
our business, results of operations and financial condition.
ZEVALIN has multiple components that require successful coordination among
several third party contract manufacturers. We are currently negotiating with
commercial contractors to meet our long-term manufacturing demands for
fill/finish of ZEVALIN bulk product. We cannot be certain that we will reach
agreement on reasonable terms, if at all, with our contract manufacturers or
that the integration of our contract manufacturers can be successfully
coordinated.
Since the completion in September 1999 of our obligation to manufacture
bulk Rituxan, we have commenced conversion of our manufacturing facility to a
multi-product facility, where we will initially manufacture ZEVALIN and
anti-CD40L (also known as anti-gp39) antibodies. We cannot be certain that this
conversion will be successful, that it will receive all necessary regulatory
approvals, or that, even if it is successful and such approvals are received, it
will be completed within our budgeted time and expense estimations. Our failure
to successfully convert the manufacturing facility in a timely manner could have
an adverse effect on our product development efforts and our ability to timely
file our product license applications and could cause us to incur significant
unabsorbed overhead costs. To the extent we cannot produce our own biologics, we
will need to rely on third party manufacturers, of which there are only a
limited number
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capable of manufacturing biologics as contract suppliers. We cannot be certain
that we could reach agreement on reasonable terms, if at all, with those
manufacturers.
WE RELY HEAVILY ON CERTAIN SUPPLIERS
Some materials used in our products and potential products, including
Rituxan and ZEVALIN, are currently available only from sole or limited number of
suppliers. In addition, the suppliers of some materials for our products must be
approved by the FDA and/or by other governmental agencies. Although we have
initiated a program for identifying alternative suppliers for certain materials,
any interruption or delay in our supply of materials or delays in the applicable
governmental approval of new suppliers or any loss of a sole source supplier
could have a material adverse effect on our business, financial condition and
results of operations.
OUR INDUSTRY IS INTENSELY COMPETITIVE
The biotechnology industry is intensely competitive. We compete with
biotechnology and pharmaceutical companies that have been established longer
than we have, have a greater number of products on the market, have greater
financial and other resources and have other technological or competitive
advantages. We also compete in the development of technologies and processes and
in acquiring personnel and technology from academic institutions, government
agencies, and other private and public research organizations. Consequently, we
cannot be certain that we will be able to produce or acquire rights to new
products with commercial potential. In addition, we cannot be certain that one
or more of our competitors will not receive patent protection that dominates,
blocks or adversely affects our product development or business; will benefit
from significantly greater sales and marketing capabilities; or will not develop
products that are accepted more widely than ours. We are aware that a competitor
recently filed a BLA for a radiolabeled murine antibody product for the
treatment of non-Hodgkin's lymphomas. We are also aware of other potentially
competitive biologic therapies for non-Hodgkin's lymphomas in development.
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE
We have limited experience with commercial sales and marketing, based
entirely upon our launch and subsequent sales of Rituxan. Outside the United
States, our strategy is to pursue and to rely solely upon collaborations with
established pharmaceutical companies for marketing, distribution and sale of our
products. We currently have no plans to directly market outside the United
States. Since we currently rely upon copromotion partners in the United States
and rely exclusively on third parties outside the United States, we cannot be
certain that our products will be marketed and distributed in accordance with
our expectations or that our market research or sales forecasts will be
accurate. We also cannot be certain that we will ever be able to develop our own
sales and marketing capabilities to an extent that we would not need to rely on
third party efforts, or that we will be able to maintain satisfactory
arrangements with the third parties on whom we rely.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS OR SECURE RIGHTS TO THIRD PARTY PATENTS
Our ability and the abilities of our partners to obtain and maintain patent
and other protection for our products will affect their success. We are assigned
or have rights to or have exclusive access to a number of U.S. and foreign
patents, patents pending and patent applications. However, we cannot be certain
that such patent applications will be approved,
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or that any of our patent rights will be upheld in a court of law if challenged.
We also cannot be certain that our patent rights will provide competitive
advantages for our products or will not be challenged, infringed upon or
circumvented by our competitors.
Because of the large number of patent filings in the biopharmaceutical
field, our competitors may have filed applications or been issued patents and
may obtain additional patents and proprietary rights relating to products or
processes competitive with or similar to ours. We cannot be certain that U.S. or
foreign patents do not exist or will not issue that would materially and
adversely affect our ability to commercialize our products and product
candidates.
In addition to patents, we rely on trade secrets and proprietary know-how
that we seek to protect, in part, through confidentiality agreements with our
partners, employees and consultants. It is possible that such parties will
breach our agreements or that courts may not enforce the agreements, leaving us
without adequate remedies. We also cannot be certain that our trade secrets will
not become known or be independently developed or patented by our competitors.
In September 1999, an interference to determine priority of inventorship
was declared in the United States Patent and Trademark Office between Dartmouth
University's patent application (which patent application has been exclusively
licensed to us) and Columbia University's patent (which patent we believe has
been exclusively licensed to Biogen) relating to anti-CD40L antibodies. We are
aware that oppositions have been filed to a granted Japanese Immunex patent
relating to anti-CD40L antibodies. We are also aware that an opposition has been
recently filed in the European patent office to a granted European application
that has been licensed to us, which application contains claims relating to the
use of anti-CD40L antibodies as a therapeutic. Also, we are aware of an
opposition that was recently filed to a granted European patent application
which names us as the applicant and which relates to PROVAX and therapeutic use
thereof. If the outcome of the interference or any of the oppositions is
adverse, in whole or in part, it could result in the scope of some or all of the
granted claims being limited, some or all of the granted claims being lost,
and/or the granted patent application(s) not proceeding to a patent.
We are aware of several third party patents and patent applications (to the
extent they issue as patents) that, if successfully asserted against us, may
materially affect our ability to make, use, offer to sell, sell and import our
products. These third party patents and, patent applications may include,
without limitation:
- U.S. patent and patent applications and foreign counterparts filed by
Bristol-Myers Company that relate to antibodies to a B7 antigen;
- a U.S. patent assigned to Columbia University and a Japanese patent
assigned to Immunex, which we believe have been exclusively licensed to
Biogen, related to monoclonal antibodies to the 5C8 antigen found on T
cells. We believe the 5C8 antigen is associated with CD40L, the target
for our anti-CD40L antibodies expressed on the surface of activated T
cells;
- a number of issued U.S. and foreign patents that relate to various
aspects of radioimmunotherapy of cancer and to methods of treating
patients with anti-CD4 antibodies;
- two U.S. patents assigned to Glaxo Wellcome and foreign counterparts
relating to chelator stabilized antibody preparations; and
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- three U.S. patents assigned to Glaxo Wellcome and foreign counterparts
relating to therapeutic uses of CHO glycosylated antibodies.
The owners, or licensees of the owners, of these patents and patent
applications (to the extent they issue as patents) may assert that one or more
of our products infringe one or more claims of such patents. Such owners or
licensees of foreign counterparts to these patents and any other foreign patents
may assert that one or more of our products infringe one or more claims of such
patents. Specifically, if legal action is commenced against us or our partners
to enforce any of these patents and patent applications (to the extent they
issue as patents) and the plaintiff in such action prevails, we could be
prevented from practicing the subject matter claimed in such patents or patent
applications.
We are aware that on May 28, 1999, Glaxo Wellcome filed a patent
infringement lawsuit against Genentech in the U.S. District Court in Delaware.
According to Genentech's Form 10-Q for the quarter ended September 30, 1999,
that suit asserts that Genentech infringes four U.S. patents owned by Glaxo
Wellcome. Two of the patents relate to the use of specific kinds of monoclonal
antibodies for the treatment of human disease, including cancer. The other two
patents asserted against Genentech relate to preparations of specific kinds of
monoclonal antibodies which are made more stable and the methods by which such
preparations are made. Genentech believes that the suit relates to the
manufacture, use and sale of their Herceptin product and Rituxan. The judge has
scheduled the trial of this suit to begin January 29, 2001. Based upon the
nature of the claims made and the information available to Genentech, Genentech
reports that it believes that the outcome of this action is not likely to have a
material adverse effect on their financial position, results of operations or
cash flows, but that if an unfavorable ruling were to occur in any quarterly
period, there exists the possibility of a material impact on Genentech's net
income of that period. If the suit relates to the manufacture, use and sale of
Rituxan, and depending on the suit's outcome, there exists the possibility of a
material impact on our corresponding period copromotion profit related to
Rituxan and a material adverse effect on our business, financial condition and
results of operations.
If our intellectual property rights are challenged, we may be required or
may desire to obtain licenses to patents and other intellectual property held by
third parties to develop, manufacture and market our products. However, we
cannot be certain that we will be able to obtain these licenses on commercially
reasonable terms, if at all, or that any licensed patents or intellectual
property will be valid or enforceable. In addition, the scope of intellectual
property protection is subject to scrutiny and change by courts and other
governmental bodies. Litigation and other proceedings concerning patents and
proprietary technologies can be protracted, expensive and distracting to
management and companies may sue competitors as a way of delaying the
introduction of competitors' products. Any litigation, including any
interference proceeding to determine priority of inventions, oppositions to
patents in foreign countries or litigation against our partners, may be costly
and time-consuming and could have a material adverse effect on our business,
financial condition and results of operations.
WE MAY BE UNABLE TO MAINTAIN THIRD PARTY RESEARCH AND DEVELOPMENT RELATIONSHIPS
Funding of research and development efforts depends largely upon various
arrangements with strategic partners and others who provide us with funding and
who perform research and development with respect to our products. Such
strategic partners may generally terminate their arrangement with us at any
time. These parties may develop
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products that compete with ours, and we cannot be certain that they will perform
their contractual obligations or that any revenues will be derived from such
arrangements. If one or more of our strategic partners fail to achieve certain
product development objectives, such failure could have a material adverse
effect on our ability to fund related programs and develop products.
FAILURE TO OBTAIN PRODUCT APPROVALS OR COMPLY WITH GOVERNMENT REGULATIONS COULD
ADVERSELY AFFECT OUR BUSINESS
As pharmaceutical manufacturers, our partners and we are subject to
extensive, complex, costly and evolving governmental rules, regulations and
restrictions administered by the FDA, by other federal and state agencies, and
by governmental authorities in other countries. In the United States, our
products cannot be marketed until after they are approved by the FDA. Obtaining
an FDA approval involves the submission, among other information, of the results
of preclinical and clinical studies on the product, and requires substantial
time, effort and financial resources. Rituxan is our only product that has
received FDA approval, and we cannot be certain that any of our product
candidates will be approved either in the United States or in other countries in
a timely fashion, if at all. Both before and after approval, we are subject to
numerous other FDA requirements, and to government inspection at all times. Our
failure to meet or comply with any rules, regulations or restrictions of the FDA
or other agencies could result in fines, unanticipated expenditures, product
delays, non-approval or recall, interruption of production and even criminal
prosecution. Although we have instituted internal compliance programs and
continue to address compliance issues raised from time to time by the FDA, we
cannot be certain that we will meet regulatory agency standards or that any lack
of compliance will not have a material adverse effect on our business, financial
condition or results of operations.
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY CLAIMS
Our design, testing, development, manufacture and marketing of products
involves an inherent risk of exposure to product liability claims and related
adverse publicity. Insurance coverage is expensive and difficult to obtain, and
we may be unable to obtain coverage in the future on acceptable terms, if at
all. Although we currently maintain product liability insurance for our products
in the amounts we believe to be commercially reasonable, we cannot be certain
that the coverage limits of our insurance policies or those of our strategic
partners will be adequate. If we are unable to obtain sufficient insurance at an
acceptable cost or if a claim is brought against us, whether fully covered by
insurance or not, our business, results of operations and financial condition
could be materially adversely affected.
