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REGISTRATION NO. 333-35517
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ICN PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 2834 33-0628076
(State of Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
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3300 HYLAND AVENUE, COSTA MESA, CALIFORNIA 92626, (714) 545-0100
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------------
DAVID C. WATT, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
ICN PHARMACEUTICALS, INC.
3300 HYLAND AVENUE
COSTA MESA, CALIFORNIA 92626 (714) 545-0100
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants' Agent For Service)
------------------------
WITH A COPY TO:
RONALD R. PAPA, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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OFFER TO EXCHANGE
ALL OUTSTANDING
9 1/4% SENIOR NOTES DUE 2005
($275,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
9 1/4% SERIES B SENIOR NOTES DUE 2005
OF
ICN PHARMACEUTICALS, INC.
------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1997, UNLESS EXTENDED
------------------------
ICN Pharmaceuticals, Inc., a Delaware corporation ("ICN"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the "Letter of Transmittal," and
together with this Prospectus, the "Exchange Offer"), to exchange $1,000
principal amount of 9 1/4% Series B Senior Notes Due 2005 of ICN (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement (as defined herein)
of which this Prospectus constitutes a part, for each $1,000 principal amount of
the outstanding 9 1/4% Senior Notes Due 2005 of ICN (the "Old Notes"), of which
$275,000,000 principal amount is outstanding. The New Notes and the Old Notes
are collectively referred to herein as the "Notes."
ICN will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be , 1997, unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the business day prior to the
Expiration Date, unless previously accepted for payment. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by ICN and to the terms and provisions of the Registration Rights
Agreement (as defined herein). See "The Exchange Offer." Old Notes may be
tendered only in denominations of $1,000 and integral multiples thereof. ICN has
agreed to pay the expenses of the Exchange Offer.
The New Notes will be obligations of ICN entitled to the benefits of the
Indenture (as defined herein) relating to the Old Notes. The Notes will rank
pari passu in right of payment with all unsecured senior indebtedness and senior
to all subordinated indebtedness of the Company. The Notes will be effectively
subordinated to all secured indebtedness of the Company to the extent of the
assets securing such indebtedness and will also be effectively subordinated to
all indebtedness and other obligations of the Company's subsidiaries. The
indenture permits the Company and its subsidiaries to incur additional
indebtedness, subject to certain limitations. The form and terms of the New
Notes are identical in all material respects to the form and terms of the Old
Notes except that the New Notes have been registered under the Securities Act.
Following the completion of the Exchange Offer, none of the Notes will be
entitled to the benefits of the provisions of the Registration Rights Agreement
relating to contingent increases in the interest rates provided for pursuant
thereto. See "The Exchange Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
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Interest on each New Note will accrue from the last Interest Payment Date
(as defined herein) on which interest was paid on the Old Note tendered in
exchange therefor or, if no interest has been paid on such tendered Old Note,
from August 14, 1997. Holders of Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from the last Interest Payment Date
or August 14, 1997 (as the case may be) to the date of the issuance of the New
Notes. Interest on the New Notes is payable semi-annually on February 15 and
August 15 of each year, accruing from the last Interest Payment Date or August
14, 1997 (as the case may be) at a rate of 9 1/4% per annum.
The Notes will mature on August 15, 2005, unless previously redeemed. The
Notes will be redeemable in cash at the option of the Company, in whole or in
part, on or after August 15, 2001, at the redemption prices set forth herein,
together with accrued interest thereon to the date of redemption. Upon a Change
of Control (as defined), the Company will be required to offer to repurchase the
Notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued interest thereon to the date of repurchase.
The Notes will be general unsecured obligations of the Company. The Notes
will rank pari passu in right of payment with all unsecured senior indebtedness
and senior to all subordinated indebtedness of the Company, including the
Company's 8.5% Convertible Subordinated Notes due 1999. As of June 30, 1997, the
Company had approximately $6.0 million of unsecured senior indebtedness
outstanding and approximately $138.9 million of subordinated indebtedness
outstanding. The Notes will be effectively subordinated to all secured
indebtedness of the Company to the extent of the assets securing such
indebtedness and will also be effectively subordinated to all indebtedness and
other obligations of the Company's subsidiaries. As of June 30, 1997, the
Company had approximately $14.5 million of secured indebtedness outstanding and
its subsidiaries had aggregate indebtedness and other obligations of
approximately $32.0 million outstanding. The indenture governing the Notes will
permit the Company and its subsidiaries to incur additional indebtedness,
subject to certain limitations.
Old Notes initially purchased by Qualified Institutional Buyers (as defined
in Rule 144A under the Securities Act) were initially represented by a single,
global Note in registered form, registered in the name of a nominee of The
Depository Trust Company ("DTC"), as depositary. The New Notes exchanged for Old
Notes represented by the global Note will be represented by a single, global New
Note in registered form, registered in the name of the nominee of DTC, unless
the beneficial holders thereof request otherwise. The global New Note will be
exchangeable, upon 10 days' prior written notice, for New Notes in registered
form, in denominations of $1,000 and integral multiples thereof. See
"Description of the New Notes -- Book-Entry Delivery and Form."
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission") set forth in several
no-action letters to third parties, and subject to the immediately following
sentence, ICN believes that the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by holders thereof
without further compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any purchaser of Notes who is an
"affiliate" as defined under Rule 405 of the Securities Act of ICN or who
intends to participate in the Exchange Offer for the purpose of distributing the
New Notes (i) will not be able to rely on the interpretation by the staff of the
Commission set forth in the above referenced no-action letters, (ii) will not be
able to tender Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the New Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Old Notes who wishes to exchange Old Notes for New Notes
in the Exchange Offer will be required to make certain representations,
including that (i) any New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of such holder's business, (ii) such
holder has no arrangements with any person to participate in the distribution of
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<PAGE> 4
such New Notes and (iii) such holder is not an "affiliate," [as defined under
Rule 405 of the Securities Act,] of ICN or, if such holder is an affiliate, that
such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the holder is
not a broker-dealer, it will be required to represent that it is not engaged in,
and does not intend to engage in, a distribution of New Notes. If the holder is
a broker-dealer (a "Participating Broker-Dealer") that will receive New Notes
for its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it has no arrangements with any person to participate in the
distribution of the New Notes and that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, such holder will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to New Notes (other than a resale
of an unsold allotment from the original sale of the Old Notes) with this
Prospectus. Under the Registration Rights Agreement, ICN is required to allow
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such New Notes. A broker-dealer that purchased Old Notes from ICN may
not participate in the Exchange Offer.
ICN will not receive any proceeds from this offering, and no underwriter is
being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL ICN ACCEPT SURRENDERS FOR
EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR BLUE SKY LAWS OF SUCH JURISDICTION.
The New Notes will be new securities for which there currently is no
market. Although Schroder & Co., Inc. has informed ICN that it currently intends
to make a market in the New Notes, it is not obligated to do so, and any such
market making may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market for the New
Notes. ICN does not intend to apply for listing of the New Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
3
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TABLE OF CONTENTS
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PAGE
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Available Information................................................................. 4
Incorporation of Certain Documents by Reference....................................... 5
Summary............................................................................... 6
Risk Factors.......................................................................... 15
Use of Proceeds....................................................................... 22
Capitalization........................................................................ 23
Pro Forma Combined Condensed Financial Statements..................................... 24
Selected Financial Data............................................................... 33
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 35
The Exchange Offer.................................................................... 48
Business.............................................................................. 56
Management............................................................................ 71
Description of the New Notes.......................................................... 74
Book Entry; Delivery and Form......................................................... 95
Certain U.S. Federal Income Tax Consequences.......................................... 97
Plan of Distribution.................................................................. 98
Legal Matters......................................................................... 98
Independent Public Accountants........................................................ 98
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AVAILABLE INFORMATION
ICN is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission via EDGAR.
Such reports, proxy statements and other information filed by ICN may be
inspected and copied at the public reference facilities of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices: Seven World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and copies of such material can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports,
proxy statements and other information also may be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Materials filed electronically with the Commission may also be accessed through
the Commission's home page on the World Wide Web at http://www.sec.gov.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed via EDGAR by ICN with the Commission under the
Securities Act. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules thereto
for further information with respect to ICN and the securities offered hereby.
Statements contained herein concerning the provisions of any documents filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated in this Prospectus by reference as of their respective dates: (i)
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, dated
March 31, 1997, as amended by Form 10-K/A, dated July 24, 1997, (ii) Quarterly
Reports on form 10-Q for the three months ended March 31, 1997, dated May 15,
1997 and for the three months ended June 30, 1997, dated August 14, 1997 and
(iii) the description of the Common Stock and associated Preferred Stock
Purchase Rights contained in the Registration Statement on Form 8-A, dated
November 10, 1994. All reports and other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the Notes
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such reports and other documents. Any
statement contained herein or in a report or document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed report or document that is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The making of a modifying or superseding statement shall not be deemed an
admission for any purposes that the modified or superseded statement, when made,
constituted a misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made.
No person has been authorized to give any information or make any
representations other than those contained or incorporated by reference in this
Prospectus and the accompanying letter of transmittal and, if given or made,
such information or representations must not be relied upon as having been
authorized by ICN or the exchange agent. Neither the delivery of this Prospectus
or the accompanying letter of transmittal, or both together, nor any sale made
hereunder shall under any circumstances create an implication that there has
been no change in the affairs of ICN since the date hereof. Neither this
Prospectus nor the accompanying letter of transmittal, or both together,
constitute an offer to sell or a solicitation of an offer to buy any of the
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 any person to whom it is unlawful
to make such offer or solicitation.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the request of such person, a copy of any or
all of the documents incorporated herein by reference (other than exhibits
hereto, unless such exhibits are specifically incorporated by reference into
such documents). Written requests for such copies should be directed to
Corporate Secretary, ICN Pharmaceuticals, Inc., 3300 Hyland Avenue, Costa Mesa,
California 92626. Telephone inquiries may be directed to Corporate Secretary, at
(714) 545-0100.
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SUMMARY
This summary is qualified in its entirety by the more detailed information
appearing elsewhere in this Prospectus. Except as the context otherwise
requires, as used in this Prospectus, all references to ICN or the Company
include its subsidiaries.
THE COMPANY
ICN is a multinational pharmaceutical company that develops, manufactures,
distributes and sells pharmaceutical, research and diagnostic products and
provides radiation monitoring services. In fiscal year 1996, the Company had pro
forma revenues, giving effect to the F. Hoffman-La Roche Ltd. ("Roche")
acquisitions described below, of $667.9 million, pro forma earnings before
interest, taxes, depreciation and amortization ("EBITDA") of $163.0 million, and
a compounded annual EBITDA growth rate of 58% since 1994, the year in which ICN
and its predecessor companies were merged. Based on the closing price of the
Company's common stock on the New York Stock Exchange on September 4, 1997, the
Company has an equity market capitalization of approximately $1.4 billion.
ICN distributes and sells a broad range of prescription (or "ethical") and
over-the-counter ("OTC") pharmaceutical and nutritional products in over 60
countries. These pharmaceutical products treat viral and bacterial infections,
diseases of the skin, myasthenia gravis, cardiovascular disease, diabetes and
psychiatric disorders.
The Company pursues a strategy of international expansion which includes
(i) the consolidation of the Company's leadership position in Eastern Europe and
Russia; (ii) the acquisition of high margin products that complement existing
product lines and can be registered and introduced into additional markets to
meet the specific needs of those markets; and (iii) the creation of a pipeline
of new products through internal research and development, as well as strategic
partnerships and licensing arrangements.
As measured by sales, the Company believes it is currently the largest
pharmaceutical company in Eastern Europe, a region with an estimated population
of 425.1 million people with a collective GNP of $838.3 billion. The rate of per
capita spending on pharmaceuticals in Eastern Europe currently is only 13% of
such rate in Western Europe. The Company believes it has also established itself
as the largest pharmaceutical company, as measured by sales, in Russia, a market
that is expected to grow significantly over the next decade. In 1996, the
Company entered the Hungarian market by acquiring 60% of Alkaloida, one of the
largest pharmaceutical companies in terms of sales in Hungary and a major world
producer of morphine and related compounds. In Yugoslavia, ICN Yugoslavia has an
approximate 50% market share with 1996 sales of $267.2 million. Although ICN
Yugoslavia's sales and profits have been adversely affected by an economic
environment that has included extended periods of hyperinflation and trade
sanctions, it historically has maintained profitability.