FAILURE TO ADEQUATELY ADDRESS THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR
BUSINESS
We have assessed and continue to assess the potential impact of the
situation commonly referred to as the Year 2000 Issue. The Year 2000 Issue
concerns the inability of many information technology based systems and software
products to properly recognize and process date sensitive information. This
could cause system or equipment shutdowns, failures or miscalculations resulting
in inaccuracies in data exchange, computer output or disruptions of operations.
As a result, information technology based systems and/or software used by many
companies may need to be modified and upgraded.
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We have an ongoing Year 2000 Program and have appointed a Year 2000 Program
Manager and a Year 2000 Task Force. We have completed an inventory and review of
information technology based system hardware, operating systems (including
manufacturing and laboratory control systems) and application software in order
to identify potential Year 2000 problems and we have almost completed
implementing planned upgrades and testing our systems. We believe that we have
corrected over 90% of identified noncompliant items. We currently estimate that
the financial impact of making system and software modifications will not exceed
$1.0 million including costs already incurred, however, the actual financial
cost of correcting Year 2000 problems could exceed this estimate. If
modifications are not made or not completed in a timely fashion, Year 2000
problems could have a material adverse impact to our business, financial
condition and results of operations, the precise degree of which cannot be known
at this time. Our Year 2000 program includes sending inquiries to our major
third party suppliers, manufacturers, service providers and business partners
seeking assurance that they are Year 2000 compliant. Our business, financial
condition and results of operations could be materially adversely affected if
third party suppliers, manufacturers, service providers, business partners and
other entities, including government entities, do not adequately address their
Year 2000 issues.
We are currently relying upon Genentech to provide for all Year
2000-related reviews, upgrades and contingency plans relating to the
manufacture, distribution and sale of Rituxan. We have not received contingency
plans from Genentech. Genentech, however, reports that it initiated contingency
planning in March 1999 for business critical processes, which include provisions
such as identifying alternate sources for materials and services and if
necessary reverting to non-computerized systems for processing information.
Genentech reports that its contingency plan is approximately 80% complete and is
scheduled for completion by the end of November 1999. Genentech believes that
with the completion of modifications, the Year 2000 issue will not pose
significant operational problems for their computer systems and equipment. Any
failure by Genentech to complete modifications or address issues, including
issues with third parties, which results in their inability to timely produce,
distribute and sell Rituxan would have a material adverse impact to our
business, financial condition and results of operation, the precise degree of
which cannot be known at this time.
We have begun to put into place contingency plans to deal with non-Rituxan
related failures resulting from Year 2000 issues. We expect to complete our
contingency plans during the fourth quarter of 1999.
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL OR TO REPURCHASE THE LYONS
We expend and will likely continue to expend substantial funds to complete
the research, development, manufacturing and marketing of our potential future
products. Consequently, we may seek to raise capital through collaborative
arrangements, strategic alliances, and/or equity and debt financings or from
other sources. We may be unable to raise additional capital on commercially
acceptable terms, if at all, and if we raise capital through equity financing
then existing stockholders may have their ownership interests diluted. If we are
unable to generate adequate funds from operations or from additional sources,
then our business, results of operations and financial condition may be
materially and adversely affected.
If we undergo certain events constituting a change of control prior to
February 16, 2004, we will be obligated to repurchase all outstanding LYONs at
the option of the Holder. However, it is possible that we will not have
sufficient funds at that time, will not
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be able to raise sufficient funds, or that restrictions in our indebtedness will
not allow such repurchases. In addition, certain major corporate events that
would increase our indebtedness, such as leveraged recapitalizations, would not
constitute a change of control under the Indenture entered into in connection
with the offering of the LYONs. See "Description of LYONs -- Purchase of LYONs
at the option of the Holder."
FUTURE TRANSACTIONS MAY ADVERSELY AFFECT OUR BUSINESS OR THE MARKET PRICE OF
SECURITIES
We regularly review potential transactions related to technologies,
products or product rights and businesses complementary to our business. Such
transactions could include mergers, acquisitions, strategic alliances,
off-balance sheet financings, licensing agreements or copromotion agreements. We
may choose to enter into one or more of such transactions at any time, which may
cause substantial fluctuations to the market price of securities that we have
issued. Moreover, depending upon the nature of any transaction, we may
experience a charge to earnings, which could also have a material adverse impact
upon the market price of securities that we have issued.
WE RELY UPON CERTAIN KEY PERSONNEL
Our success will depend, to a great extent, upon the experience, abilities
and continued services of our executive officers and key scientific personnel.
We do not carry key-man life insurance on any of our officers or personnel. If
we lose the services of any of these officers or key scientific personnel, we
could suffer a material adverse effect on our business, financial condition and
results of operations. Our success also will depend upon our ability to attract
and retain other highly qualified scientific, managerial, sales and
manufacturing personnel and our ability to develop and maintain relationships
with qualified clinical researchers. Competition for such personnel and
relationships is intense and we compete with numerous pharmaceutical and
biotechnology companies as well as with universities and non-profit research
organizations. We cannot be certain that we will be able to continue to attract
and retain qualified personnel or develop and maintain relationships with
clinical researchers.
WE ARE SUBJECT TO UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
Our ability to commercialize products depends in part on the extent to
which patients are reimbursed by governmental agencies, private health insurers
and other organizations, such as health maintenance organizations, for the cost
of such products and related treatments. Our business, results of operations and
financial condition could be materially adversely affected if health care payers
and providers implement cost-containment measures and governmental agencies
implement healthcare reform.
OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS
Our business and the business of several of our strategic partners,
including Genentech, involves the controlled use of hazardous materials,
chemicals, biologics and radioactive compounds. Biologics manufacture is
extremely susceptible to product loss due to microbial or viral contamination,
material equipment failure, or vendor or operator error. Although we believe
that our safety procedures for handling and disposing of such materials complies
with state and federal standards, there will always be the risk of accidental
contamination or injury. In addition, certain microbial or viral contamination
may cause the closure of the respective manufacturing facility for an extended
period of
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time. By law, radioactive materials may only be disposed of at state approved
facilities. We currently store our radioactive materials on-site because the
approval of a disposal site in California for all California-based companies has
been delayed indefinitely. If and when a disposal site is approved, we may incur
substantial costs related to the disposal of such material. If liable for an
accident, or if we suffer an extended facility shutdown, we could incur
significant costs, damages and penalties that could have a material adverse
effect on our business, financial condition and results of operations.
THE LYONS LEVERAGE US CONSIDERABLY
As a result of issuing the LYONs, we have incurred approximately $120
million of indebtedness which resulted in a ratio of long-term debt to total
capitalization at September 30, 1999 of approximately 45%. As a result of this
indebtedness, our principal and interest obligations increased substantially.
The degree to which we are leveraged could materially adversely affect our
ability to obtain future financing and could make us more vulnerable to industry
downturns and competitive pressures. Our ability to meet our debt obligations
will be dependent upon our future performance, which will be subject to
financial, business and other factors affecting our operations, many of which
are beyond our control.
In addition, in the event of our insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up or upon our default in payment with
respect to any indebtedness or an event of default with respect to such
indebtedness resulting in the acceleration thereof, our assets will be available
to pay the amounts due on the LYONs only after all our senior indebtedness has
been paid in full. Moreover, holders of common stock would only receive the
assets remaining after payment of all indebtedness and preferred stock, if any.
THE LYONS ARE SUBORDINATED
The LYONs are subordinate in right of payment to all of our existing and
future "Senior Indebtedness" (as defined in the "Description of
LYONs -- Subordination" section of this prospectus). The LYONs will also be
effectively subordinated to all other liabilities, including trade payables, of
our subsidiary. The Indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, which we or our subsidiary can
create, incur, assume or guarantee, nor does it contain any covenants or
restrictions on the issuance or repurchase of securities by us. By reason of
such subordination of the LYONs, in the event of our insolvency, bankruptcy,
liquidation, reorganization, dissolution or winding up or upon our default in
payment with respect to any Senior Indebtedness or an event of default with
respect to such indebtedness resulting in the acceleration thereof, our assets
will be available to pay the amounts due on the LYONs only after all our Senior
Indebtedness has been paid in full. Moreover, holders of common stock would only
receive the assets remaining after payment of all indebtedness and preferred
stock, if any.
As of September 30, 1999, we had approximately $2.6 million of Senior
Indebtedness.
ABSENCE OF FINANCIAL COVENANTS
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of indebtedness, including Senior
Indebtedness, by us or the issuance or repurchase of securities by us. The
Indenture contains no covenants or other provisions to afford protection to
Holders of the LYONs in the event of a highly leveraged
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transaction or a change in control except to the extent described under
"Description of LYONs -- Change in Control Permits Purchase of LYONs at the
Option of the Holder."
THE LYONS MAY BE RATED BELOW OUR EXPECTATION
We believe that one or more rating agencies may rate the LYONs. We cannot
provide you with any assurance as to whether any such agency will rate the LYONs
or, if they do, what rating or ratings they will assign to the LYONs. If one or
more rating agencies assign the LYONs a rating lower than that expected by
investors, the lower rating could have a material adverse effect on the market
price of the LYONs and our common stock.
LIMITATIONS ON REPURCHASE UPON A CHANGE IN CONTROL
In the event of a Change in Control (as defined herein) on or before
February 16, 2004, each Holder of LYONs will have the right, at the Holder's
option, to require us to repurchase all or a portion of such Holder's LYONs at a
purchase price equal to 100% of the principal amount thereof plus accrued
original discount thereon to the repurchase date. Our ability to repurchase the
LYONs upon a Change in Control may be limited by the terms of our Senior
Indebtedness and the subordination provisions of the Indenture. Further, our the
ability to repurchase the LYONs upon a Change in Control will be dependent on
the availability of sufficient funds and compliance with applicable securities
and corporate laws. Accordingly, there can be no assurance that we will be able
to repurchase the LYONs upon a Change in Control. The term "Change in Control"
is limited to certain specified transactions and may not include other events
that might adversely affect our financial condition or result in a downgrade of
the credit rating (if any) of the LYONs nor would the requirement that we offer
to repurchase the LYONs upon a Change in Control necessarily afford Holders of
the LYONs protection in the event of a highly leveraged reorganization, merger
or similar transaction involving us. See "Description of LYONs -- Change in
Control Permits Purchase of LYONs at the Option of the Holder."
ABSENCE OF EXISTING ACTIVE PUBLIC MARKET
Upon their original issuance, the LYONs became eligible for trading on the
PORTAL Market. The LYONs sold pursuant to this Prospectus, however, will no
longer be eligible for trading on the PORTAL Market and we do not intend to
apply for listing of the LYONs on any securities exchange or quotation system.
We can not assure you that an active trading market for the LYONs will develop
or as to the liquidity or sustainability of any such market, the ability of the
Holders to sell their LYONs or the price at which Holders of the LYONs will be
able to sell their LYONs. Future trading prices of the LYONs will depend on many
factors, including, among other things, prevailing interest rates, our operating
results, the price of our common stock and the market for similar securities.
WE HAVE ADOPTED SEVERAL ANTITAKEOVER MEASURES AND THE LYONS MAY HAVE FURTHER
ANTITAKEOVER EFFECT
We have taken a number of actions that could have the effect of
discouraging a takeover attempt that might be beneficial to stockholders who
wish to receive a premium for their shares from a potential bidder. For example,
we reincorporated into Delaware, which subjects us to Section 203 of the
Delaware General Corporation Law, providing that we may not enter into a
"business combination" with an "interested stockholder" for a
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period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
the manner prescribed in the code section. In addition, we have adopted a
Stockholder Rights Plan that would cause substantial dilution to a person who
attempts to acquire our company on terms not approved by our Board of Directors.
In addition, our Board of Directors has the authority to issue, without vote or
action of stockholders, up to 8,000,000 shares of preferred stock and to fix the
price, rights, preferences and privileges of those shares. Any such preferred
stock could contain dividend rights, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences or other rights superior
to the rights of holders of common stock. The Board of Directors has no present
intention of issuing any additional shares of preferred stock (217,514 shares of
non-voting convertible preferred stock, convertible into 1,390,793 shares of our
common stock, were outstanding as of September 30, 1999), but reserves the right
to do so in the future. In addition, our copromotion arrangement with Genentech
provides Genentech with the option to buy the rights to Rituxan in the event
that we undergo a change of control, which may limit our attractiveness to
potential acquirors.
We are required by the terms of the LYONs, as of 35 business days after a
change in control occurring on or before February 16, 2004, to purchase any LYON
at the option of its Holder and at a price equal to the issue price plus accrued
Original Issue Discount to the date of repurchase. This feature of the LYONs may
have an antitakeover effect. See "Description of LYONs -- Change in Control
Permits Purchase of LYONs at the Option of the Holder."
WE HAVE NOT PAID AND DO NOT PLAN TO PAY DIVIDENDS
We have never declared or paid cash dividends on our common stock. We
currently plan to retain any earnings for use in our business and therefore do
not anticipate paying any dividends in the future.
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USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the LYONs or the
underlying common stock by the Selling Securityholders. See "Selling
Securityholders" for a list of those persons and entities receiving proceeds
from sales of LYONs or common stock.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain any earnings for use in our business and therefore do
not anticipate paying any dividends in the future.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods indicated is
as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
n/a n/a n/a n/a 18.8x 17.6x 8.7x
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before taxes plus fixed charges. Fixed charges consist of
interest expense incurred, including capital leases, amortization of interest
costs and the portion of rental expense under operating leases deemed by us to
be representative of the interest factor. Earnings were not sufficient to cover
fixed charges for the years ended December 31, 1994, 1995, 1996 and 1997 by
$18.0 million, $17.3 million, $5.7 million and $14.7 million, respectively.
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DESCRIPTION OF LYONS
The LYONs were issued under an indenture dated as of February 16, 1999 (the
"Indenture") between us and Chase Manhattan Bank and Trust Company, N.A., as
trustee (the "Trustee"). The following summaries of certain provisions of the
Indenture are not complete. You should look at the indenture and the form of
LYON that has been filed as an exhibit to this registration statement. Wherever
particular sections or defined terms of the Indenture are referred to, such
sections or defined terms are incorporated herein by reference.
GENERAL
In February 1999 we issued $345,000,000 aggregate principal amount at
maturity of the LYONs in a private placement. The LYONs will mature on February
16, 2019. The principal amount at maturity of each LYON is $1,000 and will be
payable at the office of the Paying Agent, which initially will be the Trustee,
or an office or agency maintained by us for such purpose, in the Borough of
Manhattan, The City of New York.
The LYONs were offered at a substantial discount from their principal
amount at maturity. See "Federal Income Tax Considerations -- Original Issue
Discount." We will not make periodic payments of interest on the LYONs. Each
LYON was issued at an issue price ("Issue Price") of $337.85 per LYON. The
calculation of the accrual of Original Issue Discount (the difference between
the Issue Price and the principal amount at maturity of a LYON) (the "Original
Issue Discount") in the period during which a LYON remains outstanding will be
on a semiannual bond equivalent basis using a 360-day year composed of twelve
30-day months. Accrual of Original Issue Discount commenced from the issue date
of the LYONs. Maturity, conversion, purchase by us at the option of a Holder, or
redemption of a LYON will cause Original Issue Discount and interest, if any, to
cease to accrue on such LYON, under the terms and subject to the conditions of
the Indenture.
We may not reissue a LYON that has matured or been converted, purchased by
us at the option of a Holder, redeemed or otherwise cancelled (except for
registration of transfer, exchange or replacement thereof).
LYONs may be presented for conversion at the office of the Conversion Agent
and for exchange or registration of transfer at the office of the Registrar,
each such agent initially being the Trustee. We will not charge a service charge
for any registration of transfer or exchange of LYONs.
FORM, DENOMINATION AND REGISTRATION
No service charge will be made for any registration of transfer or exchange
of LYONs, but we may require payment by a Holder of a sum sufficient to cover
any tax assessment or other governmental charge payable in connection therewith.
If a LYON is mutilated, defaced, destroyed, lost or stolen, we will execute
and upon our request, the Trustee will authenticate and deliver a new LYON in
exchange and substitution for such LYON:
- with the same maturity and date of issuance;
- an equal principal amount at maturity;
- registered in the same manner; and
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<PAGE> 24
- dated the date of its authentication.
If the LYON is destroyed, lost or stolen, the person requesting a
substituted LYON shall furnish to us and the Trustee, security or indemnity in
amount that will hold us and the Trustee harmless. In addition, in case of
destruction, loss or theft of a LYON, we will need satisfactory evidence from
the person requesting a substituted LYON of the destruction, loss or theft of
the LYON and ownership of the LYON.
Upon the issuance of any substituted LYON, we may require the registered
Holder of the LYON to pay any fees and expenses in connection with the issuance
of the LYON.
SUBORDINATION
Indebtedness evidenced by the LYONs will be subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full of all
existing and future Senior Indebtedness (as defined herein). Upon any payment or
distribution of our assets to creditors upon any dissolution, winding up,
liquidation or reorganization of us, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other similar proceedings, the Holders
of all Senior Indebtedness shall first be entitled to receive payment in full of
all amounts due or to become due thereon, or payment of such amounts shall have
been provided for, before the Holders of the LYONs shall be entitled to receive
any payment or distribution with respect to any LYONs.
By reason of the subordination described herein, in the event of
insolvency, upon any distribution of the our assets, (i) the Holders of the
LYONs will be required to pay over their share of such distribution to the
trustee in bankruptcy, receiver or other person distributing our assets for
application to the payment of Senior Indebtedness remaining unpaid, to the
extent necessary to pay all holders of Senior Indebtedness in full, and (ii) our
unsecured creditors who are not Holders of LYONs or Holders of our Senior
Indebtedness may recover less, ratably, than holders of our Senior Indebtedness
and may recover more, ratably, than the Holders of LYONs.
In addition, no payment of the principal amount at maturity of LYONs (or if
the LYONs have been converted to semiannual coupon notes following a Tax Event,
as described below, the Restated Principal Amount (as defined below)), Issue
Price, accrued Original Issue Discount, Redemption Price, Change in Control
Purchase Price or interest, if any, with respect to any LYONs may be made by us,
nor may we pay cash with respect to the Purchase Price of any LYON (other than
for fractional shares) or acquire any LYON for cash or property (except as set
forth in the Indenture) if (i) any payment default on any Senior Indebtedness
has occurred and is continuing beyond any applicable grace period or (ii) any
default (other than a payment default) with respect to Senior Indebtedness
occurs and is continuing that permits the acceleration of the maturity thereof
and such default is either the subject of judicial proceedings or we receive a
written notice of such default from the holders of such Senior Indebtedness (a
"Senior Indebtedness Default Notice"). Notwithstanding the foregoing, payments
with respect to the LYONs may resume and we may acquire LYONs for cash when (a)
the default with respect to the Senior Indebtedness is cured or waived or (b) in
the case of a default described in (ii) above, 179 or more days pass after
notice of the default is received by us, provided that the terms of the
Indenture otherwise permit the payment or acquisition of the LYONs at that time.
If we receive a Senior Indebtedness Default Notice, then a similar notice
received within nine months thereafter relating to the same default on the same
issue of Senior Indebtedness shall not be effective to prevent the payment or
acquisition of the LYONs as provided above. In addition, no payment may be made
on the LYONs if
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<PAGE> 25
any LYONs are declared due and payable prior to their stated maturity by reason
of the occurrence of an Event of Default until the earlier of (i) 120 days after
the date of such acceleration or (ii) the payment in full of all Senior
Indebtedness, but only if such payment is then otherwise permitted under the
terms of the Indenture. Notwithstanding the foregoing, upon the expiration of
any payment blockage period described above, Holders of the LYONs are required
to pay over any amounts collected by such Holders to the holders of Senior
Indebtedness to the extent necessary to pay all holders of Senior Indebtedness
in full.
The term "Senior Indebtedness" means our principal, premium (if any) and
unpaid interest on all of the following, whether presently existing or occurring
in the future:
- our indebtedness for borrowed money,
- our obligations evidenced by bonds, debentures, notes or similar
instruments,
- all of our obligations under (a) interest rate swaps, caps, collars,
options, and similar arrangements, (b) any foreign exchange contract,
currency swap contract, futures contract, currency option contract, or
other foreign currency hedge, and (c) credit swaps, caps, floors, collars
and similar arrangements,
- indebtedness incurred, assumed or guaranteed us in connection with the
acquisition by us or our subsidiary of any business, properties or assets
(except purchase-money indebtedness classified as accounts payable under
generally accepted accounting principles),
- all obligations and liabilities (contingent or otherwise) in respect of
our leases required, in conformity with generally accepted accounting
principles, to be accounted for as capitalized lease obligations on our
balance sheet and all obligations and liabilities (contingent or
otherwise) under any lease or related document (including a purchase
agreement) in connection with the lease or real property which provides
that we are contractually obligated to purchase or cause a third party to
purchase the leased property and thereby guarantee a minimum residual
value of the leased property to the lessor and our obligations under such
lease or related document to purchase or to cause a third party to
purchase such leased property,
- our reimbursement obligations in respect of letters of credit relating to
indebtedness or other obligations of ours that qualify as indebtedness or
obligations of the kind referred to in clauses listed above, and
- obligations of ours under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in the
clauses above, in each case unless in the instrument creating or
evidencing the indebtedness or obligation or pursuant to which the same
is outstanding it is provided (i) that such indebtedness or obligation is
not senior in right of payment to the LYONs or (ii) that such
indebtedness or obligation is subordinated to other indebtedness or
obligation or ours, unless such indebtedness or obligation expressly
provides that such indebtedness or obligations be senior in right of
payment to the LYONs. At September 30, 1999, we had approximately $2.6
million of Senior Indebtedness outstanding.
The LYONs are effectively subordinated to all existing and future
liabilities of our subsidiary. Our right to participate in any distribution of
the assets of our subsidiary upon
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<PAGE> 26
the liquidation, reorganization or insolvency of such subsidiary (and the
consequent right of the Holders of the LYONs to participate in those assets)
will be subject to the claims of the creditors (including trade creditors) of
such subsidiary, except to the extent that we claim ourselves as a creditor of
such subsidiary may be recognized, in which case our claims would still be
subordinate to any security interest in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by us.
There is no restriction under the Indenture of the Company's incurring
additional indebtedness, including Senior Indebtedness.
CONVERSION RIGHTS
A Holder may convert a LYON, in multiples of $1,000, into common stock at
any time before the close of business on February 16, 2019. However, a Holder
may convert a LYON only until the close of business on the redemption date if we
call a LYON for redemption.
A LYON for which a Holder has delivered a purchase notice or a change in
control purchase notice requiring us to purchase the LYON may be converted only
if such notice is withdrawn in accordance with the indenture.
The conversion rate is 6.734 shares of common stock per LYON, subject to
adjustment upon the occurrence of certain events described below. We will pay
cash equal to the then current market value of a fractional share.
On conversion of a LYON, a Holder will not receive any cash payment
representing accrued Original Issue Discount. Our delivery to the Holder of the
fixed number of shares of common stock into which the LYON is convertible,
together with any cash payment for fractional shares, will be deemed:
- to satisfy our obligation to pay the principal amount at maturity of the
LYON; and
- to satisfy our obligation to pay accrued Original Issue Discount
attributable to the period from the issue date through the conversion
date.