For more than ten years, the Company has pursued a strategy of targeted
expansion into regional markets which it considers to have significant potential
for the sale of pharmaceutical products. This strategy has been implemented in
large part through the acquisition of compatible businesses and product lines
and the formation of strategic alliances and joint ventures in targeted markets.
The Company believes that it has developed particular knowledge and skills in
the acquisition, development and conduct of pharmaceutical and related
businesses in Eastern Europe and Russia and it intends to continue its strategy
of seeking acquisitions and other growth opportunities in those and other
emerging markets, such as China and Latin America, as well as in North America
and Western Europe. The Company is currently exploring acquisition opportunities
in Poland, Russia and the Czech Republic.
ICN believes it is uniquely positioned as being both large enough to have
an effective international distribution network not enjoyed by smaller
pharmaceutical companies and small enough to permit lower sales thresholds that
will achieve profitability that cannot be realized under
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the production and marketing constraints of larger pharmaceuticals companies.
The Company has therefore increased sales and profitability in part by acquiring
high margin pharmaceutical products that complement its existing product lines.
Recently the Company purchased, effective July 1, 1997, from Roche worldwide
rights to seven products and non-U.S. rights (with an option to purchase the
U.S. rights) to two other products having combined aggregate sales in 1996 of
$53.8 million (the "Roche Transaction"). See "Business -- Background."
The Company's research and development activities are based upon the
expertise accumulated in over thirty years of nucleic acids research focusing on
the internal generation of novel molecules. The research and development
function works closely with corporate marketing on a local, regional and
worldwide basis. Consequently, the Company has entered into a number of
licensing arrangements with other larger pharmaceutical companies, as well as
strategic partnerships to develop its proprietary products.
Among the Company's products is the broad spectrum antiviral agent
ribavirin, which it markets in the United States, Canada and most of Europe
under the Virazole(R) trademark. Virazole(R) is currently approved for
commercial sale in over 40 countries for one or more of a variety of viral
infections, including respiratory syncytial virus ("RSV"), herpes simplex,
influenza, chicken pox, hepatitis and human immunodeficiency virus ("HIV"). In
the United States and Europe, Virazole(R) is approved only for use with
hospitalized infants and children with severe lower respiratory infections due
to RSV.
In 1995, the Company entered into an Exclusive License and Supply Agreement
(the "License Agreement") and a Stock Purchase Agreement with a subsidiary of
Schering-Plough Corporation (together with such subsidiary, "Schering-Plough")
whereby Schering-Plough licensed all oral forms of ribavirin, including for the
treatment of chronic hepatitis C in combination with Schering-Plough's alpha
interferon (the "Combination Therapy"). The License Agreement provided the
Company an initial non-refundable payment by Schering-Plough of $23.0 million
and future royalty payments to the Company from sales of the drug by
Schering-Plough, including certain minimum royalty rates. Schering-Plough will
have exclusive marketing rights for oral forms of ribavirin for hepatitis C
worldwide, except that the Company will retain the right to co-market in the
countries of the European Union. In addition, Schering-Plough agreed to purchase
up to $42.0 million in common stock of the Company upon achieving certain
regulatory milestones. Under the License Agreement, Schering-Plough will be
responsible for all clinical development and regulatory activities worldwide.
The United States Food and Drug Administration (the "FDA") approved a protocol
for the testing of the Combination Therapy, and Schering-Plough is conducting
large-scale Phase III clinical trials of the Combination Therapy, which are near
completion. Schering-Plough is also testing the Combination Therapy pursuant to
protocols approved by the European Union. Schering-Plough has announced that it
intends to file a New Drug Application ("NDA") with the FDA for the Combination
Therapy in the fourth quarter of 1997 and will make the equivalent filing in the
European Union in the first quarter of 1998.
The Company believes that the approval of Virazole(R) in Combination
Therapy for the treatment of chronic hepatitis C would be important to the
Company because of the potential size of the chronic hepatitis C market both in
the United States, Western Europe, Japan and other markets. However, there can
be no assurance that the clinical trials will be successful or that the required
governmental approvals will be obtained with respect to Virazole(R) for the
treatment of hepatitis C in Combination Therapy. See "Risk Factors -- No
Assurance of Successful Development and Commercialization of Future Products"
and "-- Government Regulation."
In addition to its pharmaceutical operations, the Company also develops,
manufactures and sells, through its wholly-owned subsidiary, ICN Biomedicals,
Inc., a broad range of research products and related services, immunodiagnostic
reagents and radiation monitoring services. The Company markets these products
internationally to major scientific, academic, health care and governmental
institutions through catalog and direct mail marketing programs. ICN
Biomedicals, Inc. accounted for 10.5% of the Company's total historical 1996
revenues.
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The Company's principal executive offices are located at 3300 Hyland
Avenue, Costa Mesa, California 92626. Its main telephone number is (714)
545-0100.
OFFERING OF THE OLD NOTES
On August 14, 1997, ICN completed the private sale to Schroder & Co., Inc.
(the "Initial Purchaser") of $275.0 million principal amount of the Old Notes
with net proceeds to ICN of approximately $264.8 million. The Initial Purchaser
resold the Old Notes to a limited number of qualified institutional buyers at an
initial price to investors of 100% of the principal amount thereof (the
"Offering"). The Offering was a private placement transaction exempt from the
registration requirements of the Securities Act pursuant to Rule 144A and
Section 4 thereof.
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $275,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be obligations of ICN entitled to the benefits of
the Indenture relating to the Old Notes. The form and terms of the New Notes are
identical in all material respects to the form and terms of the Old Notes except
that the New Notes have been registered under the Securities Act. Following the
completion of the Exchange Offer, none of the Notes will be entitled to the
benefits of the provisions of the Registration Rights Agreement relating to
contingent increases in the interest rates provided for pursuant thereto. See
"Description of the New Notes."
THE EXCHANGE OFFER......... $1,000 principal amount of New Notes will be issued
in exchange for each $1,000 principal amount of Old
Notes validly tendered pursuant to the Exchange
Offer As of the date hereof, $275,000,000 in
aggregate principal amount of Old Notes are
outstanding. ICN will issue the New Notes to
tendering holders of Old Notes on or promptly after
the Expiration Date.
RESALE..................... ICN believes that the New Notes issued pursuant to
the Exchange Offer generally will be freely
transferable by the holders thereof without
registration or any prospectus delivery requirement
under the Securities Act, except that any of its
"affiliates" or "dealers," as such terms are
defined under the Securities Act, that exchange Old
Notes held for their own account (a "Restricted
Holder") may be required to deliver copies of this
Prospectus in connection with any resale of the New
Notes issued in exchange for such Old Notes (the
"Prospectus Delivery Requirement"). A broker-dealer
will be required to acknowledge that it has no
arrangements with any person to participate in the
distribution of the New Notes and that it will
deliver a prospectus in connection with the sale of
such New Notes. A broker-dealer that purchased Old
Notes from ICN may not participate in the Exchange
Offer. "The Exchange Offer -- General" and "Plan of
Distribution."
EXPIRATION DATE............ 5:00 p.m., New York City time, on ,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
ACCRUED INTEREST ON THE NEW
NOTES AND THE OLD
NOTES...................... Interest on each New Note will accrue from the last
Interest Payment Date on which interest was paid on
the Old Note ten-
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dered in exchange therefor or, if no interest has
been paid on such tendered Old Note, from August
14, 1997. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived
the right to receive any payment in respect of
interest on such Old Notes accrued from the last
Interest Payment Date or August 14, 1997 (as the
case may be) to the date of the issuance of the New
Notes. Consequently, holders who exchange their Old
Notes for New Notes will receive the same interest
payment on the same Interest Payment Date that they
would have received had they not accepted the
Exchange Offer. See "The Exchange Offer -- Interest
on the New Notes."
TERMINATION OF THE EXCHANGE
OFFER.................... ICN may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
any legal or governmental action, any new law,
statute, rule or regulation or any interpretation
of the staff of the Commission of any existing law,
statute, rule or regulation. Holders of Old Notes
will have certain rights against ICN under the
Registration Rights Agreement if ICN fails to
consummate the Exchange Offer. See "The Exchange
Offer -- Termination." No federal or state
regulatory requirements must be complied with or
approvals obtained in connection with the Exchange
Offer, other than applicable requirements under
federal and state securities laws.
PROCEDURES FOR TENDERING
OLD
NOTES.................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any other
required documentation, to United States Trust
Company of New York, as Exchange Agent, at the
address set forth herein and therein or effect a
tender of Old Notes pursuant to the procedures for
book-entry transfer as provided for herein. See
"The Exchange Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS....... Any beneficial holder whose Old Notes are
registered in the name of his broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on his
behalf. If such beneficial holder wishes to tender
on his own behalf, such beneficial holder must,
prior to completing and executing the Letter of
Transmittal and delivering his Old Notes, either
make appropriate arrangements to register ownership
of the Old Notes in such holder's name or obtain a
properly completed bond power from the registered
holder. The transfer of record ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
9
<PAGE> 11
GUARANTEED DELIVERY
PROCEDURES............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes (or
who cannot complete the procedure for book-entry
transfer on a timely basis) and a properly
completed Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date may
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p. m., New York City time, on the
business day prior to the Expiration Date, unless
previously accepted for exchange. See "The Exchange
Offer -- Withdrawal of Tenders."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES.... Subject to certain conditions (as summarized above
in "Termination of the Exchange Offer" and
described more fully in "The Exchange
Offer -- Termination"), ICN will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- General."
CERTAIN TAX CONSEQUENCES... The exchange pursuant to the Exchange Offer will
generally not be a taxable event for federal income
tax purposes. See "Certain U.S. Federal Income Tax
Consequences."
EXCHANGE AGENT............. The United States Trust Company of New York, the
Trustee under the Indenture, is serving as exchange
agent (the "Exchange Agent") in connection with the
Exchange Offer. The mailing address of the Exchange
Agent is: United States Trust Company of New York,
P.O. Box 843, Cooper Station, New York, NY 10276,
Attention: Corporate Trust Services; and deliveries
by overnight courier should be addressed to United
States Trust Company of New York, 770 Broadway,
13th floor, New York, NY 10003, Attention:
Corporate Trust Redemption Unit. For information
with respect to the Exchange Offer, the telephone
number for the Exchange Agent is (800) 548-6565 and
the facsimile number for the Exchange Agent is
(212) 780-0592.
USE OF PROCEEDS............ There will be no cash proceeds payable to ICN from
the issuance of the New Notes pursuant to the
Exchange Offer. The Company intends to use
approximately $53.0 million of the net proceeds
from the sale of the Old Notes to redeem common or
preferred stock of the Company issued to Roche in
connection with the Roche Transaction, if required
by Roche in accordance with the terms of the
agreement between the parties. Up to $15.0 million
of the net proceeds may be used for the cash
portion of the purchase price for the manufacturing
plant in Puerto Rico acquired in connection with
the Roche Transaction. The remainder of the net
proceeds will be used for general corporate
purposes, including potential acquisitions and
capital expenditures.
10
<PAGE> 12
THE NEW NOTES
NOTES OFFERED.............. $275,000,000 aggregate principal amount of 9 1/4%
Series B Senior Notes due 2005.
MATURITY................... August 15, 2005.
INTEREST PAYMENT DATES..... February 15 and August 15 of each year, commencing
February 15, 1998.
RANKING.................... The Notes will be general unsecured obligations of
the Company. The Notes will rank pari passu in
right of payment with all unsecured senior
indebtedness and senior to all subordinated
indebtedness of the Company, including the
Company's 8.5% Convertible Subordinated Notes due
1999. As of June 30, 1997, the Company had
approximately $6.0 million of unsecured senior
indebtedness outstanding and approximately $138.9
million of subordinated indebtedness outstanding.
The Notes will be effectively subordinated to all
secured indebtedness of the Company to the extent
of the assets securing such indebtedness and will
also be effectively subordinated to indebtedness
and other obligations of the Company's
subsidiaries. As of June 30, 1997, the Company had
approximately $14.5 million of secured indebtedness
outstanding and its subsidiaries had aggregate
indebtedness and other obligations of approximately
$32.0 million outstanding. The indenture (the
"Indenture") governing the Notes will permit the
Company and its subsidiaries to incur additional
indebtedness, subject to certain limitations. See
"Risk Factors -- Ranking of the Notes; Subsidiary
Operations" and "Description of the Notes."
OPTIONAL REDEMPTION........ The Notes will be redeemable in cash at the option
of the Company, in whole or in part, at any time or
from time to time on or after August 15, 2001, at
the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the
date of redemption.
CHANGE OF CONTROL.......... Upon a Change of Control, the Company will be
required to offer to repurchase the Notes at a
purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase. See "Description
of the Notes -- Change of Control."