As a result, accrued Original Issue Discount is deemed to be paid in full rather
than cancelled, extinguished or forfeited.
The conversion rate will not be adjusted for such accrued Original Issue
Discount. A certificate for the number of full shares of common stock into which
any LYON is converted, together with any cash payment for fractional shares,
will be delivered through the conversion agent as soon as practicable following
the conversion date.
For a discussion of the tax treatment of a Holder receiving common stock
upon conversion, see "Federal Income Tax Consequences -- Disposition or
Conversion."
On conversion of a LYON, a Holder will not receive any cash payment
representing accrued Original Issue Discount. Our delivery to the Holder of the
fixed number of shares of common stock into which the LYON is convertible
(together with the cash payment, if any, in lieu of fractional shares) will be
deemed to satisfy our obligation to pay the principal amount at maturity of the
LYON including the accrued Original Issue Discount attributable to the period
from the Issue Date through the Conversion Date. Thus, the accrued Original
Issue Discount is deemed to be paid in full rather than cancelled, extinguished
or forfeited. The Conversion Rate will not be adjusted at any time during the
term of the LYONs for such accrued Original Issue Discount. A certificate for
the number of full shares of common stock into which any LYON is converted (and
cash instead of
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<PAGE> 27
fractional shares) will be delivered through the Conversion Agent as soon as
practicable following the Conversion Date. For a discussion of the tax treatment
of a Holder receiving shares of common stock upon conversion, see "Certain
United States Federal Income Tax Considerations -- Disposition or Conversion."
To convert a LYON into shares of common stock, a Holder must:
- complete and manually sign the conversion notice on the back of the LYON
(or complete and manually sign a facsimile of the conversion notice) and
deliver such notice to the Conversion Agent;
- surrender the LYON to the Conversion Agent;
- if required, furnish appropriate endorsements and transfer documents; and
- if required, pay all transfer or similar taxes.
Pursuant to the Indenture, the date on which all of the foregoing
requirements have been satisfied is the Conversion Date.
The Conversion Rate will be adjusted for:
- dividends or distributions on common stock payable in common stock or
other capital stock;
- subdivisions, combinations or certain reclassifications of common stock,
- distributions to all holders of common stock of certain rights to
purchase common stock for a period expiring within 60 days at less than
the quoted price at the time; and
- distributions to such Holders of our assets or debt securities or certain
rights to purchase our securities (excluding cash dividends or other cash
distributions from current or retained earnings other than any
Extraordinary Cash Dividend).
However, no adjustment need be made if Holders may participate in the
transaction or in certain other cases. In cases where the fair market value of
assets, debt securities or certain rights, warrants or options to purchase our
securities distributed to stockholders
- equals or exceeds the Average Quoted Price of the common stock, or
- such Average Quoted Price exceeds the fair market value of such assets,
debt securities or rights, warrants or options so distributed by less
than $1.00,
rather than being entitled to an adjustment in the conversion rate, the Holder
of a LYON upon conversion will be entitled to receive, in addition to the shares
of common stock, the kind and amount of assets, debt securities or rights,
warrants or options comprising the distribution that such Holder would have
received if such Holder had converted such LYON immediately prior to the record
date for determining the stockholders entitled to receive the distribution.
If the stockholders rights plan under which any rights are issued provides
that each share of common stock issued upon conversion of LYONs at any time
prior to the distribution of separate certificates representing such rights will
be entitled to receive such rights, there shall not be any adjustment to the
conversion privilege or conversion rate as a result of:
- the issuance of the rights;
- the distribution of separate certificates representing the rights;
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<PAGE> 28
- the exercise or redemption of such rights in accordance with any Rights
Agreement; or
- the termination or invalidation of the rights.
The Indenture permits us to increase the Conversion Rate from time to time.
If we are a party to a consolidation, merger or binding share exchange or a
transfer of all or substantially all of our assets, the right to convert a LYON
into shares of common stock may be changed into a right to convert it into the
kind and amount of securities, cash or other assets of ours or another person
which the Holder would have received if the Holder had converted such Holder's
LYONs immediately prior to the transaction.
In the event of a taxable distribution to holders of common stock which
results in an adjustment of the Conversion Rate or in the event the Conversion
Rate is increased at our discretion, the Holders of the LYONs may, in certain
circumstances, be deemed to have received a distribution subject to Federal
income tax as a dividend. See "Federal Income Tax Considerations -- Constructive
Dividend."
If we exercise our option to have interest in lieu of Original Issue
Discount accrue on a LYON following a Tax Event, the Holder will be entitled on
conversion to receive the same number of shares of common stock such Holder
would have received if we had not exercised such option.
If we exercise this option, LYONs surrendered for conversion during the
period from the close of business on any Regular Record Date (as defined herein)
next preceding any Interest Payment Date (as defined herein) to the opening of
business of such Interest Payment Date (except LYONs to be redeemed on a date
within such period) must be accompanied by payment of an amount equal to the
interest thereon that the registered Holder is to receive.
Except where LYONs surrendered for conversion must be accompanied by
payment as described above, no interest on converted LYONs will be payable by us
on any Interest Payment Date subsequent to the date of conversion. See
"-- Optional Conversion to Semiannual Coupon Note upon Tax Event."
REDEMPTION OF LYONS AT THE OPTION OF IDEC PHARMACEUTICALS
No sinking fund is provided for the LYONs. Prior to February 16, 2004, the
LYONs will not be redeemable at our option. Beginning on February 16, 2004, we
may redeem the LYONs for cash as a whole at any time, or from time to time in
part. We will give not less than 30 days' nor more than 60 days' notice of
redemption by mail to Holders of LYONs.
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<PAGE> 29
The table below shows Redemption Prices of a LYON on February 16, 2004, at
each February 16, thereafter prior to maturity and at maturity on February 16,
2019, which prices reflect the accrued Original Issue Discount calculated to
each such date. The Redemption Price of a LYON redeemed between such dates would
include an additional amount reflecting the additional Original Issue Discount
accrued since the next preceding date in the table.
<TABLE>
<CAPTION>
(2)
ACCRUED
(1) ORIGINAL (3)
LYON ISSUE REDEMPTION
ISSUE DISCOUNT PRICE
REDEMPTION DATE PRICE AT 5 % (1)+(2)
--------------- ------- --------- ----------
<S> <C> <C> <C>
February 16, 2004...................... $337.85 $105.29 $ 443.14
February 16, 2005...................... 337.85 130.00 467.85
February 16, 2006...................... 337.85 156.09 493.94
February 16, 2007...................... 337.85 183.63 521.48
February 16, 2008...................... 337.85 212.70 550.55
February 16, 2009...................... 337.85 243.40 581.25
February 16, 2010...................... 337.85 275.81 613.66
February 16, 2011...................... 337.85 310.02 647.87
February 16, 2012...................... 337.85 346.15 684.00
February 16, 2013...................... 337.85 384.28 722.13
February 16, 2014...................... 337.85 424.55 762.40
February 16, 2015...................... 337.85 467.06 804.91
February 16, 2016...................... 337.85 511.93 849.78
February 16, 2017...................... 337.85 559.32 897.17
February 16, 2018...................... 337.85 609.34 947.19
At stated maturity..................... 337.85 662.15 1,000.00
</TABLE>
If converted to semiannual coupon notes following the occurrence of a Tax
Event, the LYONs will be redeemable at the Restated Principal Amount plus
accrued and unpaid interest from the date of such conversion through the
Redemption Date. However, in no event may the LYONs be redeemed prior to
February 16, 2004. See "-- Optional Conversion to Semiannual Coupon Note upon
Tax Event."
If less than all of the outstanding LYONs are to be redeemed, the Trustee
shall select the LYONs to be redeemed in principal amounts at maturity of $1,000
or integral multiples of $1,000 by lot, pro rata or by any other method the
Trustee considers fair and appropriate. If a portion of a Holder's LYON is
selected for partial redemption and such Holder converts a portion of such LYON,
such converted portion shall be deemed (so far as may be) to be the portion
selected for redemption.
PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
On February 16, 2004, February 16, 2009 and February 16, 2014 (each, a
"Purchase Date"), we will purchase, at the option of the Holder, any outstanding
LYON for which a written notice (a "Purchase Notice") has been delivered by the
Holder to the Paying Agent at any time from the opening of business on the date
that is 20 business days prior to such Purchase Date until the close of business
on such Purchase Date and for which such Purchase Notice has not been withdrawn,
subject to certain additional conditions.
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<PAGE> 30
The table below shows the Purchase Prices of a LYON as of the specified
Purchase Dates (equal to the Issue Price plus accrued Original Issue Discount
through the respective Purchase Date):
<TABLE>
<CAPTION>
PURCHASE DATE PURCHASE PRICE
------------- --------------
<S> <C>
February 16, 2004........................................ $443.14
February 16, 2009........................................ $581.25
February 16, 2014........................................ $762.40
</TABLE>
We may, at our option, elect to pay the Purchase Price in cash or shares of
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 "Federal Income Tax Considerations -- Disposition or Conversion."
If prior to a Purchase Date the LYONs have been converted to semiannual
coupon notes following the occurrence of a Tax Event, the Purchase Price will be
equal to the Restated Principal Amount plus accrued and unpaid interest from the
date of such conversion through the Purchase Date. See "-- Optional Conversion
to Semiannual Coupon Note upon Tax Event."
We are required to give notice (the "Company Notice") on a date not less
than 20 business days prior to the Purchase 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 Purchase Price of LYONs in cash or shares of
common stock or any combination thereof (specifying the percentages of
each);
- if we elect to pay in shares of common stock, in whole or in part, the
method of calculating the Market Price (as defined below) of the common
stock; and
- the procedures that Holders must follow to require us to purchase LYONs
from such Holders.
The Purchase Notice given by each Holder electing to require us to purchase
LYONs shall state:
- the certificate numbers of the LYONs to be delivered by such Holder for
purchase by the Company;
- the portion of the principal amount at maturity of LYONs to be purchased,
which portion must be $1,000 or an integral multiple of $1,000;
- that such LYONs are to be purchased by us pursuant to the applicable
provisions of the LYONs; and
- in the event we elect, pursuant to the Company Notice, to pay the
Purchase Price with respect to the applicable Purchase Date in shares of
common stock, in whole or in part, but such Purchase Price is ultimately
to be paid to such Holder entirely in cash because any of the conditions
to payment of the Purchase Price (or portion thereof) in shares of common
stock is not satisfied prior to the close of business on such Purchase
Date, as described below, whether such Holder elects (1) to withdraw such
Purchase Notice as to some or all of the LYONs to which it relates
(stating the principal amount at maturity and certificate numbers of the
LYONs as to which such withdrawal shall relate), or (2) to receive cash
in respect of the
30
<PAGE> 31
entire Purchase Price for all LYONs (or portions of LYONs) subject to
such Purchase Notice.
If the Holder fails to indicate, in the Purchase Notice and in any written
notice of withdrawal, such Holder's choice with respect to the election
described in the final bullet point above, such Holder shall be deemed to have
elected to receive cash in respect of the entire Purchase Price for all LYONs,
subject to such Purchase Notice in such circumstances. For a discussion of the
tax treatment of a Holder receiving cash instead of shares of common stock, see
"Federal Income Tax Considerations -- Disposition or Conversion."
Any Purchase Notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the Paying Agent prior to the close or business on the
Purchase Date. The notice of withdrawal shall state the principal amount at
maturity and the certificate numbers of the LYONs as to which the withdrawal
notice relates and the principal amount at maturity, if any, which remains
subject to the Purchase Notice.
If we elect to pay the Purchase Price in whole or in part, in shares of
common stock, the number of shares of common stock to be delivered in respect of
the portion of the Purchase Price to be paid in shares of common stock shall be
equal to such portion of the Purchase Price divided by the Market Price of a
share of common stock. No fractional shares of common stock will be delivered
upon any purchase by us of LYONs in payment, in whole or in part, of the
Purchase Price. Instead, we will pay cash based on the Market Price for all
fractional shares of common stock. See "Federal Income Tax
Considerations -- Disposition or Conversion."
The "Market Price" means the average of the Sale Prices of the common stock
for the five trading day period ending on (if the third Business Day prior to
the Purchase Date is a trading day, or if not, then on the last trading day
prior to) the third Business Day prior to such Purchase Date, 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
the Purchase 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 (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 Stock
Market.
Because the Market Price of the common stock is determined prior to such
Purchase Date, Holders of LYONs 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 Purchase Date. We may pay the Purchase Price (or any portion of the
Purchase Price) in common stock only if the information necessary to calculate
the Market Price is published in a daily newspaper of national circulation.
Upon determination of the actual number of shares of common stock in
accordance with the foregoing provisions, we will publish such information in
The Wall Street Journal or another daily newspaper of national circulation.
31
<PAGE> 32
Our right to purchase LYONs, in whole or in part, with shares of common
stock is subject to our satisfying various conditions, including:
- the registration of such 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 or Holders
prior to the close of business on the Purchase Date, we will pay the Purchase
Price of the LYONs of such Holder or Holders entirely in cash. See "Federal
Income Tax Considerations -- Disposition or Conversion." We may not change the
form of consideration (or components or percentages of components thereof) to be
paid once we have given the Company Notice to Holders of LYONs except as
described in the first sentence of this paragraph.
We will comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be applicable and will
file Schedule 13E-4 or any other schedule required thereunder in connection with
any offer by us to purchase LYONs at the option of Holders.
Payment of the Purchase Price for a LYON for which a Purchase Notice has
been delivered and not validly withdrawn is conditioned upon delivery of such
LYON (together with necessary endorsements) to the Paying Agent at any time
(whether prior to, on or after the Purchase Date) after delivery of such
Purchase Notice. Payment of the Purchase Price for such LYON will be made
promptly following the later of the Purchase Date or the time of delivery of
such LYON. If the Paying Agent holds, in accordance with the terms of the
Indenture, money or securities sufficient to pay the Purchase Price of such LYON
on the Business Day following the Purchase Date, then, immediately after the
Purchase Date, such LYON will cease to be outstanding and Original Issue
Discount on such LYON will cease to accrue, whether or not such LYON is
delivered to the Paying Agent, and all other rights of the Holder shall
terminate (other than the right to receive the Purchase Price upon delivery of
the LYON).
Our ability to purchase LYONs with cash may be limited by the terms of our
then existing borrowing agreements. No LYONs may be purchased for cash at the
option of Holders if there has occurred (prior to, on, or after the giving, by
the Holders of such LYONs, of the required Purchase Notice) and is continuing an
Event of Default with respect to the LYONs described under "-- Events of
Default; Notice and Waiver" (other than a default in the payment of the Purchase
Price with respect to such LYONs).
CHANGE IN CONTROL PERMITS PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
In the event of any Change in Control (as defined below) of the Company
occurring on or prior to February 16, 2004, each Holder of LYONs will have the
right, at the Holder's option, subject to the terms and conditions of the
Indenture, to require us to purchase all or any portion (provided that the
principal amount at maturity must be $1,000 or an integral multiple thereof) of
the Holder's LYONs as of the date that is 35 Business Days after the occurrence
of such Change in Control (a "Change in Control Purchase Date") at a cash price
equal to the Issue Price plus accrued Original Issue Discount to the Change in
Control Purchase Date (the "Change in Control Purchase Price"). Holders will not
have any right to require us to purchase LYONs in the event of any Change in
Control occurring after February 16, 2004.
32
<PAGE> 33
If prior to a Change in Control Purchase Date the LYONs have been converted
to semiannual coupon notes following the occurrence of a Tax Event, we will be
required to purchase the LYONs at a cash price equal to the Restated Principal
Amount plus accrued and unpaid interest from the date of such conversion through
the Change in Control Purchase Date.
Within 15 Business Days after the occurrence of a Change in Control, we are
obligated to mail to the Trustee and to all Holders of LYONs at their addresses
shown in the register of the Registrar (and to beneficial owners as required by
applicable law) a notice regarding the Change in Control, which notice shall
state, among other things:
- the events causing a Change in Control and the date of such Change in
Control;
- the last date on which the purchase right may be exercised;
- the Change in Control Purchase Price;
- the Change in Control Purchase Date;
- the name and address of the Paying Agent and the Conversion Agent;
- the Conversion Rate and any adjustments to the Conversion Rate;
- that LYONs with respect to which a Change in Control Purchase Notice (as
defined below) is given by the Holder may be converted into shares of
Common Stock only if the Change in Control Purchase Notice has been
withdrawn in accordance with the terms of the Indenture; and
- the procedures that Holders must follow to exercise these rights.
To exercise this right, the Holder must deliver a written notice (a "Change
in Control Purchase Notice") to the Paying Agent (initially the Trustee) prior
to the close of business on the Change in Control Purchase Date. The Change in
Control Purchase Notice shall state:
- the certificate numbers of the LYONs to be delivered by the Holder for
purchase by us;
- the portion of the principal amount at maturity of LYONs to be purchased,
which portion must be $1,000 or an integral multiple thereof; and
- that we are to purchase such LYONs pursuant to the applicable provisions
of the LYONs.
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent prior to the close of
business on the Change in Control Purchase Date. The notice of withdrawal shall
state the principal amount at maturity and the certificate numbers of the LYONs
subject to the withdrawal notice and the principal amount at maturity, if any,
which remains subject to a Change in Control Purchase Notice.
Payment of the Change in Control Purchase Price for a LYON for which a
Change in Control Purchase Notice has been delivered and not validly withdrawn
is conditioned upon delivery of such LYON (together with necessary endorsements)
to the Paying Agent at any time (whether prior to, on or after the Change in
Control Purchase Date) after the delivery of such Change in Control Purchase
Notice. Payment of the Change in Control Purchase Price for such LYON will be
made promptly following the later of the Change in Control Purchase Date or the
time of delivery of such LYON. If the Paying Agent
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holds, in accordance with the terms of the Indenture, money sufficient to pay
the Change in Control Purchase Price of such LYON on the Business Day following
the Change in Control Purchase Date, then, immediately after such Change in
Control Purchase Date, Original Issue Discount on such LYON will cease to
accrue, whether or not such LYON is delivered to the Paying Agent, and all other
rights of the Holder shall terminate (other than the right to receive the Change
in Control Purchase Price upon delivery of the LYON).
Under the Indenture, a "Change in Control" of the Company is deemed to have
occurred at such time as:
- any person (as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act), other than the Company, our subsidiary or
their employee benefit plans, files a Schedule 13D or 14D-1 (or any
successor schedule, form or report under the Exchange Act) disclosing
that such person has become the beneficial owner of 50% or more of the
voting power of our common stock or other capital stock into which the
common stock is reclassified or changed, with certain exceptions; or
- there shall be consummated any consolidation or merger of the Company
pursuant to which the common stock would be converted into cash,
securities or other property, in each case other than a consolidation or
merger of the Company in which the holders of the common stock
immediately prior to the consolidation or merger have, directly or
indirectly, at least a majority of the total voting power in the
aggregate of all classes of capital stock of the continuing or surviving
corporation immediately after the consolidation or merger.
The Indenture does not permit our Board of Directors to waive our
obligation to purchase LYONs at the option of Holders in the event of a Change
in Control.
We will comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be applicable and will
file Schedule 13E-4 or any other required schedule under the Exchange Act in
connection with any offer by us to purchase LYONs at the option of Holders upon
a Change in Control. The Change in Control purchase feature of the LYONs may in
certain circumstances make more difficult or discourage a takeover of the
Company. The Change in Control Purchase feature, however, is not the result of
our knowledge of any specific effort to accumulate shares of common stock or to
obtain control of us by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions. Instead, the Change in Control purchase feature is a standard term
contained in other LYONs offerings that have been marketed by Merrill Lynch &
Co., Inc. ("Merrill Lynch"), and the terms of such feature result from
negotiations between us and Merrill Lynch.
We could, in the future, enter into certain transactions, including certain
recapitalizations, that would not constitute a Change in Control with respect to
the Change in Control purchase feature of the LYONs, but that would increase the
amount of indebtedness outstanding at such time. No LYONs may be purchased at
the option of Holders upon a Change in Control if there has occurred (prior to,
on or after the giving, by the Holders of such LYONs, of the required Change in
Control Purchase Notice) and is continuing an Event of Default with respect to
the LYONs (other than a default in the payment of the Change in Control Purchase
Price with respect to such LYONs).
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OPTIONAL CONVERSION TO SEMIANNUAL COUPON NOTE UPON TAX EVENT
From and after the date (the "Tax Event Date") of the occurrence of a Tax
Event (as defined below), we shall have the option to elect to have interest in
lieu of future Original Issue Discount accrue at 5 1/2% per year on a principal
amount per LYON (the "Restated Principal Amount") equal to the Issue Price plus
Original Issue Discount accrued to the Tax Event Date or the date on which we
exercise the option described herein, whichever is later (such date hereinafter
referred to as the "Option Exercise Date"). Such interest shall accrue from the
Option Exercise Date and shall be payable semiannually on February 16 and August
16 of each year (each an "Interest Payment Date") to Holders of record at the
close of business on February 1 or August 1 (each a "Regular Record Date")
immediately preceding such Interest Payment Date. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months and will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the Option Exercise Date.
A "Tax Event" means that we shall have received an opinion from independent
tax counsel experienced in such matters to the effect that as a result of (a)
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to, or
change in, an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority, in each
case which amendment or change is enacted, promulgated, issued or announced or
which interpretation is issued or announced or which action is taken, on or
after the date of this Prospectus, there is more than an insubstantial risk that
interest (including Original Issue Discount) payable on the LYONs either (i)
would not be deductible on a current accrual basis or (ii) would not be
deductible under any other method, in either case in whole or in part, by us (by
reason of deferral, disallowance, or otherwise) for United States federal income
tax purposes.
President Clinton's fiscal year 1998 budget proposed a series of tax law
changes that would have, if enacted and made applicable to the LYONs, prevented
us from deducting interest (including Original Issue Discount) payable on the
LYONs on a current accrual basis for United States federal income tax purposes
and could have caused some or all of the interest (including Original Issue
Discount) payable on the LYONs to fail to be deductible by the Company under any
other method for United States federal income tax purposes. This proposal was
not adopted by Congress and was not part of the Taxpayer Relief Act of 1997. A
similar proposal was included in President Clinton's fiscal year 1999 budget
proposal introduced in February 1998 but was not adopted by Congress and was not
part of the Internal Revenue Services Restructuring and Reform Bill of 1998 or
the Tax and Trade Relief Extension Act of 1998. If a similar proposal were ever
enacted and made applicable to the LYONs in a manner that would limit the
ability of the Company to either (i) deduct the interest (including Original
Issue Discount) payable on the LYONs on a current accrual basis or (ii) deduct
the interest (including Original Issue Discount) payable on the LYONs under any
other method for United States federal income tax purposes, such enactment would
result in a Tax Event and the terms of the LYONs would be subject to
modification at our option as described above. The modification of the terms of
LYONs by us upon a Tax Event as described above could possibly alter the timing
of income recognition by Holders of the LYONs with respect to the semiannual
payments of interest due on the LYONs after the Option Exercise Date. See
"Federal Income Tax Consequences."