CERTAIN COVENANTS.......... The Indenture contains certain covenants with
respect to the Company and its Restricted
Subsidiaries (as defined), which will restrict,
among other things, (a) the incurrence of
additional indebtedness, (b) the payment of
dividends and other restricted payments, (c) the
creation of certain liens, (d) the sale of assets,
(e) certain payment restrictions affecting
Restricted Subsidiaries, (f) transactions with
affiliates and (g) the issuance of capital stock by
Restricted Subsidiaries. The Indenture will also
restrict the Company's ability to consolidate or
merge with or into, or to transfer all or
substantially all of its assets to, another person.
These restrictions and requirements are subject to
a number of important qualifications and
exceptions. See "Description of the
Notes -- Certain Covenants."
11
<PAGE> 13
REGISTRATION RIGHTS........ Pursuant to a Registration Rights Agreement (the
"Registration Rights Agreement") between the
Company and the Initial Purchaser, the Company
agreed to file by the 30th day following the date
of closing of the Offering (the "Issue Date") a
registration statement (the "Exchange Offer
Registration Statement") with respect to an offer
to exchange the Notes for a new issue of debt
securities of the Company (the "Exchange Notes")
registered under the Securities Act with terms
(other than restrictions on transfer as set forth
in "Notice to Investors") substantially identical
to those of the Notes (the "Exchange Offer") and to
use its best efforts to cause the Exchange Offer
Registration Statement to become effective by the
150th day following the Issue Date and, upon
becoming effective, to commence the Exchange Offer
and cause the same to remain open for acceptance
for not less than 20 business days after the date
of commencement. Subject to certain exceptions, if
the Exchange Offer is not consummated within 180
days after the Issue Date or, under certain
circumstances, the Initial Purchaser so requests,
the Company will file and use its best efforts to
cause to be declared effective a shelf registration
statement (the "Shelf Registration Statement") with
respect to resales of the Notes from time to time
and will use its best efforts to keep such
registration statement effective until two years
after the Issue Date. Subject to certain
exceptions, if the Exchange Offer Registration
Statement or the Shelf Registration Statement is
not filed or declared effective or ceases to be
effective or the Exchange Offer is not consummated
within the applicable time periods related thereto
(each, a "Registration Default"), the interest rate
borne by the Notes shall be increased by 0.50% per
annum for the 90-day period following such
Registration Default. Such interest rate will
increase by an additional 0.25% per annum at the
beginning of each subsequent 90-day period, up to a
maximum aggregate increase of 1.0% per annum. From
and after the date that all Registration Defaults
have been cured, the Notes will bear interest at
the rate set forth on the cover page of this
Offering Memorandum.
TRADING.................... The Old Notes have been designated for trading in
the Private Offerings, Resales and Tradings through
Automated Linkages ("PORTAL") Market. The New Notes
will not be eligible for trading on Portal.
RISK FACTORS............... Potential investors in the Notes should carefully
consider the matters set forth under the caption
"Risk Factors" prior to making an investment
decision with respect to the Notes.
12
<PAGE> 14
SUMMARY SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary selected historical and pro forma
financial and other data of the Company on a consolidated basis for each of the
years in the five year period ended December 31, 1996 and the six month periods
ended June 30, 1997 and 1996. The summary selected historical financial data for
each of the years in the five year period ended December 31, 1996 were derived
from the audited consolidated financial statements of the Company. The summary
selected historical financial data as of June 30, 1997 and for the six month
periods ended June 30, 1997 and 1996 were derived from the unaudited
consolidated condensed financial statements of the Company incorporated by
reference in this Prospectus. In the opinion of management, such unaudited
consolidated financial statements include all adjustments, consisting of only
normal recurring items, necessary for a fair presentation of the financial
condition and results of operations of the Company for such periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the full year. The summary selected pro
forma data for the year ended December 31, 1996, for the six month period ended
June 30, 1996, and as of and for the six month period ended June 30, 1997 were
derived from the "Unaudited Pro Forma Combined Condensed Financial Statements,"
giving effect to the Roche acquisition and the issuance of the Notes described
therein, included elsewhere in this Prospectus. The pro forma financial data are
not necessarily indicative of operating results or financial position that would
have been achieved had these events been consummated on the dates indicated and
should not be construed as a representative of future operating results or
financial position. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Combined Condensed Financial
Statements," including the Notes thereto included in this Prospectus, and the
Company's historical consolidated financial statements, including the notes
thereto, incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------- -----------------------------------------
PRO PRO PRO
FORMA FORMA FORMA
1992 1993 1994 1995 1996 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS
CONSOLIDATED:
Net sales(1)........ $476,118 $403,957 $366,851 $507,905 $614,080 $667,923 $281,908 $319,197 $308,830 $347,962
Gross profit........ 267,373 192,034 183,905 301,856 322,273 357,827 141,573 168,436 159,350 187,421
Income (loss) from
operations(2)...... 81,631 39,502 (165,172) 93,166 114,113 138,087 49,497 48,334 61,484 61,160
Interest expense.... 13,065 23,750 9,317 22,889 15,780 44,249 5,592 7,382 19,827 21,617
Net income
(loss)(2).......... 34,503 21,510 (183,581) 67,337 86,928 84,231 36,896 43,580 35,547 42,735
OTHER DATA -- CONSOLIDATED:
Depreciation and
amortization....... $ 6,770 $ 8,513 $ 9,248 $ 13,814 $ 16,292 $ 24,903 $ 6,484 $ 10,765 $ 10,790 $ 15,071
EBITDA(3)........... 88,401 48,015 65,076 106,980 130,405 162,990 55,981 59,099 72,274 76,231
Cash flows provided
by
(used in):
Operating
activities....... 29,718 18,207 42,557 79,326 (25,548) (4,488) 12,736
Investing
activities....... (25,336) (25,794) (11,390) (47,025) (41,962) 8,150 (20,374)
Financing
activities....... 17,055 (15,702) (2,919) (50,518) 82,680 9,102 10,615
Ratio of EBITDA to
interest cost(4)... 6.8x 2.0x 7.0x 4.3x 6.7x 3.4x 7.2x 6.0x 3.3x 3.2x
Ratio of net debt to
EBITDA(5).......... 0.0x 0.4x 2.7x 1.3x 1.2x 1.1x 1.4x 1.5x
</TABLE>
See accompanying Notes to Summary Selected Financial Data
13
<PAGE> 15
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------------------------
---------------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 1996 1997 1997
-------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $120,942 $127,259 $137,802 $190,802 $306,764 $228,445 $348,263 $ 594,913
Total assets............................ 333,218 302,017 441,473 518,298 778,651 578,805 871,978 1,280,078
Long-term debt (including notes payable
and current portion of long-term
debt).................................. 41,630 35,206 215,005 166,269 195,681 159,271 208,031 523,031
Stockholders' equity.................... 135,427 155,879 88,908 162,172 315,350 218,148 362,609 452,609
</TABLE>
NOTES TO SUMMARY SELECTED FINANCIAL DATA:
(1) ICN Yugoslavia's sales have been adversely affected since the imposition in
May 1992 of United Nations sanctions on Yugoslavia, suspended in December
1995.
(2) The 1994 Merger resulted in $221 million being ascribed to purchased
research and development for which no alternative use existed and was
written-off immediately. This write-off was a one-time, non-cash charge. Net
income, excluding this one-time, non-cash write-off, was $37.4 million in
1994.
(3) EBITDA represents the sum of income (loss) from operations plus depreciation
and amortization and excludes the 1994 write-off of purchased research and
development. See Note 2. The Company believes that EBITDA provides
additional information for determining its ability to meet its future debt
service, capital expenditure and working capital requirements. EBITDA is not
a measure of financial performance under GAAP and should not be considered
as an alternative either to net income as an indicator of the Company's
operating performance, or to cash flows as a measure of the Company's
liquidity. In addition, EBITDA measures presented may not be comparable to
other similarly titled measures of other companies.
(4) For purposes of the computation, interest cost includes both interest
expensed and capitalized.
(5) For purposes of the computation, net debt is equal to notes payable plus
total long-term debt, including the current portion thereof, less
unrestricted cash and cash equivalents, and EBITDA for all interim periods
presented has been annualized. This computation was not made as of December
31, 1996 and June 30, 1996 on a pro forma basis, as a pro forma balance
sheet has not been presented.
14
<PAGE> 16
RISK FACTORS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The following factors, among
others, could cause actual results to differ materially from those contained in
forward-looking statements made in this Prospectus, including, without
limitation, in "Risk Factors," "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." When used in this
Prospectus and the documents incorporated by reference herein, the words
"estimate," "project," "anticipate," "expect," "intend," "believe," "plan" and
similar expressions are intended to identify forward-looking statements. In
addition, prospective investors should consider carefully the following factors
in connection with any investment decision made with respect to the Notes
offered hereby.
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Old Notes not exchanged for New Notes pursuant to the Exchange
Offer will remain subject to the existing restrictions upon transfer of such Old
Notes. Additionally, holders of any Old Notes not tendered in the Exchange Offer
prior to the Expiration Date will not be entitled to require ICN to file the
Shelf Registration Statement and the stated interest rate on such Old Notes will
remain at its initial level of 9 1/4%.
INDEBTEDNESS AND OTHER OBLIGATIONS OF THE COMPANY
Upon completion of the Offering, the Company and its subsidiaries will have
outstanding long-term debt of $506 million. The Company's strategy contemplates
continued strategic acquisitions, and a portion of the cost of such acquisitions
may be financed through additional indebtedness. There can be no assurance that
financing will continue to be available on terms acceptable to the Company or at
all. In the absence of such financing, the Company's ability to respond to
changing business and economic conditions, to fund scheduled investments and
capital expenditures, to make future acquisitions or developments and to absorb
adverse operating results may be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Indenture contains, and other debt instruments of the Company may in
the future contain, a number of significant covenants that, among other things,
restrict the ability of the Company to dispose of assets, incur additional
indebtedness, repay other indebtedness or amend other debt instruments, pay
dividends, create liens on assets, enter into investments or acquisitions,
engage in mergers or consolidations, make capital expenditures or engage in
certain transactions with subsidiaries and affiliates, and otherwise restrict
certain corporate activities.
The Company's ability to comply with the covenants contained in the
Indenture and other debt instruments of the Company may be affected by events
beyond its control, including prevailing economic, financial and industry
conditions. The breach of any of such covenants or restrictions could result in
a default under the Indenture and/or such other debt instruments, which would
permit the holders of the Notes or such other lenders, as the case may be, to
declare all amounts borrowed thereunder to be due and payable, together with
accrued and unpaid interest, and any commitments of the other lenders to make
further extensions of credit under such other debt instruments could be
terminated. If the Company were unable to repay its indebtedness to its secured
lenders, such lenders could proceed against the collateral securing such
indebtedness.
RANKING OF THE NOTES; SUBSIDIARY OPERATIONS
The Notes are general unsecured obligations of the Company. The Notes rank
pari passu in right of payment of principal, premium, if any, and interest on,
and any other amounts owing in respect of, the Notes with other unsecured senior
indebtedness of the Company and will be effectively subordinated to all secured
indebtedness of the Company to the extent of the assets securing such
indebtedness. As of June 30, 1997, the Company had approximately $6.0 million of
15
<PAGE> 17
unsecured senior indebtedness, approximately $138.9 million of subordinated
indebtedness and approximately $14.5 million of secured indebtedness
collateralized by certain properties of the Company. Additionally, the Indenture
governing the Notes will permit the Company to incur up to $50.0 million in
Senior Bank Debt (as defined herein) which may be collateralized by inventories
and receivables of the Company. In the event of the bankruptcy, liquidation,
dissolution, reorganization or other winding up of the Company, the assets of
the Company which collateralize secured indebtedness will be available to pay
obligations on the Notes only after the respective secured indebtedness of the
Company has been paid in full. See "Description of Notes."
Some of the Company's U.S. operations and all of its foreign operations are
conducted through subsidiaries. Such subsidiaries have not guaranteed or
otherwise become obligated with respect to the Notes. The Notes are therefore
effectively subordinated to all indebtedness and other obligations of such
subsidiaries with respect to the assets of such subsidiaries. As of June 30,
1997, the Company's subsidiaries had aggregate indebtedness and other
obligations of approximately $32.0 million. Claims of creditors of the Company's
subsidiaries, including trade creditors, will generally have priority as to the
assets of such subsidiaries over the claims of the Company and the holders of
the Company's indebtedness, including the Notes.
DEPENDENCE ON FOREIGN OPERATIONS
Approximately 82% and 83% of the Company's pro forma net sales for 1996 and
the six months ended June 30, 1997, respectively, were generated from operations
outside the United States. The Company operates both directly and through
distributors in North America, Latin America, Western Europe and Eastern Europe
and through distributors elsewhere in the world. Foreign operations are subject
to certain risks inherent in conducting business abroad, including possible
nationalization or expropriation, price and exchange controls, limitations on
foreign participation in local enterprises, health-care regulation and other
restrictive governmental actions. Changes in the relative values of currencies
take place from time to time and may materially affect the Company's results of
operations. Their effects on the Company's future operations are not
predictable. The Company does not currently have a hedging program to protect
against foreign currency exposure and, in certain of the countries in which the
Company operates, no effective hedging program is available.
RISK OF OPERATIONS IN YUGOSLAVIA
ICN Yugoslavia, a 75% owned subsidiary that contributed 40% and 28% of the
Company's pro forma net sales for 1996 and for the six months ended June 30,
1997, respectively, operates in a business environment that is subject to
significant economic volatility and political instability. The economic
conditions in Yugoslavia include continuing liquidity problems, a history of
high inflation, unemployment, a weakened banking system and a high trade
deficit. The future of the economic and political environment of Yugoslavia is
uncertain and could deteriorate to the point that a material adverse impact on
the Company's financial position and results of operations could occur. Between
May 1992 and December 1995, Yugoslavia operated under United Nations' sanctions
that severely limited the ability to import raw materials and prohibited all
exports. While the sanctions have been suspended, certain risks such as
hyperinflation, currency devaluations, wage and price controls and potential
government action could continue to have a material adverse effect on the
Company's results of operations.
During 1992 and 1993, the rate of inflation in Yugoslavia was over one
billion percent per year. Inflation was dramatically reduced in January 1994
when the government enacted a stabilization program designed to strengthen its
currency. This program reduced the annualized inflation rate to 5% by the end of
1994, increased the availability of hard currency, stabilized the exchange rate
of the dinar, and improved the overall economy. In 1995, the effectiveness of
the stabilization program began to wane, resulting in a decline in the
availability of hard currency and an acceleration of inflation to an annual rate
of 90% by year end. In November 1995, the dinar was devalued from a rate of 1.4
dinars per U.S.$1 to a rate of 4.7 dinars per U.S.$1.
16
<PAGE> 18
During 1996, inflation increased further to an annual rate of 95% and the
availability of hard and local currency continued to decline. The lifting of
sanctions by the United Nations eventually provided opportunities to export
outside of Yugoslavia. A policy of strict monetary control in Yugoslavia has
kept inflation at a current annual level of approximately 40%. However,
Yugoslavia has not fully recovered the international status it held before
sanctions were imposed and management believes that economic reform and
privatization is necessary before the economy will improve dramatically. The
Yugoslavian government is still negotiating to regain membership in the
International Monetary Fund and World Bank. Management believes that the 1997
Presidential and parliamentary elections may result in political change that
would lead to economic reform, although such elections also have the potential
to create additional political instability and currency devaluations.
In an effort by the National Bank of Yugoslavia to control inflation
through tight monetary controls, Yugoslavia is now experiencing severe liquidity
problems. This has resulted in longer collection periods on ICN Yugoslavia's
receivables. Most of ICN Yugoslavia's customers are slow to pay due to delays of
health care payments by the government. This has also resulted in ICN Yugoslavia
being unable to make timely payments on its payables. ICN Yugoslavia is
attempting to reduce its receivables and improve its cash flow by restricting
future sales; however, these actions may result in sales and earnings in 1997
that are lower than such amounts in 1996.
ICN Yugoslavia began 1997 with a net asset monetary exposure of $134.0
million which was subject to foreign exchange loss if a devaluation of the dinar
were to occur. During the first quarter of 1997, the Company was successful in
reducing its monetary exposure by converting dinar denominated accounts
receivable into notes receivable payable in dinars, but fixed in U.S. dollar
amounts. The first conversion was made early in the first quarter of 1997 with
$50.0 million of accounts receivable converted into a one year note with
interest at LIBOR plus one percent. A second conversion was arranged in the
middle of the first quarter through an agreement with the Yugoslavian government
to purchase $50.0 million of products from ICN Yugoslavia. The accounts
receivable under this agreement were converted into a non-interest bearing note
receivable that has special payment guarantees from the Serbian Government with
the payment fixed in U.S. dollar amounts. Approximately $30.0 million of
accounts receivable were converted to notes receivable under this agreement in
the first quarter and the remainder were converted in the second quarter. The
second agreement also allows the Company to offset payroll tax obligations
against outstanding accounts receivable balances. As of June 30, 1997, ICN
Yugoslavia had a net monetary asset position of $49.0 million which would be
subject to foreign exchange loss if a devaluation of the dinar were to occur.
The timing and size of a devaluation are strongly influenced by the amount of
inflation and length of time since the previous devaluation.
The Company was able to reduce its overall accounts receivable balance from
the beginning of the year through collections and the conversion of $100,000,000
of accounts receivable into notes receivable discussed above. As of June 30,
1997, the accounts receivable balance was $93,056,000. Based on current levels
of collections, the Company will impose even stricter credit terms on its
customers which will likely result in lower future Yugoslavian sales. The
willingness of the Yugoslavian government to provide the Company protection
against devaluation on its receivables in exchange for longer payment terms is a
reflection of the strict adherence to government policy on controlling inflation
by limiting the amount of hard currency in circulation. This policy was
initially established with the start of the stabilization program in 1994. The
Company is currently negotiating an arrangement with the government of
Yugoslavia under which ICN Yugoslavia would commit to continue to provide
products, in dollar denominated sales, in an amount up to $50,000,000 per
calendar quarter for one year, and the government would pay a minimum of
$9,000,000 per month toward outstanding receivables. However, at no point in
time can the amount due to ICN Yugoslavia from the government exceed
$200,000,000, including both accounts and notes receivable.
With 80% of ICN Yugoslavia sales arising from government or
government-sponsored entities, ICN Yugoslavia is financially dependent on the
Yugoslavian government. Additionally, ICN Yugosla-
17
<PAGE> 19
via is also subject to credit risk in that 60% of its December 31, 1996,
domestic accounts receivables and 31% of its year-to-date sales are with three
major customers.
ICN Yugoslavia is subject to price controls in Yugoslavia. The size and
frequency of government-approved price increases are influenced by local
inflation, devaluations, cost of imported raw materials and demand for ICN
Yugoslavia products. ICN Yugoslavia is currently receiving fewer price increases
than in the past due to relatively lower levels of inflation. As inflation
increases, the size and frequency of price increases are expected to increase.
Price increases obtained by ICN Yugoslavia are based on economic events
preceding such an increase and not on expectations of ongoing inflation. A lag
in approved price increases reduces the gross margins that ICN Yugoslavia
receives on its products. Although the Company expects that ICN Yugoslavia will
limit sales of products that have poor margins until an acceptable price
increase is received, the impact of an inability to obtain adequate price
increases in the future could have an adverse impact on the Company as a result
of declining gross profit margins or declining sales in an effort to maintain
existing gross margin levels.
RISK OF OPERATIONS IN RUSSIA, EASTERN EUROPE AND CHINA
The Company has invested a total of approximately $21.9 million for
majority interests in three pharmaceutical companies located in Russia. The
Company also has invested approximately $22.1 million in its 60.0% interest in
ICN Hungary. In September 1996, the Company committed to invest an aggregate of
$24.0 million in a joint venture with Jiangsu Provincial Wuxi Pharmaceutical
Corporation ("Wuxi"), a Chinese state-owned pharmaceutical corporation, of which
$3.6 million has been invested through June 30, 1997. Although the Company
believes that investment in Russia, Eastern Europe, China and other emerging
markets offers access to growing world markets, the economic and political
conditions in such countries are uncertain. See "-- Dependence on Foreign
Operations."
NO ASSURANCE OF SUCCESSFUL DEVELOPMENT AND COMMERCIALIZATION OF FUTURE PRODUCTS
The Company's future growth will depend, in large part, upon its ability to
develop or obtain and commercialize new products and new formulations of or
indications for current products. The Company is engaged in an active research
and development program involving compounds owned by the Company or licensed
from others which the Company may, in the future, desire to develop
commercially. There can be no assurance that the Company will be able to develop
or acquire new products, obtain regulatory approvals to use such products for
proposed or new clinical indications in a timely manner, manufacture its
potential products in commercial volumes or gain market acceptance for such
products. In addition, the Company may require additional financing over the
next several years to fund costs of development and acquisitions of new products
and, if Virazole(R) is approved for treatment of chronic hepatitis C in
Combination Therapy (for which there can be no assurance), to expand the
production and marketing of Virazole(R) in the countries of the European Union
where the Company has retained marketing rights under the License Agreement. It
may be desirable that the Company enter into other licensing arrangements,
similar to the arrangement with Schering-Plough regarding Virazole(R), with
other pharmaceutical companies in order to market effectively any new products
or new indications for existing products. There can be no assurance that the
Company will be successful in raising such additional financing or entering into
such licensing arrangements on terms favorable to the Company or at all. See
"-- Limited Patent Protection"; "-- Government Regulation";
"Business -- Background"; "Business -- Marketing and Customers";
"Business -- Government Regulation"; and "Business -- Research and Development."
LIMITED PATENT PROTECTION
The Company may be dependent on the protection afforded by its patents
relating to Virazole(R) and no assurance can be given as to the breadth or
degree of protection which these patents will
18
<PAGE> 20
afford the Company. The Company has patent rights in the United States expiring
in 1999 relating to the use of Virazole(R) to treat specified human viral
diseases. If future development of Virazole(R) in Combination Therapy is
successful and approval is granted in the United States, an additional award of
exclusivity will likely be granted for up to three years from the date of
approval pursuant to the Waxman-Hatch Act; however, there can be no assurance
that such development will be successful or that such approval will be obtained.
While the Company has patents in certain foreign countries covering use of
Virazole(R) in the treatment of certain diseases, which coverage and expiration
varies and which patents expire at various times through 2006, the Company has
no, or limited, patent rights with respect to Virazole(R) and/or its use in
certain foreign countries where Virazole(R) is currently, or in the future may
be, approved for commercial sale, including France, Germany and Great Britain.
However, the Company and Schering-Plough intend to file applications for
approval of Combination Therapy through a centralized procedure in the European
Union (which includes France, Germany and Great Britain). If such approval is
granted (of which approval no assurance can be given), the Company and
Schering-Plough would be afforded either six or ten years (depending upon the
particular country) of protection for the Combination Therapy against generic
competition. There can be no assurance that the loss of the Company's patent
rights with respect to Virazole(R) upon expiration of the Company's patent
rights in the United States, Europe and elsewhere will not result in competition
from other drug manufacturers or will not otherwise have a material adverse
effect upon the business and operations of the Company.
As a general policy, the Company expects to seek patents, where available,
on inventions concerning novel drugs, techniques, processes or other products
which it may develop or acquire in the future. However, there can be no
assurance that any patents applied for will be granted, or that, if granted,
they will have commercial value or as to the breadth or the degree of protection
which these patents, if issued, will afford the Company. The Company intends to
rely substantially on its unpatented proprietary know-how, but there can be no
assurance that others will not develop substantially equivalent proprietary
information or otherwise obtain access to the Company's know-how. Patents for
pharmaceutical compounds are not available in certain countries in which the
Company markets its products. For information concerning licenses and patents
involving the Company, see "Business -- Licenses, Patents and Trademarks."
UNCERTAIN IMPACT OF ACQUISITION PLANS
The Company intends to aggressively continue its strategy of targeted
expansion through the acquisition of compatible businesses and product lines and
the formation of strategic alliances, joint ventures and other business
combinations. Although the Company expects to use a portion of the proceeds of
the Offering to finance several acquisitions and investments, there will be no
assurance that the Company can successfully complete or finance any future
acquisition. Should the Company complete any material acquisition, the Company's
success or failure in integrating the operations of the acquired business may
have a material impact on the future growth or success of the Company.
LEGAL PROCEEDINGS
ICN is a defendant in a consolidated class action lawsuit alleging, among
other things, violations of federal securities laws (the "Class Action").
Plaintiffs alleged that ICN made misrepresentations of material facts and
omitted to state material facts in 1994 and 1995 concerning the Company's NDA
for the use of Virazole(R) for monotherapy treatment of chronic hepatitis C (the
"Hepatitis C NDA"). In July 1997, the Company and the plaintiffs in the Class
Action agreed to settle the litigation for the sum of $15.0 million. The
settlement is in the process of being documented and is subject to the approval
of the court. A settlement hearing is expected to be held in the fall of 1997.