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MERGER AND SALES OF ASSETS BY THE COMPANY
The Indenture provides that we may not consolidate with or merge into any
other person or convey, transfer or lease its properties and assets
substantially as an entirety to another person, unless among other items, (i)
the resulting, surviving or transferee person (if other than us) is organized
and existing under the laws of the United States, any state thereof or the
District of Columbia and such person assumes all our obligations under the LYONs
and the Indenture, and (ii) the Company or such successor person shall not
immediately thereafter be in default under the Indenture. Upon the assumption of
our obligations by such a person in such circumstances, subject to certain
exceptions, we shall be discharged from all obligations under the LYONs and the
Indenture. Although such transactions are permitted under the Indenture, certain
of the foregoing transactions occurring on or prior to February 16, 2004 could
constitute a Change in Control of the Company permitting each Holder to require
us to purchase the LYONs of such Holder as described above.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The Indenture provides that, if an Event of Default specified therein shall
have happened and be continuing, either the Trustee or the Holders of not less
than 25% in aggregate principal amount at maturity of the LYONs then outstanding
may declare the Issue Price of the LYONs plus the Original Issue Discount on the
LYONs accrued (or if the LYONs have been converted to semiannual coupon notes
following a Tax Event, the Restated Principal Amount, plus accrued and unpaid
interest) through the date of such declaration to be immediately due and
payable. In the case of certain events of bankruptcy or insolvency, the Issue
Price of the LYONs plus the Original Issue Discount accrued thereon (or if the
LYONs have been converted to semiannual coupon notes following a Tax Event, the
Restated Principal Amount, plus accrued and unpaid interest) through the
occurrence of such event shall automatically become and be immediately due and
payable. Under certain circumstances, the Holders of a majority in aggregate
principal amount at maturity of the outstanding LYONs may rescind any such
acceleration with respect to the LYONs and its consequences. Interest shall, to
the extent permitted by law, accrue and be payable on demand upon a default in
the payment of the principal amount at maturity (or if the LYONs have been
converted to semiannual coupon notes following a Tax Event, the Restated
Principal Amount), Issue Price, accrued Original Issue Discount (or if the LYONs
have been converted to semiannual coupon notes following a Tax Event, accrued
and unpaid interest), Redemption Price, Purchase Price or Change in Control
Purchase Price with respect to any LYON and such interest shall be compounded
semi-annually. The accrual of such interest on overdue amounts shall be in lieu
of, and not in addition to, the continued accrual of Original Issue Discount.
Under the Indenture, an Event of Default includes any of the following: (i)
default in payment of the principal amount at maturity (or if the LYONs have
been converted to semiannual coupon notes following a Tax Event, the Restated
Principal Amount), Issue Price, accrued Original Issue Discount (or if the LYONs
have been converted to semiannual coupon notes following a Tax Event, accrued
and unpaid interest, provided such default in payment of interest continues for
30 days), Redemption Price, Purchase Price or Change in Control Purchase Price
with respect to any LYON when such becomes due and payable; (ii) failure by us
to deliver shares of common stock or cash in lieu thereof (together with cash in
lieu of fractional shares) when such common stock or cash (or cash in lieu of
fractional shares) is required to be delivered following conversion of a LYON
and continuance of such default for 10 days; (iii) failure by us to comply with
any
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of its other agreements in the LYONs or the Indenture upon receipt by us of
notice of such default by the Trustee or by Holders of not less than 25% in
aggregate principal amount at maturity of the LYONs then outstanding and our
failure to cure (or obtain a waiver of) such default within 60 days after
receipt by us of such notice; (iv) default (after expiration of any applicable
grace periods) under any bond, debenture, note or other evidence of indebtedness
for money borrowed by us having an aggregate outstanding principal amount of in
excess of the greater of (a) $10 million or (b) 5% of Consolidated Net Assets
(as defined herein), which default shall have resulted in such indebtedness
being accelerated, without such indebtedness being discharged or such
acceleration having been rescinded or annulled within 15 days after receipt of
notice thereof by us from the Trustee or us and the Trustee from the Holders of
not less than 25% in aggregate principal amount at maturity of the LYONs then
outstanding (unless such default has been cured or waived); or (v) certain
events of bankruptcy or insolvency. For purposes of clause (iv) above,
"Consolidated Net Assets" means the total amount of our assets and of our
subsidiary (less applicable depreciation, amortization and other valuation
reserves), after deducting therefrom all our current liabilities and those of
our subsidiary (other than intercompany liabilities and the current portion of
long-term debt, capitalized lease obligations and other indebtedness), all as
set forth on our latest consolidated balance sheet at the end of each calendar
quarter prepared in accordance with generally accepted accounting principles.
The Holders of a majority in aggregate principal amount at maturity of the
outstanding LYONs 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, provided that such direction shall not be in
conflict with any law or the Indenture and subject to certain other limitations.
Before proceeding to exercise any right or power under the Indenture at the
direction of such Holders, the Trustee shall be entitled to receive from such
Holders reasonable security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction. No Holder of any LYON will have any right to pursue any remedy
with respect to the Indenture or the LYONs, unless (i) such Holder shall have
previously given the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount at maturity of
the outstanding LYONs shall have made a written request to the Trustee to pursue
such remedy; (iii) such Holder or Holders have offered to the Trustee reasonable
indemnity satisfactory to the Trustee; (iv) the Holders of a majority in
aggregate principal amount at maturity of the outstanding LYONs have not given
the Trustee a direction inconsistent with such request within 60 days after
receipt of such request; and (v) the Trustee shall have failed to comply with
the request within 60 days after receipt of such notice, request and offer of
indemnity.
Notwithstanding the foregoing, the right of any Holder (x) to receive
payment of the principal amount at maturity (or if the LYONs have been converted
to semiannual coupon notes following a Tax Event, the Restated Principal
Amount), Issue Price, accrued Original Issue Discount (or if the LYONs have been
converted to semiannual coupon notes following a Tax Event, accrued and unpaid
interest), Redemption Price, Purchase Price or Change in Control Purchase Price
with respect to any LYON and any interest in respect of a default in the payment
of any such amounts on such LYON, on or after the due date expressed in such
LYON, (y) to convert LYONs or (z) to institute suit for the enforcement of any
such payments or conversion shall not be impaired or adversely affected without
such Holder's consent. The Holders of at least a majority in aggregate principal
amount at maturity of the outstanding LYONs may waive an existing default and
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its consequences, other than (i) any default in any payment on the LYONs, (ii)
any default which constitutes a failure to convert any LYON in accordance with
its terms or (iii) any default in respect of certain covenants or provisions in
the Indenture which may not be modified without the consent of the Holder of
each LYON as described in "Modification" below.
We will be required to furnish to the Trustee annually a statement as to
any default by us in the performance and observance of its obligations under the
Indenture. The Trustee will be required to give notice to Holders of the LYONs
of any continuing default known to the Trustee within 90 days after the
occurrence thereof, unless such default shall have been cured or waived before
the giving of such notice; provided that the Trustee may withhold such notice,
as to any default other than a payment default, if it determines in good faith
that withholding the notice is in the interests of the Holders.
MODIFICATION
Without the consent of any Holder of LYONs, the Company and the Trustee may
amend the Indenture to (i) cure any ambiguity, defect or inconsistency, (ii)
provide for the assumption by a successor corporation of our obligations under
the Indenture, (iii) provide for uncertificated LYONs in addition to
certificated LYONs (so long as any uncertificated LYONs are in registered form
for purposes of the Internal Revenue Code), (iv) make any change that does not
adversely affect the rights of any Holder of LYONs, (v) make any change to
comply with the Trust Indenture Act of 1939, or to comply with any requirement
of the Commission in connection with the qualification of the Indenture under
the Trust Indenture Act of 1939 or (vi) add to the covenants or our obligations
under the Indenture or surrender any right, power or option conferred by the
Indenture on us.
Modification and amendment of the Indenture or the LYONs may be effected by
us and the Trustee with the consent of the Holders of not less than a majority
in aggregate principal amount at maturity of the LYONs then outstanding.
However, without the consent of each Holder affected thereby, no amendment may,
among other things: (i) reduce the principal amount at maturity, Restated
Principal Amount, Issue Price, Purchase Price, Change in Control Purchase Price
or Redemption Price with respect to any LYON, or extend the stated maturity of
any LYON or alter the manner or rate of accrual of Original Issue Discount or
interest, or make any LYON payable in money or securities other than that stated
in the LYON; (ii) make any reduction in the principal amount at maturity of
LYONs whose Holders must consent to an amendment or any waiver under the
Indenture or modify the Indenture provisions relating to such amendments or
waivers; (iii) make any change that adversely affects the right to convert any
LYON or the right to require us to purchase a LYON; (iv) impair the right to
institute suit for the enforcement of any payment with respect to, or conversion
of, the LYONs; or (v) modify the provisions of the Indenture relating to the
subordination of the LYONs in a manner adverse to the Holders of the LYONs. No
change that adversely affects the rights of any holder of our Senior
Indebtedness under the subordination provisions of the Indenture may be made
unless requisite consents to such change are obtained from holders of Senior
Indebtedness pursuant to the terms of the related Senior Indebtedness
instrument.
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DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the Indenture by
delivering to the Trustee for cancellation all outstanding LYONs or by
depositing with the Trustee, the Paying Agent or the Conversion Agent, if
applicable after the LYONs have become due and payable, whether at stated
maturity, or any Redemption Date, or any Purchase Date, or a Change of Control
Purchase Date, or upon conversion or otherwise, cash or shares of common stock
(as applicable under the terms of the Indenture) sufficient to pay all of the
outstanding LYONs and paying all other sums payable under the Indenture by us.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect to us, the claim of the
Holder of a LYON is, under Title 11 of the United States Code, limited to the
Issue Price of the LYON plus that portion of the Original Issue Discount that
has accrued from the date of issue to the commencement of the proceeding. In
addition, the Holders of the LYONs will be subordinated in right of payment to
Senior Indebtedness and effectively subordinated to the indebtedness and other
obligations of our subsidiary. See "-- Subordination."
INFORMATION CONCERNING THE TRUSTEE
Chase Manhattan Bank and Trust Company, N.A. is the Trustee, Registrar,
Paying Agent and Conversion Agent under the Indenture. We may maintain deposit
accounts and conduct other banking transactions with the Trustee in the normal
course of business.
ABSENCE OF PUBLIC MARKET
Upon their original issuance, the LYONs became eligible for trading on the
PORTAL Market. The LYONs sold pursuant to this prospectus, however, will no
longer be eligible for trading on the PORTAL Market. There can be no assurance
that an active trading market for the LYONs will develop or as to the liquidity
or sustainability of any such market, the ability of the Holders to sell their
LYONs or at what price Holders of the LYONs will be able to sell their LYONs.
Future trading prices of the LYONs will depend upon many factors including,
among other things, prevailing interest rates, our operating results, the price
of the common stock and the market for similar securities. We do not intend to
apply for listing of the LYONs on any securities exchange or quotation system.
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DESCRIPTION OF CAPITAL STOCK
The following statements with respect to our capital stock are subject to
the detailed provisions of our amended and restated certificate of
incorporation, as amended (the "Certificate of Incorporation"), and bylaws, as
amended (the "Bylaws"). These statements are not complete, do not give a full
effect to the provisions of statutory or common law, and are subject to, and are
qualified in their entirety by reference to, the terms of the Certificate of
Incorporation and the Bylaws.
GENERAL
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.001 per share and 8,000,000 shares of preferred stock, par value
$.001 per share.
COMMON STOCK
As of September 30, 1999, there were 20,998,819 shares of common stock
outstanding. The stock is held by 327 stockholders of record. The holders of
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. Subject to preferential rights
with respect to any outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preemptive rights. The common stock has no
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock fully paid and non-assessable.