The Company intends to urge the district court to approve the settlement of the
Class Action. If the settlement is not approved, and the Class Action proceeds
to trial, the ultimate outcome of any such trial cannot be predicted with
certainty, and any unfavorable outcome could have a material adverse effect on
the Company.
19
<PAGE> 21
Pursuant to an Order Directing Private Investigation and Designating
Officers to Take Testimony, entitled In the Matter of ICN Pharmaceuticals, Inc.,
(P-177) (the "Order"), a private investigation is being conducted by the SEC
with respect to certain matters pertaining to the status and disposition of the
Hepatitis C NDA. As set forth in the Order, the investigation concerns whether,
during the period June 1994 through February 1995, the Company, persons or
entities associated with it and others, in the offer and sale or in connection
with the purchase and sale of ICN securities, engaged in possible violations of
Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder, by having possibly: (i) made
false or misleading statements or omitted material facts with respect to the
status and disposition of the Hepatitis C NDA; or (ii) purchased or sold ICN
securities while in possession of material, non-public information concerning
the status and disposition of the Hepatitis C NDA; or (iii) conveyed material,
non-public information concerning the status and disposition of the Hepatitis C
NDA, to other persons who may have purchased or sold ICN securities. The Company
is cooperating with the SEC in its investigation. The Company has and continues
to produce documents to the SEC pursuant to its request and the SEC has taken
the depositions of certain current and former officers, directors, and employees
of the Company.
In addition, the Company has received subpoenas (the "Subpoenas") from a
Grand Jury of the United States District Court, Central District of California,
requesting the production of documents covering a broad range of matters over
various time periods. The Company and Milan Panic, Chairman and Chief Executive
Officer, are subjects of the investigation. The Company has and continues to
cooperate in the production of documents pursuant to the Subpoenas. A number of
current and former employees of the company have been interviewed by the
government in connection with the investigation.
The ultimate outcome of the SEC and Grand Jury investigations cannot be
predicted and any unfavorable outcome could have a material adverse effect on
the Company. See "Business -- Litigation, Government Investigations and Other
Matters."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success will depend to a
significant extent upon the efforts and abilities of its key members of
management, including Milan Panic, its Chairman and Chief Executive Offer. The
loss of their services could have a material adverse effect on the Company. The
Company cannot predict what effect, if any, the Commission's investigation and
the Grand Jury investigation may have on Mr. Panic's ability to continue to
devote services on a full time basis to the Company. See "-- Legal Proceedings."
In addition, Mr. Panic, who served as Prime Minister of Yugoslavia from July
1992 to March 1993, remains active in Yugoslavian politics and may again serve
in a governmental office in Yugoslavia in the future.
POTENTIAL PRODUCT LIABILITY EXPOSURE AND LACK OF INSURANCE
The Company could be exposed to possible claims for personal injury
resulting from allegedly defective products. Even if a drug were approved for
commercial use by an appropriate governmental agency, there can be no assurance
that users will not claim that effects other than those intended may result from
the Company's products. The Company generally self-insures against potential
product liability exposure with respect to its marketed products, including
Virazole(R). While to date no material adverse claim for personal injury
resulting from allegedly defective products, including Virazole(R), has been
successfully maintained against the Company, a substantial claim, if successful,
could have a material adverse effect on the Company. See
"Business -- Litigation, Government Investigations and Other Matters."
20
<PAGE> 22
GOVERNMENT REGULATION
FDA approval must be obtained in the United States and approval must be
obtained from comparable agencies in other countries prior to marketing or
manufacturing new pharmaceutical products for use by humans. Obtaining FDA
approval for new products and manufacturing processes can take a number of years
and involves the expenditure of substantial resources. Numerous requirements
must be satisfied, including preliminary testing programs on animals and
subsequent clinical testing programs on humans, to establish product safety and
efficacy. No assurance can be given that authorization of the commercial sale of
any new drugs or compounds by the Company for any application will be secured in
the United States or any other country, or that, if such authorization is
secured, those drugs or compounds will be commercially successful.
The FDA in the United States and other regulatory agencies in other
countries also periodically inspect manufacturing facilities. Failure to comply
with applicable regulatory requirements can result in, among other things,
sanctions, fines, delays or suspensions of approvals, seizures or recalls of
products, operating restrictions and criminal prosecutions. Furthermore, changes
in existing regulations or adoption of new regulations could prevent or delay
the Company from obtaining future regulatory approvals. See
"Business -- Licenses, Patents and Trademarks."
The Company is subject to price control restrictions on its pharmaceutical
products in the majority of countries in which it operates. To date, the Company
has been affected by pricing adjustments in Spain and by the lag in allowed
price increases in Yugoslavia and Mexico, which has created lower sales in U.S.
dollars and reductions in gross profit. Future sales and gross profit could be
materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors, many of whom have substantially greater capital resources and
marketing capabilities and larger research and development staffs and facilities
than the Company, are actively engaged in marketing products similar to those of
the Company and in developing new products similar to those proposed to be
developed and sold by the Company. The Company believes that many of its
competitors spend significantly more on research and development related
activities than the Company spends. Others may succeed in developing products
that are more effective than those marketed or proposed for development by the
Company. Progress by other researchers in areas similar to those being explored
by the Company may result in further competitive challenges. The Company may
also face increased competition from manufacturers of generic pharmaceutical
products when certain of the patents covering certain of its currently marketed
products expire. See "-- Limited Patent Protection" and
"Business -- Competition."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Notes will be new securities for which there is currently no public
market. The Company does not intend to list the Notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. The Initial Purchaser has
advised the Company that it currently intends to make a market in the Notes but
that it is not obligated to do so and, if such market making is commenced, it
may be discontinued at any time. Although the Notes have been designated for
trading in the PORTAL Market, there can be no assurance as to the development of
any market or the liquidity of any market that may develop for the Notes.
Accordingly, no assurance can be made as to the development or liquidity of any
market for the Notes. If an active public market does not develop, the market,
price and liquidity of the Notes may be adversely affected. If any of the Notes
are traded after their initial issuance, they may trade at a discount from their
initial offering price, depending on prevailing interest rates, the market for
similar securities and other factors, including general
21
<PAGE> 23
economic conditions and the financial condition and performance of the Company.
Prospective investors in the Notes should be aware that they may be required to
bear the financial risks of such investment for an indefinite period of time.
See "Description of the Notes."
USE OF PROCEEDS
ICN will not receive any cash proceeds from the issuance of the New Notes
offered hereby. In consideration for issuing the New Notes as contemplated in
this Prospectus, ICN will receive in exchange Old Notes in like principal
amount, the terms of which are identical in all material respects to the New
Notes. The Old Notes surrendered in exchange for the New Notes will be retired
and cancelled and cannot be reissued. Accordingly, issuance of the New Notes
will not result in any increase in the indebtedness of ICN. The Company intends
to use approximately $53.0 million of the net proceeds from the sale of the Old
Notes of $264.8 million to redeem common or preferred stock of the Company
issued to Roche in connection with the Roche Transaction, if required by Roche
in accordance with the terms of the agreement between the parties. Up to $15.0
million of the net proceeds may be used for the cash portion of the purchase
price for the manufacturing plant in Puerto Rico acquired in connection with the
Roche Transaction. The remainder of the net proceeds will be used for general
corporate purposes, including potential acquisitions and capital expenditures.
Although the Company is continually reviewing and negotiating with respect to
acquisitions of complementary business, the company has no firm commitment or
other agreement, arrangement or understanding with respect to any such
acquisition other than those that are described in this Prospectus.
22
<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of the Company on a pro
forma basis at June 30, 1997 (in thousands) after giving effect to the Roche
Transaction and the sale of the Old Notes on August 14, 1997 and the exchange
into the New Notes offered hereby. This table should be read in conjunction with
the Company's historical consolidated financial statements and "Unaudited Pro
Forma Combined Condensed Financial Statements" and the respective notes thereto,
included elsewhere or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
PRO
ACTUAL FORMA
-------- ----------
<S> <C> <C>
Long-term debt (including current portion):
The Notes........................................................ $ -- $ 275,000
8 1/2% Convertible Subordinated Notes due 1999................... 114,980 114,980
Other long-term debt(1).......................................... 76,347 116,347
-------- ----------
Total long-term debt..................................... $191,327 $ 506,327
======== ==========
Common stock subject to put agreement.............................. 15,946 15,946
Minority interest.................................................. 110,611 110,611
Stockholders' equity:(2)
Preferred Stock, $.01 par value; 10,000 shares authorized:
Series B, 46 shares issued and outstanding at June 30, 1997... 1 1
Series C, 2 shares which are convertible into 2,000 shares of
common stock at a conversion price of $25.................... -- --
Common stock, $.01 par value; 100,000 shares authorized; 35,448
and 37,048 shares outstanding at June 30, 1997 on an actual
and pro forma basis, respectively (including shares subject to
put agreement)................................................ 347 363
Additional capital............................................... 391,760 481,744
Retained earnings................................................ 6,805 6,805
Foreign currency translation adjustments......................... (36,304) (36,304)
-------- ----------
Total stockholders' equity............................... 362,609 452,609
-------- ----------
Total capitalization..................................... $680,493 $1,085,493
======== ==========
</TABLE>
- ---------------
(1) For purposes of pro forma presentation other long-term debt includes the
assumption of $40,000 bonds related to the purchase of a manufacturing plant
from Roche.
(2) Pro forma equity gives effect to issuance of stock to Roche related to the
purchase of products for $90,000, consisting of 1,600 shares of Common Stock
valued at $40,000 and 2 shares of Series C Convertible Preferred Stock
valued at $50,000 that is convertible into 2,000 shares of common stock.
Under the product purchase agreement with Roche, 20% of the proceeds from a
public debt offering may, at Roche's option, be used to buyback the common
and/or preferred stock to be issued to Roche, and the pro forma
capitalization of the Company as of June 30, 1997 does not include any
adjustment for the potential buyback of common and/or preferred stock.
23
<PAGE> 25
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Condensed Statements of Income
of ICN Pharmaceuticals, Inc. (the "Company") for the year ended December 31,
1996 and the six months ended June 30, 1996 and 1997, give effect to the 1997
acquisition of products and a manufacturing plant, not currently manufacturing
the products acquired, from F. Hoffmann-LaRoche Ltd ("Roche") (the "Roche
Acquisitions"), and the issuance on August 14, 1997 of $275 million of Senior
Notes due 2005 with a stated annual interest rate of 9 1/4% ("Senior Notes")
(hereto collectively referred to as the "Transactions") as if each transaction
had taken place as of January 1, 1996 and the following Unaudited Pro Forma
Combined Condensed Balance Sheet of the Company gives effect to the Transactions
as of June 30, 1997.
The Roche Acquisitions relate to the July 1, 1997 acquisition of the
worldwide rights to seven products, the non-U.S. rights to two other products
and the purchase of a GMP-standard manufacturing plant (the "Plant") in Humacao,
Puerto Rico. Under the agreement with Roche, the Company received the product
rights in exchange for $90 million payable in a combination of 1,600,000 shares
of the Company's common stock valued at $40 million and 2,000 shares of the
Company's convertible preferred stock valued at $50 million. Each share of the
Company's convertible preferred stock is convertible into 1,000 shares of the
Company's common stock at a conversion price equivalent to $25 per share. The
purchase price of the Plant is $55 million which will be funded by the
assumption of $40 million in existing bonds and the payment of $15 million in
cash. Additionally, the purchase of the Plant is under a sale/leaseback
arrangement whereby Roche will lease the Plant from the Company under a two year
lease with lease payments totaling $8 million annually. The Pro Forma Combined
Condensed Statements of Income give effect to the sale/leaseback arrangement as
if it had taken place as of January 1, 1996. The Roche Acquisitions did not
constitute the acquisition of a significant business as defined by Regulation
S-X promulgated by the Securities and Exchange Commission.
The Pro Forma Financial Statements assume the issuance of the Senior Notes
in the Offering, with estimated deferred loan costs of $10.3 million and an
assumed annual effective interest rate of 9.72%.
The Unaudited Pro Forma Combined Condensed Statements of Income are based
on the historical operating results of the entities acquired under the
assumptions and adjustments set forth in the accompanying notes thereto. Due to
a lack of availability of quarterly information relating to the products, the
historical operating results for the six months ended June 30, 1996, assuming a
lack of seasonality, represent a pro rata allocation of the annual and year to
date results for the periods presented. Historical financial information for the
Plant for the six months ended June 30, 1997 and 1996 are not available and have
not been included in the Unaudited Pro Forma Combined Condensed Statements of
Income. The sales and manufacturing effort of the Plant remains with Roche
subsequent to the sale of the Plant. Accordingly, pro forma adjustments were
made to reflect the continuing impact of the sale/leaseback agreement with
Roche.
The pro forma financial statements may not be indicative of the results
that actually would have occurred if the acquisitions and transactions had been
consummated at either of the foregoing dates or which may result in the future,
and should be read in conjunction with historical consolidated financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company, included elsewhere or incorporated by
reference in this Prospectus.
24
<PAGE> 26
ICN PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ROCHE PRO FORMA PRO FORMA
ICN ACQUISITION(1) ADJUSTMENTS ICN
---------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. $ 319,197 $ 28,765 $ -- $ 347,962
Cost of sales.............................. 150,761 9,780 -- 160,541
-------- ------- -------- --------
Gross profit............................. 168,436 18,985 -- 187,421
Selling, general and administrative........ 111,182 5,753 -- 121,341
1,706(2)
100(2)
2,600(4)
Lease revenue.............................. (4,000)(2) (4,000)
Research and development................... 8,920 -- -- 8,920
-------- ------- -------- --------
Income from operations................... 48,334 13,232 (406) 61,160
Interest income............................ (3,463) -- -- (3,463)
Interest expense........................... 7,382 -- 13,360(3) 21,617
875(2)
Translation................................ 5,710 -- -- 5,710
-------- ------- -------- --------
Income before minority interest and
taxes................................. 38,705 13,232 (14,641) 37,296
(Benefit) for income taxes................. (11,790) -- (564)(5) (12,354)
Minority interest.......................... 6,915 -- -- 6,915
-------- ------- -------- --------
Net income............................... $ 43,580 $ 13,232 $ (14,077) $ 42,735
======== ======= ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of
Income.
25
<PAGE> 27
ICN PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ROCHE PRO FORMA PRO FORMA
ICN ACQUISITION(1) ADJUSTMENTS ICN
------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................ $ 281,908 $26,922 $ -- $ 308,830
Cost of sales............................ 140,335 9,145 -- 149,480
-------- ------- ------- --------
Gross profit........................... 141,573 17,777 -- 159,350
Selling, general and administrative...... 85,166 5,384 -- 94,956
1,706(2)
100(2)
2,600(4)
Lease revenue............................ (4,000)(2) (4,000)
Research and development................. 6,910 -- -- 6,910
-------- ------- ------- --------
Income from operations................. 49,497 12,393 (406) 61,484
Interest income.......................... (1,519) -- -- (1,519)
Interest expense......................... 5,592 -- 13,360(3) 19,827
875(2)
Translation.............................. 688 -- -- 688
-------- ------- ------- --------
Income before minority interest and
taxes............................... 44,736 12,393 (14,641) 42,488
Provision (benefit) for income taxes..... 1,040 -- (899)(5) 141
Minority interest........................ 6,800 -- -- 6,800
-------- ------- ------- --------
Net income............................. $ 36,896 $12,393 $ (13,742) $ 35,547
======== ======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of
Income.
26
<PAGE> 28
ICN PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ROCHE PRO FORMA PRO FORMA
ICN ACQUISITION(1) ADJUSTMENTS ICN
------------ -------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. $614,080 $ 65,011 $ (11,168)(1) $ 667,923
Cost of sales.............................. 291,807 33,532 (15,243)(1) 310,096
-------- ------- -------- --------
Gross profit............................. 322,273 31,479 4,075 357,827
Selling, general and administrative........ 192,441 16,280 (5,511)(1) 212,021
3,411(2)
200(2)
5,200(4)
Lease revenue.............................. (8,000)(2) (8,000)
Research and development................... 15,719 -- -- 15,719
-------- ------- -------- --------
Income from operations................... 114,113 15,199 8,775 138,087
Interest income............................ (3,001) (4,952) 4,952(1) (3,001)
Interest expense........................... 15,780 6,608 26,719(3) 44,249
(6,608)(1)
1,750(2)
Translation................................ 2,282 -- -- 2,282
-------- ------- -------- --------
Income before minority interest and
taxes................................. 99,052 13,543 (18,038) 94,557
(Benefit) for income taxes................. (6,815) -- (1,798)(5) (8,613)
Minority interest.......................... 18,939 -- -- 18,939
-------- ------- -------- --------
Net income............................... $ 86,928 $ 13,543 $ (16,240) $ 84,231
======== ======= ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Statements of
Income.
27
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF INCOME
The following is a summary of items and adjustments reflected in the
Unaudited Pro Forma Combined Condensed Statements of Income:
(1) Following is a summary of the historical financial information of the
purchased products for each of the periods ended:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Sales........................................... $ 53,843 $ 26,922 $ 28,765
Cost of sales................................... $ 18,289 $ 9,145 $ 9,780
Selling, general and administrative............. $ 10,769 $ 5,384 $ 5,753
</TABLE>
The selling, general and administrative expenses for each of the periods
presented are based upon estimates obtained from Roche as to their best
estimate of the actual expenses that might have been incurred had such
information been available on a product basis. Such estimates were based
upon amounts incurred in connection with the sale of similar products or
product lines. These costs may not be indicative of the costs that might
be incurred by the Company in the future.
Following is a summary of the historical financial information of the
Plant for the year ended December 31, 1996:
<TABLE>
<S> <C>
Sales....................................................... $ 11,168
Cost of goods sold.......................................... 15,243
--------
Gross loss.................................................. (4,075)
Selling, general and administrative......................... 5,511
Interest income............................................. (4,952)
Interest expense............................................ 6,608
--------
Net loss.................................................... $(11,242)
========
</TABLE>
The above historical information of the Plant excludes a write down of
fixed assets of $49,972 by Roche and a corresponding deferred tax
benefit of $19,235 relating to the asset write-down, as a result of
Roche's announced plans to cease the operation of the plant in 1998 and
liquidate the remaining assets. Additionally, sales and cost of goods
sold do not represent sales or manufacturing of the products noted above
as such products are not currently manufactured at the Plant.
Historical financial information for the Plant for the six months ended
June 30, 1997 and 1996 are not available and have not been included in
the Unaudited Pro Forma combined Condensed Statements of Income. The
sales and manufacturing effort of the Plant remains with Roche
subsequent to the sale of the Plant. Accordingly, pro forma adjustments
were made to reflect the continuing impact of the sale/leaseback
agreement with Roche. (see Note 2).
(2) During the Company's first two years of ownership of the Plant it will
lease the Plant to Roche. In the third year, upon assuming operating
control of the Plant, the Company will provide contract manufacturing
services to Roche. After that period, the capacity of the Plant will be
utilized by the Company for internal production requirements and third
party manufacturing services. However, there can be no guarantee that
the Company will be successful in providing third party manufacturing
services. Under the terms of the lease, Roche shall pay the Company an
annual rental fee totaling $8,000 of which $4,000 will be in cash and
$4,000 will be in the form of a credit toward inventory purchases from
Roche. The
28
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF INCOME -- (CONTINUED)
Company will be responsible for paying the interest on the assumed debt
and property taxes which total $1,750 and approximately $200,
respectively, annually. Depreciation on the Plant is $3,411, $1,706 and
$1,706 for the year ended December 31, 1996 and the six months ended
June 30, 1997 and 1996, respectively, based upon the Company's basis in
the Plant. Roche will be responsible for all other operating costs. Pro
forma adjustments are made to reverse the historical operating results
of the Plant for the year ended December 31, 1996 (see Note 1) and give
effect to the lease of the Plant assuming the lease was consummated on
January 1, 1996.
(3) Assumes the issuance on August 14, 1997 of $275,000 principal amount of
Senior Notes, with estimated deferred loan issuance costs of $10,250,
and an assumed annual effective interest rate of 9.72%. A portion of
the proceeds will be used for the $15,000 cash requirement of the Plant
acquisition.
The Company's pro forma statements include adjustments to reflect
interest on the Senior Notes at an assumed annual effective interest
rate of 9.72% or $26,719, $13,360 and $13,360 for the year ended
December 31, 1996 and for the six months ended June 30, 1997 and 1996,
respectively.
(4) Represents amortization of the intangibles related to the purchase of
products from Roche over 18 years of $5,200, $2,600 and $2,600 for the
year ended December 31, 1996 and the six months ended June 30, 1997 and
1996, respectively. The amortization is based upon a preliminary
valuation of $93,100 for the products acquired.
(5) Represents the tax effect of the Roche Acquisitions earnings and the
pro forma adjustments to earnings before taxes based on the estimated
federal, Puerto Rican and state statutory rates, which when combined
are approximately 40%.
(6) These Unaudited Pro Forma Combined Condensed Statements of Income
exclude the following non-recurring items which will be incurred in
connection with the proposed acquisitions and proposed financing:
(a) Income that may be generated from the use of proceeds or the
interest earned on proceeds that have yet to be applied for their
intended purpose. It is the Company's intent to deposit the
$249,750 of excess proceeds in 90 day Treasury bills having a
current interest rate of 5.1%, which would generate interest
income of approximately $3,184 quarterly.
(b) The Company intends to use approximately $30,000 of proceeds from
the New Debt for research and development projects and
preparation for launching Virazole(R) for the treatment of
Hepatitis C in Western Europe, if approved.
29
<PAGE> 31
ICN PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
AS OF MARCH 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL ROCHE PRO FORMA PRO FORMA
ICN ACQUISITION ADJUSTMENTS ICN
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 41,969 -- $ 249,750(1) $ 291,719
Restricted cash........................ 552 -- -- 552
Receivables, net....................... 223,076 -- -- 223,076
Notes receivable....................... 100,000 -- -- 100,000
Inventories, net....................... 122,670 -- 122,670
Prepaid expenses and other current
assets............................... 21,371 -- -- 21,371
-------- ------- -------- ----------
Total current assets......... $ 509,638 -- $ 249,750 $ 759,388
Property, plant and equipment (at
cost), net........................... 233,559 $ 64,291 (9,291)(3) 288,559
Deferred taxes, net.................... 55,850 -- -- 55,850
Other assets........................... 37,953 -- 10,250(1) 48,203
Goodwill and intangibles............... 34,978 -- 90,000(2) 128,078
3,100(2)
-------- ------- -------- ----------
$ 871,978 $ 64,291 $ 343,809 $1,280,078
======== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables......................... $ 71,382 -- $ -- $ 71,382
Accrued liabilities.................... 65,952 -- 3,100(2) 69,052
Notes payable.......................... 16,704 -- -- 16,704
Current portion of long-term debt...... 5,435 -- -- 5,435
Income taxes payable................... 1,902 -- -- 1,902
-------- ------- -------- ----------
Total current liabilities.... $ 161,375 -- $ 3,100 $ 164,475
Long-term debt less current portion:
Convertible into common stock........ 126,727 -- -- 126,727
Other long-term debt................. 59,165 $ 40,000 275,000(1) 374,165
Deferred license and royalty income.... 13,312 -- -- 13,312
Other liabilities...................... 22,233 -- -- 22,233
Minority interest...................... 110,611 -- -- 110,611
Common stock subject to put agreement.. 15,946 -- -- 15,946
Stockholders' equity:
Preferred stock........................ 1 -- --(2) 1
Common stock........................... 347 -- 16(2) 363
Additional paid in capital............. 391,760 24,291 89,984(2) 481,744
(24,291)(3)
Retained earnings...................... 6,805 -- -- 6,805
Foreign currency translation
adjustment........................... (36,304) -- -- (36,304)
-------- ------- -------- ----------
Total stockholders' equity... $ 362,609 $ 24,291 $ 65,709 $ 452,609
-------- ------- -------- ----------
$ 871,978 $ 64,291 $ 343,809 $1,280,078
======== ======= ======== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Balance Sheet.
30
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The following is a summary of items and adjustments reflected in the
Unaudited Pro Forma Combined Condensed Balance Sheet:
(1) Assumes the issuance on August 14, 1997 of $275,000 principal amount of
Senior Notes, with estimated deferred loan costs of $10,250, and an assumed
annual effective interest rate of 9.72%. A portion of the proceeds will be used
for the cash requirement of the Plant acquisition of $15,000. The remaining net
proceeds of $249,750 have been reflected as cash and cash equivalents. See "Use
of Proceeds."