PREFERRED STOCK
As of September 30, 1999, there were 217,514 shares of our preferred stock
outstanding. Pursuant to our Certificate of Incorporation, the Board of
Directors is authorized to issue up to an aggregate of 8,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights, conversion rights,
voting rights, rights and terms of redemption, redemption price or prices,
liquidation preferences and the number of shares constituting any series or the
designations of such series, without any further vote or action by the
stockholders. The issuance of preferred stock in certain circumstances may have
the effect of delaying, deferring, or preventing a change in control of the
Company without further actions of the stockholders. The issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of common stock, including the loss of voting control to others.
We issued 100,000 shares of our Series A-1 Nonvoting Convertible Preferred
Stock ("Series A-1 Preferred Stock") in April 1995, 37,521 shares of our Series
A-2 Nonvoting Convertible Preferred Stock ("Series A-2 Preferred Stock") in
August 1995 and 22,993 shares of our Series A-3 Nonvoting Convertible Preferred
Stock ("Series A-3 Preferred Stock") in March 1996, to Genentech pursuant to the
terms of a preferred stock purchase agreement. Each share of Series A-1, A-2 and
A-3 Preferred Stock is convertible at any time into 10 shares of common stock.
In December 1997, January 1998 and August 1999, Genentech converted 15,500
shares, 17,500 shares and 10,000 shares of Series A-1 Preferred Stock,
respectively, into 155,000 shares, 175,000 shares and 100,000 shares,
respectively, of our common stock.
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In May 1996, we issued 100,000 shares of our Series A-6 Nonvoting
Convertible Preferred Stock ("Series A-6 Preferred Stock") to Genentech pursuant
to the terms of a preferred stock purchase agreement. Each share of Series A-6
Preferred Stock is convertible into approximately 2.16 shares of common stock.
STOCK OPTIONS
As of September 30, 1999, options to purchase 4,127,527 shares and 196,250
shares of our common stock were outstanding under our 1988 Employee Stock Option
Plan and our 1993 Non-Employee Directors Stock Option Plan, respectively, of
which 2,573,783 option shares were exercisable in total on that date.
STOCKHOLDERS RIGHTS AGREEMENT
In July 1997, our Board of Directors declared a dividend of one preferred
stock purchase right ("Right") for each outstanding share of our common stock.
Each Right represents the right to purchase one one-thousandth of a share of
Series X Junior Participating Preferred Stock at an exercise price of $200,
subject to adjustment, and will be exercisable only if a person or group
acquires 15% or more of our common stock or announces a tender offer for 15% or
more of our common stock. If a person acquires 15% or more of our common stock
all Rightsholders, except the acquiring person, will be entitled to buy shares
of the our common stock at a discount. Each Series X Junior Participating
Preferred Share will be entitled to an aggregate dividend of 1,000 times the
dividend declared per share of common stock. The Board of Directors may
terminate the Rights Plan at any time or redeem the Rights at $.001 per Right,
prior to the time a person acquires more than 15% of our common stock. The
Rights will expire in July 2007.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except for liability (i) for any breach
of their 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) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
Our Bylaws provide that we shall indemnify our directors and may indemnify
our officers and employees and other agents to the fullest extent permitted by
law. We believe that indemnification under its Bylaws covers at least negligence
and gross negligence on the part of indemnified parties. Our Bylaws also permit
us to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his actions in such capacity, regardless
of whether the Bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws and
Certificate of Incorporation. These agreements, among other things, indemnify
our directors and executive officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of the
Company, arising out of such person's services as a director or executive
officer of the Company, our subsidiary or any other company or enterprise to
which the person
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provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" transaction with any
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. By virtue of our decision not to elect out of the statute's
provisions, the statute applies to us. The statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
Stockholders who are officers and directors or their affiliates may be able
to significantly influence the election of our directors and the determination
of the outcome of corporate actions requiring stockholder approval, such as
mergers and acquisitions. This may have a significant effect in delaying,
deferring or preventing a change in control of the Company and may adversely
affect the voting and other rights of other holders of common stock. Certain
provisions of our Certificate of Incorporation, Bylaws and equity compensation
plans and Delaware law may also discourage certain transactions involving a
change in control of the Company. This may, when combined with our classified
Board of Directors and the ability of the Board of Directors to issue blank
check preferred stock without further stockholder approval, have the effect of
delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of other holders of common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, LLC. Their telephone number is (213) 553-9700.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This is a summary of certain United States federal income tax
considerations relevant to Holders of LYONs. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations,
Internal Revenue Service rulings and judicial decisions now in effect, all of
which are subject to change (possibly with retroactive effect) or different
interpretations. There can be no assurance that the Internal Revenue Service
will not challenge one or more of the conclusions described herein, and we have
not obtained, nor do we intend to obtain, a ruling from the Internal Revenue
Service with respect to the United States federal income tax consequences of
acquiring or holding LYONs.
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This summary does not purport to deal with all aspects of United States
federal income taxation that may be relevant to a Holder (for example, persons
subject to the alternative minimum tax provisions of the Code). Also, it is not
intended to be wholly applicable to all categories of investors, such as foreign
corporations and individuals who are not citizens or residents of the United
States, some of which may be subject to special rules.
This summary also does not discuss the tax consequences arising under the
laws of any state, local or foreign jurisdiction. In addition, this summary is
limited to original purchasers of LYONs who acquired LYONs at their original
issue price within the meaning of Section 1273 of the Code and who will hold the
LYONs and common stock into which the LYONs may be converted as "capital assets"
within the meaning of Section 1221 of the Code.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, CONVERSION OR OTHER
DISPOSITION OF LYONS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES AND THE CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
ORIGINAL ISSUE DISCOUNT
The LYONs were issued with a substantial amount of "Original Issue
Discount" for United States federal income tax purposes. The initial amount of
Original Issue Discount with respect to each LYON was an amount equal to the
excess of the principal amount of such LYON over its issue price (the initial
price at which a substantial number of LYONs were sold for money). The Original
Issue Discount will be deemed to accrue at a constant yield to maturity. Each
Holder will be required to include the Original Issue Discount in gross income
as it accrues regardless of the Holder's regular method of accounting without
regard to when any cash or other payment is received.
We are required to furnish annually to the Internal Revenue Service and to
certain noncorporate Holders information regarding the amount of the Original
Issue Discount attributable to that year. For this purpose, we will calculate
the amount of Original Issue Discount in accordance with the Code and applicable
to the Treasury Regulations.
DISPOSITION OR CONVERSION
Except as described below, gain or loss upon a sale or other disposition of
a LYON generally will be capital gain or loss (which will be long term if the
LYON is held for more than one year). In the case of certain noncorporate
taxpayers (including individuals), long-term capital gains with respect to
property held for more than one year are taxed at a maximum 20% federal tax
rate. Net capital gains of corporations are not entitled to any preferential
federal tax rate.
A Holder's conversion of a LYON into common stock is generally not a
taxable event (except with respect to cash received in lieu of a fractional
share). The Holder's obligation to include Original Issue Discount in gross
income as it accrues with respect to a LYON will terminate prospectively on the
date of conversion. The Holder's basis in the common stock received on
conversion of a LYON will be the same as the Holder's basis in the LYON at the
time of conversion (exclusive of any tax basis allocable to a fractional share).
The holding period for the common stock received on conversion will include the
holding period of the converted LYON (assuming each is held as a capital asset),
except that the Holder's holding period for common stock attributable to
Original Issue Discount
43
<PAGE> 44
accrued through the date the LYON is converted into common stock may commence on
the day following the date of conversion.
If a Holder elects to exercise its option to tender a LYON to us on the
Purchase Date and we issue common stock in satisfaction of all or part of the
Purchase Price, the exchange of the LYON for common stock should qualify as a
reorganization or an otherwise nontaxable transaction for United States federal
income tax purposes.
If the Purchase Price is paid solely in common stock, neither gain nor loss
would generally be recognized by the Holder, except as described below with
respect to a fractional share.
If the Purchase Price is paid in a combination of shares of common stock
and cash (other than cash received in lieu of a fractional share), gain (but not
loss) realized by the Holder would be recognized up to the amount of cash
received.
A Holder's tax basis in the common stock received in the exchange will be
the same as the Holder's tax basis in the LYON tendered to us in exchange for
the common stock (exclusive of any tax basis allocable to a fractional share
interest as described below). However, this tax basis will be decreased by the
amount of cash (other than cash received in lieu of a fractional share), if any,
received in exchange and increased by the amount of any gain recognized by the
Holder on the exchange (other than gain with respect to a fractional share).
The holding period for common stock received in the exchange will include
the holding period for the LYON tendered to us in exchange for the common stock
(assuming each is held as a capital asset). However, the holding period for
common stock attributable to Original Issue Discount accrued through the
Purchase Date may commence on the day following the Purchase Date.
Cash received in lieu of a fractional share of common stock upon conversion
of a LYON or upon a put of a LYON to us on the Purchase Date should be treated
as a payment in exchange for the fractional share. Accordingly, if the common
stock is a capital asset in the hands of the Holder, the receipt of cash in lieu
of a fractional share of common stock should generally result in capital gain or
loss, if any, measured by the difference between the cash received for the
fractional share and the Holder's basis in the fractional share.
If a Holder elects to exercise its option to tender a LYON to us on the
Purchase Date or a Change in Control Purchase Date and we deliver cash in
satisfaction of the purchase price, the Holder would recognize gain or loss,
measured by the difference between the amount of cash transferred by us to the
Holder and Holder's basis in the tendered LYON. Gain or loss recognized by the
Holder generally would be capital gain or loss.
If a Holder sells a LYON in the market, it will be a taxable sale with the
same results to the Holder as a tender to us with a payment in cash.
Gain or loss upon a sale or other disposition of the common stock received
upon conversion of a LYON or in satisfaction of the Purchase Price of a LYON put
to us generally will be capital gain or loss if the common stock is held as a
capital asset (which gain or loss will be long-term if the holding period for
such common stock is more than one year).
44
<PAGE> 45
CONSTRUCTIVE DIVIDEND
If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend for United States federal
income tax purposes and, in accordance with the anti-dilution provisions of the
LYONs, the conversion rate of the LYONs is increased, such increase may be
deemed to be taxable as a dividend to the extent of current and accumulated
earnings and profits of the Company to Holders of the LYONs.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting will apply to payments of interest or dividends, if
any, made by us on, or the proceeds of the sale or other disposition of, the
LYONs or shares of common stock with respect to certain noncorporate Holders,
and backup withholding at a rate of 31% may apply unless the recipient of such
payment supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other information or otherwise establishes an
exemption from backup withholding. Any amount withheld under the backup
withholding rules will be allowable as a credit against the Holder's United
States federal income tax, provided that the required information is provided to
the Internal Revenue Service.
TAX EVENT
The modifications of the terms of the LYONs by us upon a Tax Event as
described in "Description of LYONs -- Optional Conversion to Semiannual Coupon
Note upon Tax Event," could possible alter the timing of income recognition by
the Holders with respect to the semiannual payments of interest due after the
Option Exercise Date.
TAX OPINION
We have received an opinion from our counsel, Brobeck, Phleger & Harrison
LLP, that subject to the qualifications and assumptions contained therein, the
LYONs will be treated as indebtedness for United States federal income tax
purposes.
45
<PAGE> 46
SELLING SECURITYHOLDERS
The LYONs were originally issued by us and sold by the Initial Purchaser in
a transaction exempt from the registration requirements of the Securities Act to
persons reasonably believed by such Initial Purchaser to be "qualified
institutional buyers" (as defined by Rule 144A under the Securities Act) or in
transactions complying with the provisions of Regulation S under the Securities
Act. The Selling Securityholders (which term includes their transferees,
pledges, donees or successors) may from time to time offer and sell pursuant to
this prospectus any and all of the LYONs and common stock.