(2) Under the agreement with Roche, the Company will receive the product
rights in exchange for $90,000 payable in a combination of 1,600,000 shares of
the Company's $0.01 par value common stock valued at $40,000 and 2,000 shares of
the Company's $0.01 convertible preferred stock valued at $50,000. Each share of
the Company's convertible preferred stock is convertible into 1,000 shares of
the Company's common stock at a conversion price equivalent to $25 per share.
The entire purchase price has been allocated to the products purchased based
upon preliminary appraisals received by the Company. Direct acquisition costs
total $3,100.
(3) Represents the adjustment to the historical carrying value of the Plant
of $64,291 to reflect the purchase price of the Plant of $55,000. The purchase
price will be funded by the assumption of $40,000 in existing bonds and the
payment of $15,000 in cash from the proceeds from the Senior Notes. The entire
purchase price of the plant has been allocated to the assets purchased based
upon preliminary appraisals.
(4) Under the product purchase agreement with Roche, 20% of the proceeds
from a public debt offering may, at Roche's option, be used to buyback the
common and/or preferred stock to be issued to Roche as part of the purchase of
products. The Pro Forma Combined Condensed Balance Sheet as of June 30, 1997
does not include any adjustment for the potential buyback of common or preferred
stock. See "Business -- Background."
31
<PAGE> 33
SELECTED FINANCIAL DATA
The following table sets forth selected historical and pro forma financial
and other data of the Company on a consolidated basis and selected historical
operating data of ICN Yugoslavia for each of the years in the five year period
ended December 31, 1996 and the six month periods ended June 30, 1997 and 1996.
The Company's selected historical financial data for each of the years in the
five year period ended December 31, 1996 were derived from the audited
consolidated financial statements of the Company. The Company's selected
financial data as of June 30, 1997 and for the six month periods ended June 30,
1997 and 1996 were derived from the unaudited consolidated condensed financial
statements of the Company incorporated by reference in this Prospectus. In the
opinion of management, such unaudited consolidated condensed financial
statements include all adjustments, consisting of only normal recurring items,
necessary for a fair presentation of the financial condition and results of
operations of the Company for such periods. Operating results for the six months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the full year. The selected pro forma data for the year ended
December 31, 1996, for the six month period ended June 30, 1996, and as of and
for the six month period ended June 30, 1997 were derived from the "Unaudited
Pro Forma Combined Condensed Financial Statements", giving effect to the events
described therein, included elsewhere in this Prospectus. The pro forma
financial data are not necessarily indicative of operating results or financial
position that would have been achieved had these events been consummated on the
dates indicated and should not be construed as a representative of future
operating results or financial position. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Unaudited Pro Forma Combined
Condensed Financial Statements" and the Company's historical consolidated
financial statements, including the notes thereto, included elsewhere or
incorporated by reference in this Prospectus.
32
<PAGE> 34
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------- -----------------------------------------
PRO PRO PRO
FORMA FORMA FORMA
1992 1993 1994 1995 1996 1996 1996 1997 1996 1997
-------- -------- --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS --
CONSOLIDATED:
Net sales(1)....... $476,118 $403,957 $ 366,851 $507,905 $614,080 $667,923 $281,908 $319,197 $308,830 $347,962
Cost of sales...... 208,745 211,923 182,946 206,049 291,807 310,096 140,335 150,761 149,480 160,541
-------- -------- --------- -------- -------- -------- -------- -------- -------- --------
Gross profit....... 267,373 192,034 183,905 301,856 322,273 357,827 141,573 168,436 159,350 187,421
Selling, general
and
administrative
expenses......... 172,395 134,895 112,919 191,459 192,441 212,021 85,166 111,182 94,956 121,341
Lease revenue...... -- -- -- -- -- (8,000) -- -- (4,000) (4,000)
Royalties to
affiliates,
net.............. 5,511 6,121 7,468 -- -- -- -- -- -- --
Research and
development
costs............ 7,836 11,516 7,690 17,231 15,719 15,719 6,910 8,920 6,910 8,920
Write-off purchased
research and
development(2)... -- -- 221,000 -- -- -- -- -- -- --
-------- -------- --------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
from
operations..... 81,631 39,502 (165,172) 93,166 114,113 138,087 49,497 48,334 61,484 61,160
Translation and
exchange (gain)
loss, net........ 25,039 (3,282) 191 (9,484) 2,282 2,282 688 5,710 688 5,710
Interest
income(3)........ (9,679) (8,033) (4,728) (6,488) (3,001) (3,001) (1,519) (3,463) (1,519) (3,463)
Interest expense... 13,065 23,750 9,317 22,889 15,780 44,249 5,592 7,382 19,827 21,617
-------- -------- --------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before
provision
(benefit) for
income taxes
and minority
interest....... 53,206 27,067 (169,952) 86,249 99,052 94,557 44,736 38,705 42,488 37,296
Provision (benefit)
for income
taxes............ 9,095 5,368 10,360 2,997 (6,815) (8,613) 1,040 (11,790) 141 (12,354)
Minority
interest......... 9,608 189 3,269 15,915 18,939 18,939 6,800 6,915 6,800 6,915
-------- -------- --------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss)......... $ 34,503 $ 21,510 $(183,581) $ 67,337 $ 86,928 $ 84,231 $ 36,896 $ 43,580 $ 35,547 $ 42,735
======== ======== ========= ======== ======== ======== ======== ======== ======== ========
Per Share
Information:
Net income
(loss)......... $ 1.61 $ .99 $ (7.93) $ 2.20 $ 2.40 $ 2.10 $ 1.07 $ 1.03 $ .93 $ .92
======== ======== ========= ======== ======== ======== ======== ======== ======== ========
OTHER
DATA -- CONSOLIDATED:
Depreciation and
amortization..... 6,770 8,513 9,248 13,814 16,292 24,903 6,484 10,765 10,790 15,071
Capital
expenditures..... 11,610 8,431 20,205 49,693 26,216 26,216 7,939 10,861 7,939 10,861
EBITDA(4).......... 88,401 48,015 65,076 106,980 130,405 162,990 55,981 59,099 72,274 76,231
Cash flows provided
by
(used in):
Operating
activities..... 29,718 18,207 42,557 79,326 (25,548) (4,488) 12,736
Investing
activities..... (25,336) (25,794) (11,390) (47,025) (41,962) 8,150 (20,374)
Financing
activities..... 17,055 (15,702) (2,919) (50,518) 82,680 9,102 10,615
Ratio of EBITDA to
interest
cost(5).......... 6.8x 2.0x 7.0x 4.3x 6.7x 3.4x 7.2x 6.0x 3.3x 3.2x
Ratio of earnings
to fixed
charges(6)....... 5.1x 2.1x 6.5x 4.4x 5.9x 2.9x 6.5x 4.7x 2.8x 2.4x
Ratio of net debt
to EBITDA(7)..... 0.0x 0.4x 2.7x 1.3x 1.2x 1.1x 1.4x 1.5x
OPERATING
DATA -- ICN
YUGOSLAVIA:
Net sales.......... $325,903 $239,832 $ 172,124 $234,661 $267,166 $129,992 $ 98,108
Gross profit....... 173,985 83,643 50,423 117,913 109,185 43,133 47,614
Income from
operations....... 66,481 483 15,505 46,296 70,616 27,092 32,579
Depreciation and
amortization..... 2,707 2,969 2,716 4,396 4,185 2,120 1,287
Interest expense... 5,453 16,774 933 3,610 1,478 557 --
EBITDA(4).......... 69,188 3.452 18,221 50,692 74,801 29,212 33,866
</TABLE>
See accompanying Notes to Selected Financial Data
33
<PAGE> 35
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------------------------
----------------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Working
capital........ $120,942 $127,259 $ 137,802 $190,802 $306,764 $228,445 $348,263 $ 594,913
Total assets..... 333,218 302,017 441,473 518,298 778,651 578,805 871,978 1,280,078
Long-term debt
(including
notes payable
and current
portion of
long-term
debt).......... 41,630 35,206 215,005 166,269 195,681 159,271 208,031 523,031
Stockholders'
equity......... 135,427 155,879 88,908 162,172 315,350 218,148 362,609 452,609
</TABLE>
NOTES TO SELECTED FINANCIAL DATA:
- ---------------
(1) ICN Yugoslavia's sales have been adversely affected since the
imposition in May 1992 of United Nations sanctions on Yugoslavia,
suspended in December 1995.
(2) The 1994 Merger resulted in $221 million being ascribed to purchased
research and development for which no alternative use existed and
was written-off immediately. This write-off was a one-time, non-cash
charge and is not related to the Company's ongoing research and
development activities for Virazole(R). Net income, excluding this
one-time, non-cash write-off, was $37.4 million in 1994.
(3) Interest income that may be generated from the use of proceeds or
the interest earned on proceeds that have yet to be applied for
their intended purpose has not been included in the pro forma
results. It is the Company's intent to deposit the $249,750 of
excess proceeds in 90 Treasury bills having a current interest rate
of 5.1% which would generate quarterly interest income of $3,184.
(4) EBITDA represents the sum of income (loss) from operations plus
depreciation and amortization and excludes the 1994 write-off of
purchased research and development. See Note 2. The Company believes
that EBITDA provides additional information for determining its
ability to meet its future debt service, capital expenditure and
working capital requirements. EBITDA is not a measure of financial
performance under GAAP and should not be considered as an
alternative either to net income as an indicator of the Company's
operating performance, or to cash flows as a measure of the
Company's liquidity. In addition, EBITDA measures presented may not
be comparable to other similarly titled measures of other companies.
(5) For purposes of the computation, interest cost includes both
interest expensed and capitalized.
(6) For purposes of determining the ratio of earnings to fixed charges,
earnings consists of income before minority interests, provision
(benefit) for income taxes, write-off of purchased research and
development and interest expense. Fixed charges consist of interest
expense and capitalized interest.
(7) For purposes of the computation, net debt is equal to notes payable
plus total long-term debt, including the current portion thereof,
less unrestricted cash and cash equivalents, and EBITDA for all
interim periods presented has been annualized. This computation was
not made as of December 31, 1996 and June 30, 1996 on a pro forma
basis, as a pro forma balance sheet is not presented.
34
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Prior to November 1994, the ICN group of companies included a
pharmaceuticals products company, SPI Pharmaceuticals, Inc. ("SPI"); a research
products company, ICN Biomedicals, Inc. ("Biomedicals"); a research and
development company, Viratek, Inc. ("Viratek"); and the parent company, ICN
Pharmaceuticals, Inc. ("ICN"). Until November 1, 1994, the effective date of the
Merger (as defined below), ICN owned 39% of SPI, 63% of Viratek and 69% of
Biomedicals.
Effective November 1, 1994, SPI, ICN and Viratek merged into ICN Merger
Corp., and Biomedicals merged into ICN Subsidiary Corp., a wholly-owned
subsidiary of ICN Merger Corp. (the "Merger"). In conjunction with the Merger,
ICN Merger Corp. was renamed ICN Pharmaceuticals, Inc. The Merger was accounted
for using the purchase method of accounting. Additionally, for accounting
purposes, SPI was treated as the acquiring company and as a result, the Company
has reported the historical financial data of SPI in its financial results and
the results of ICN, Viratek and Biomedicals have been included with the results
of the Company since the effective date of the Merger.
As part of the Merger, the Company issued approximately 6,476,770 common
shares valued on November 10, 1994 at $20.75 per share, which was the publicly
traded price for SPI's common shares at that date. Accordingly, the purchase
price, including direct acquisition costs of $3.7 million, has been allocated to
the estimated fair value of the net assets, including amounts ascribed to
purchased research and development costs for which no alternative use existed,
of $221.0 million or $9.55 per share, which was written-off to operations
immediately following the consummation of the Merger. Net income, excluding this
one-time, non-cash write-off, was $37.4 million or $1.62 per share in 1994.
The Merger resulted in the acquisition of a biomedical business with
pre-merger annual sales of approximately $58.0 million, direct access to
Viratek's research and development resources including its scientific expertise,
substantial tax net operating loss carry forwards and the elimination of royalty
payments to Viratek on the sales of Virazole(R).
From time to time the Company has considered various alternatives with
respect to the restructuring and/or financing of its Eastern European
operations, including possible public or private sales of a portion of the
equity in those businesses, refinancings and similar transactions. In June 1997
the Company retained an investment banking firm to conduct a study of such
alternatives, and that study is currently in progress.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
RESULTS OF OPERATIONS
For financial reporting purposes the Company's operations are divided into
two industry segments, the Pharmaceutical segment and the Biomedical segment.
Certain financial information for the two industry segments is set forth below.
This discussion should be read in conjunction with the consolidated
financial statements of the Company incorporated by reference in this
Prospectus.