Set forth below are the names of each Selling Securityholder, the principal
amount of LYONs that may be offered by such Selling Securityholder pursuant to
this prospectus and the number of common stock into which such LYONs are
convertible. Unless set forth below, none of the Selling Securityholders has had
a material relationship with us or any of our predecessors or affiliates within
the past three years.
The following table sets forth certain information received by us on or
prior to October 29, 1999. However, any or all of the LYONs or common stock
listed below may be offered for sale pursuant to this prospectus by the Selling
Securityholders from time to time. Accordingly, no estimate can be given as to
the amounts of LYONs or common stock that will be held by the Selling
Securityholders upon consummation of any such sales. In addition, the Selling
Securityholders identified below may have sold, transferred, or otherwise
disposed of all or a portion of their LYONs since the date on which the
information regarding their LYONs was provided, in transactions exempt from the
registration requirements of the Securities Act.
<TABLE>
<CAPTION>
NUMBER OF
AGGREGATE PRINCIPAL SHARES OF PERCENTAGE
AMOUNT OF LYONS PERCENTAGE COMMON OF COMMON
AT MATURITY THAT OF LYONS STOCK THAT STOCK
NAME MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- -------------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Bear, Stearns & Co. .... $ 2,950,000 * 19,865 *
Conseco Fund Group --
Convertible Funds....... 2,000,000 * 13,468 *
Conseco Health
Insurance -- Convertible... 2,500,000 * 16,835 *
Conseco Senior Health
Insurance -- Convertible... 2,500,000 * 16,835 *
CPR (USA) Inc. ......... 350,000 * 2,356 *
Deutsche Bank Securities
Inc. ................. 134,875,000 39.1% 908,248 4.1%
Fidelity Financial
Trust: Fidelity
Convertible Securities
Fund.................. 4,510,000 1.3% 30,370 *
Goldman, Sachs and
Company............... 160,000 * 1,077 *
Highbridge Capital
Corporation........... 38,600,000 11.2% 259,932 1.2%
Lehman Brothers,
Inc. ................. 4,610,000 1.3% 31,043 *
Liberty View Funds
L.P. ................. 1,650,000 * 11,111 *
Medici Partners,
L.P. ................. 2,000,000 * 13,468 *
Merrill Lynch Pierce,
Fenner & Smith,
Inc. ................. 3,440,000 * 23,164 *
Michaelangelo, L.P. .... 6,000,000 1.7% 40,404 *
R2 Investments.......... 6,500,000 1.9% 43,771 *
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
NUMBER OF
AGGREGATE PRINCIPAL SHARES OF PERCENTAGE
AMOUNT OF LYONS PERCENTAGE COMMON OF COMMON
AT MATURITY THAT OF LYONS STOCK THAT STOCK
NAME MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
---- -------------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
RCG Baldwin, L.P. ...... 5,000,000 1.4% 33,670 *
RCG, Multi-Strategy
Account, L.P. ........ 7,000,000 2.0% 47,138 *
Ramius, L.P. ........... 10,000,000 2.9% 67,340 *
Salomon Brothers Asset
Management, Inc. ..... 2,500,000 * 16,835 *
Salomon Smith Barney
Inc. ................. 900,000 * 6,060 *
SG Cowen Securities
Corp. ................ 12,700,000 3.7% 85,521 *
SoundShore Holdings
Ltd. ................. 17,700,000 5.1% 119,191 *
SoundShore Opportunity
Holding Fund Ltd. .... 4,250,000 1.2% 28,619 *
Triarc Companies,
Inc. ................. 2,000,000 * 13,468 *
Warburg Dillon Read
LLC................... 37,310,000 10.8% 251,245 1.2%
White River Securities
LLC................... 2,950,000 * 19,865 *
All other Holders of
LYONs or future
transferee, pledgee,
donee or successor of
any such
Holders(3)(4)......... 30,045,000 8.7% 202,323 *
------------ ------ --------- ---
Total.............. $345,000,000 100.00% 2,323,222(5) 9.9%
============ ====== ========= ===
</TABLE>
- -------------------------
* Less than 1%.
(1) Assumes conversion of all of the Holder's LYONs at a conversion rate of
6.734 shares of common stock per $1,000 principal amount at maturity of the
LYONs. However, this conversion rate will be subject to adjustment as
described under "Description of the LYONs -- Conversion Right." As a result,
the amount of common stock issuable upon conversion of the LYONs may
increase or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using 21,150,800
shares of common stock outstanding as of October 29, 1999. In calculating
this amount, we treated as outstanding the number of shares of common stock
issuable upon conversion of all of that particular Holder's LYONs. However,
we did not assume the conversion of any other Holder's LYONs.
(3) Information about other Selling Securityholders will be set forth in
prospectus supplements, if required.
(4) Assumes that any other Holders of LYONs, or any future transferees,
pledgees, donees or successors of or from any such other Holders of LYONs do
not beneficially own any common stock other than the common stock issuable
upon conversion of the LYONs at the initial conversion rate.
(5) Total differs from the amount to be registered due to the rounding down of
fractional shares.
47
<PAGE> 48
The preceding table has been prepared based upon information furnished to
us by the Selling Securityholders in the table. From time to time, additional
information concerning ownership of the LYONs and common stock may rest with
certain Holders thereof not named in the preceding table, with whom the Company
believes it has no affiliation.
The Selling Securityholders listed in the above table may have sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their LYONs since the date on which the
information is presented in the above table. Information about the Selling
Securityholders may change from over time. Any changed information will be set
forth in prospectus supplements.
Because the Selling Securityholders may offer all or some of their LYONs or
the underlying common stock from time to time, we can not estimate the amount of
the LYONs or the underlying common stock that will be held by the Selling
Securityholders upon the termination of any particular offering. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
The LYONs and the common stock are being registered to permit public
secondary trading of such securities by the Holders thereof from time to time
after the date of this prospectus. We have agreed, among other things, to bear
all expenses (other than underwriting discounts and selling commissions) in
connection with the registration and sale of the LYONs and the common stock
covered by this prospectus.
We will not receive any of the proceeds from the offering of LYONs or the
common stock by the Selling Securityholders. We have been advised by the Selling
Securityholders that the Selling Securityholders may sell all or a portion of
the LYONs and common stock beneficially owned by them and offered hereby from
time to time on any exchange on which the securities are listed on terms to be
determined at the times of such sales. The Selling Securityholders may also make
private sales directly or through a broker or brokers. Alternatively, any of the
Selling Securityholders may from time to time offer the LYONs or the common
stock beneficially owned by them through underwriters, dealers or agents, who
may receive compensation in the form of underwriting discounts, commissions or
concessions from the Selling Securityholders and the purchasers of the LYONs or
common stock for whom they may act as agent. The aggregate proceeds to the
Selling Securityholders from the sale of the LYONs or common stock offered by
them hereby will be the purchase price of such LYONs or common stock less
discounts and commissions, if any.
The LYONs and the common stock may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the Holders of such securities or by agreement between such
Holders and underwriters or dealers who may receive fees or commissions in
connection therewith.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the LYONs and the underlying common stock or
otherwise, the Selling Securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in short sales of the
LYONs and the underlying common stock in the course of hedging their positions.
The Selling Securityholders may also sell the LYONs and underlying common stock
short and deliver
48
<PAGE> 49
LYONs and the underlying common stock to close out short positions, or loan or
pledge LYONs and the underlying common stock to broker-dealers that in turn may
sell the LYONs and the underlying common stock.
To our knowledge, there are currently no plans, arrangement or
understandings between any Selling Securityholders and any underwriter,
broker-dealer or agent regarding the sale of the LYONs and the underlying common
stock by the Selling Securityholders. Selling Securityholders may not sell any
or all of the LYONs and the underlying common stock offered by it pursuant to
this prospectus. In addition, we cannot assure you that any such Selling
Securityholder will not transfer, devise or gift the LYONs and the underling
common stock by other means not described in this prospectus.
The outstanding common stock is listed for trading on The Nasdaq Stock
Market. We do not intend to apply for listing of the LYONs on any securities
exchange or for quotation through The Nasdaq Stock Market. Accordingly, no
assurance can be given as to the development of liquidity or any trading market
for the LYONs. See "Risk Factors -- Absence of Public Market."
The Selling Securityholders and any broker and any broker-dealers, agents
or underwriters that participate with the Selling Securityholders in the
distribution of the LYONs or the common stock may be deemed to be "underwriters"
within the meaning of the Securities Act, in which event any commissions
received by such broker-dealers, agents or underwriters and any profit on the
resale of the LYONs or the common stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this Prospectus. There is no
assurance that any Selling Securityholder will sell any or all of the LYONs or
common stock described herein, and any Selling Securityholder may transfer,
devise or gift such securities by other means not described herein.
The LYONs were issued and sold in February 1999 in transactions exempt from
the registration requirements of the Securities Act to persons reasonably
believed by the Initial Purchaser to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) or outside the United States to
certain persons in offshore transactions in reliance on Regulation S under the
Securities Act. Pursuant to the RRA, we have agreed to indemnify the Initial
Purchaser and each Selling Securityholder, and each Selling Securityholder has
agreed to indemnify us, the Initial Purchaser and each other Selling Stockholder
against certain liabilities arising under the Securities Act.
The Selling Securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the LYONs and the underlying common stock by the
Selling Securityholders and any other such person. In addition, Regulation M of
the Exchange Act may restrict the ability of any person engaged in the
distribution of the LYONs and the underlying common stock to engage in
market-making activities with respect to the particular LYONs and the underling
common stock being distributed for a period of up to five business days prior to
the commencement of such distribution. This may affect the marketability of the
LYONs and the underlying common stock and the ability of any person or entity to
engage in market-making activities with respect to the LYONs and the underlying
common stock.
49
<PAGE> 50
We will use our best efforts to keep the registration statement of which
this prospectus is a part effective until the earlier of (i) the sale pursuant
to the Shelf Registration Statement of all the securities registered thereunder
and (ii) the expiration of the holding period applicable to such securities held
by persons that are not affiliates of the Company under Rule 144(k) under the
Securities Act or any successor provision, subject to certain permitted
exceptions in which case the Company may prohibit offers and sales of LYONs and
common stock pursuant to the registration statement to which this prospectus
relates.
EXPERTS
The consolidated financial statements of IDEC Pharmaceuticals Corporation
and subsidiary as of December 31, 1998 and 1997, and for each of the years in
the three-year period ended December 31, 1998, have been incorporated by
reference herein and in the registration statement in reliance upon the reports
of KPMG LLP, independent certified public accountants, incorporated by reference
herein and upon authority of said firm as experts in accounting and auditing.
50
<PAGE> 51
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
FOR AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements........... 2
Where You Can Find More
Information.......................... 2
Trademarks........................... 3
Summary.............................. 4
Risk Factors......................... 9
Use of Proceeds...................... 22
Dividend Policy...................... 22
Ratio of Earnings to Fixed Charges... 22
Description of LYONs................. 23
Description of Capital Stock......... 40
Certain United States Federal Income
Tax Consequences................... 42
Selling Securityholders.............. 46
Plan of Distribution................. 48
Experts.............................. 50
</TABLE>
-------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
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$345,000,000
[IDEC PHARMACEUTICALS CORPORATION LOGO]
LIQUID YIELD OPTION(TM) NOTES
DUE 2019
2,323,230 SHARES OF
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
NOVEMBER 12, 1999
((TM)) Trademark of Merrill Lynch & Co.
- ------------------------------------------------------
- ------------------------------------------------------