35
<PAGE> 37
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
NET SALES (IN THOUSANDS) 1997 1996
----------------------------------------------------------- -------- --------
<S> <C> <C>
Pharmaceutical............................................. $282,144 $249,530
Biomedical................................................. 37,053 32,378
-------- --------
Total Company.............................................. $319,197 $281,908
======== ========
</TABLE>
Pharmaceutical sales for the six months ended June 30, 1997 increased due
to continued growth in Eastern Europe reflecting internal growth in Russia and
additional sales from acquisitions. This region experienced growth despite
declining sales in Yugoslavia resulting from government controls on healthcare
spending.
Pharmaceutical net sales in Eastern Europe were $182.0 million for the six
months ended June 30, 1997, compared to $154.9 million for the same period in
1996. The Company's new acquisitions of Alkaloida in Hungary and Polypharm in
Russia contributed $39.7 million of sales to the Eastern European region during
the six months ended June 30, 1997. Sales in Yugoslavia were $98.1 million for
the six months ended June 30, 1997, compared to $130.0 million for the same
period in 1996. Sales in Yugoslavia were lower due to decreased unit sales and
unfavorable exchange rates and have been adversely affected by liquidity
problems in that country and by government actions to reduce health care
spending. The Company is currently negotiating an arrangement with the
government of Yugoslavia under which ICN Yugoslavia would commit to continue to
provide products, in dollar denominated sales, in an amount up to $50.0 million
per calendar quarter for one year, and the government would pay a minimum of
$9.0 million per month towards outstanding receivables. However, at no point in
time can the amount due to ICN Yugoslavia from the government exceed $200.0
million, including both accounts and notes receivable.
Pharmaceutical net sales in North America were $48.1 million for the six
months ended June 30, 1997, compared to $51.7 million for the same period in
1996. Net sales for the six months ended June 30, 1997 decreased $3.7 million or
8% primarily due to a decrease in unit sales of Virazole(R) in the amount of
$8.2 million partially offset by an increase in unit sales in the
dermatological, medicinal and myasthenia gravis product lines. Virazole(R) is
used in the United States to treat RSV, a seasonal illness which occurs
primarily in late fall through early spring. Sales of Virazole(R) during the
first six months of 1997 have been adversely impacted by increased wholesale
inventory levels that developed early in the 1995/1996 season along with
continuing trends in the industry toward cost containment.
The Company has completed its purchase, effective July 1, 1997 from F.
Hoffmann-La Roche Ltd. of worldwide rights to seven products and non-U.S. rights
(with an option to purchase the U.S. rights) to two other products having
combined aggregate annual sales in 1996 of $53.8 million. The future sales from
these products will be included in the North American sales from the effective
date of the acquisition, July 1, 1997, and may be slightly lower than the
annualized 1996 sales levels.
Pharmaceutical net sales in Latin America were $26.5 million for the six
months ended June 30, 1997, compared to $21.5 million for the same period in
1996. Net sales in the six months ended June 30, 1997 increased $5.0 million or
23%, compared to the same period in 1996. Such increase in net sales were
primarily due to price increases, and, to a lesser extent, volume increases.
Pharmaceutical net sales in Western Europe were $17.8 million for the six
months ended June 30, 1997, compared to $19.0 million for the same period in
1996. Net sales for the six months ended June 30, 1997 decreased $1.2 million or
7% primarily due to a decrease in Calcitonina(R) and antibiotic unit sales in
Spain and changes in translation rates partially offset by an increase in
European Virazole(R) sales of $1.1 million. Since the beginning of the year the
exchange rate of the Spanish peseta has declined in value against the dollar by
14%.
36
<PAGE> 38
Pharmaceutical net sales in Asia, Africa and Australia were $7.8 million
for the six months ended June 30, 1997, compared to $2.4 million for the same
period in 1996. This increase of $5.4 million for the six months ended June 30,
1997 compared to the same period in 1996 is primarily due to the additional
sales contributed by the Company's joint venture with Wuxi Pharmaceutical
Corporation ("Wuxi") in China, which the Company entered into in the first
quarter of 1997.
Biomedicals segment net sales for the six months ended June 30, 1997 were
$37.0 million, compared to $32.4 million for the same period of 1996. Net sales
in the six months ended June 30, 1997 increased $4.7 million or 14%. The
increase in net sales for the six months ended June 30, 1997 is primarily due to
the additional Dosimetry sales of $6.4 million resulting from the acquisition of
the former Siemens Dosimetry Service in July 1996, partially offset by a
decrease in instrument sales of $1.3 million resulting from the sale of the
Company's instrument business in March 1996 and a decrease in Diagnostic product
sales.
GROSS PROFIT. Gross profit as a percentage of sales was 53% for the six
months ended June 30, 1997, compared to 50% for the same period in 1996. The
increase in gross profit margin is due to improvement in gross profit margins
primarily at ICN Yugoslavia where gross profit margins increased to 49% for the
six months ended June 30, 1997 from 33% during the same period in 1996. ICN
Yugoslavia margins were lower in the prior year due to the impact of the
devaluation of the dinar in November 1995 which carried over into 1996 as the
higher priced inventory was sold. The improvement at ICN Yugoslavia was
partially offset by the gross profit margins resulting from the recent
acquisitions in Eastern Europe of Alkaloida in Hungary and Leksredstva and
Polypharm in Russia. The sales contributed by these acquisitions carried gross
profit margins of approximately 35%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $111.2 million, or 35% of sales for the six months
ended June 30, 1997, compared to $85.2 million or 30% of sales for the six
months ended June 30, 1996. The dollar increase of $26.0 million for the six
months ended June 30, 1997, compared to the same period in 1996 is primarily due
to a legal settlement charge and additional expenses as a result of the
acquisitions of Alkaloida in Hungary, Leksredstva and Polypharm in Russia, and
the former Siemens Dosimetry Service in the United States. In the second quarter
of 1997, the Company recorded a non-recurring $12.0 million charge for the
settlement of the 1995 class action suit related to the Company's filing of its
hepatitis C new drug application with the Food and Drug Administration.
RESEARCH AND DEVELOPMENT. Research and development expenditures increased
$2.0 million or 29% for the six months ended June 30, 1997 compared to the same
period in 1996. Such increase was primarily due to the acquisition of personnel
and modern research facilities at Alkaloida in Hungary, and increased
expenditures at ICN Yugoslavia and the United States.
TRANSLATION AND EXCHANGE LOSSES, NET. Translation and exchange losses,
net, were $5.7 million for the six months ended June 30, 1997, compared to
$688,000 for the same period in 1996. For the six months ended June 30, 1997,
translation losses, net include $1.7 million of translation gains related to the
Company's foreign denominated debt offset by $6.6 million of translation losses
related to ICN Yugoslavia's net monetary asset position. For the six months
ended June 30, 1996, translation losses, net include $2.3 million of translation
losses related to ICN Yugoslavia net monetary asset position, partially offset
by translation gains of $2.0 million related to the Company's foreign
denominated debt.
INTEREST INCOME. Interest income increased primarily due to interest income
on notes receivable from the Yugoslavian government.
INTEREST EXPENSE. Interest expense during the six months ended June 30,
1997 increased $1.8 million, compared to the same period in 1996. This increase
resulted primarily from the increase in short and long term debt of the Company,
primarily due to the effect of the debt assumed with the acquisition of
Alkaloida in Hungary.
37
<PAGE> 39
TAXES. Provision (benefit) for income taxes was ($11.8 million) for the six
months ended June 30, 1997, compared to $1.0 million for the same period in
1996. As a result of the acquisition of product rights from F. Hoffmann-La Roche
Ltd., the Company revalued its deferred tax assets resulting in an increase in
its deferred tax asset and a corresponding deferred tax benefit of $21.0
million. Offsetting this benefit were increases in taxes at ICN Yugoslavia of
$8.3 million resulting from the expiration of tax benefits which originated when
ICN Yugoslavia was acquired in 1991. However, future taxes may be partially
offset by tax credits allowed in Yugoslavia for plant construction. The current
statutory tax rate in Yugoslavia is 25%.
COMPUTATION OF PER SHARE EARNINGS. In the Company's calculation of per
share earnings, certain adjustments are made to reported net income to arrive at
an adjusted net income that is divided by the number of shares for the period.
Last year these adjustments related to the impact of the Company's convertible
debt, while in the six months ended June 30, 1997 there are additional
adjustments related to preferred dividends. In October of 1996, the Company
issued $50.0 million of preferred stock having a 6% dividend and a
convertibility feature that allows conversion into common stock at a discount
from the current market price at the time of the exercise. This discount
represents an embedded dividend and is treated similar to the 6% stated
preferred dividend in the calculation of earnings per share. In the six months
ended June 30, 1997, the preferred stock is not assumed to be converted because
to do so would be anti-dilutive. Accordingly, the earnings per share calculation
includes an adjustment to net income for the six months ended June 30, 1997 of
$4.4 million, related to the stated preferred and embedded dividends compared to
no preferred dividend deduction last year. The embedded dividend is deducted
from earnings in the per share calculation based on when the convertible feature
of the preferred becomes exercisable, which occurs over a year with most of the
discount amortized in the first two quarters subsequent to the issuance.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEARS ENDED DECEMBER 31, 1995 AND 1994
RESULTS OF OPERATIONS
Certain financial information for the Company's two industry segments is
set forth below.
<TABLE>
<CAPTION>
NET SALES (IN THOUSANDS) 1996 1995 1994
---------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Pharmaceutical...................................... $549,753 $446,566 $357,821
Biomedical.......................................... 64,327 61,339 9,030
-------- -------- --------
Total Company............................. $614,080 $507,905 $366,851
======== ======== ========
</TABLE>
NET SALES: Eastern Europe was the major contributor for sales growth in
1996. Pharmaceutical net sales in Eastern Europe for the year ended December 31,
1996 were $355.4 million compared to $255.0 million for the same period in 1995.
The increase of $100.4 million or 39% reflects an active expansion program that
includes three acquisitions in 1996. In Russia, the Company acquired and began
consolidating Leksredstva in the second quarter which added $21.1 million of
sales and in the third quarter it acquired and began consolidating Polypharm
which added $7.4 million of sales. In Hungary, the Company acquired and began
consolidating Alkaloida in the fourth quarter which added $21.5 million of
sales. Sales at Oktyabr in Russia have increased $18.0 million due to price and
volume increases and the inclusion of a full twelve months of activity this year
compared to three quarters of Oktyabr sales in 1995. During 1996, ICN Yugoslavia
has been recovering from the effects of a November 1995 devaluation. Net sales
at ICN Yugoslavia amounted to $267.2 million in 1996, an increase of $32.5
million or 14% over the previous year, primarily due to higher prices partially
offset by currency fluctuations due to the impact of the 1995 devaluation. With
the lifting of United Nations sanctions, ICN Yugoslavia was able to begin
exporting in 1996, which contributed $20.2 million of sales.
Pharmaceutical net sales in Eastern Europe for the year ended December 31,
1995 were $255.0 million compared to $172.1 million for the same period in 1994.
The increase of $82.9 million
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or 48% is primarily due to increased sales of $62.5 million or 36% at ICN
Yugoslavia due to improved unit sales and favorable price increases for the year
compared to 1994. Also contributing to the increase in sales in 1995 compared to
the previous year were the sales of $20.3 million contributed by the second
quarter 1995 acquisition of Oktyabr.
Pharmaceutical net sales in North America for the year ended December 31,
1996 were $106.4 million compared to $109.5 million for the same period in 1995.
The decrease of $3.1 million or 3% reflects a decrease in unit sales of
Virazole(R) in the amount of $22.4 million, partially offset by an increase in
unit sales primarily in the dermatological, medicinal, and myasthenia gravis
product lines. Early in the 1995/1996 season, the number of hospital admissions
and positive cultures for RSV suggested a heavy incidence of infection. However,
the severity of infection in this season was not as high as the prior seasons
nor as heavy as such earlier evidence indicated resulting in a lower hospital
demand for Virazole(R) and consequently an increased level of inventory at the
wholesale level. The increased wholesale inventory levels combined with trends
in the industry toward managed health care during the first part of the
1996/1997 season adversely impacted total 1996 Virazole(R) sales despite
additional sales promotional efforts which included more favorable credit terms
and sales discounts. Additionally, sales of Virazole(R) may have been (and may
continue to be) affected by the January 1996 change in the American Academy of
Pediatrics guidelines for the use of Virazole(R) in RSV from "should be used" to
"may be considered."
Pharmaceutical net sales in North America for the year ended December 31,
1995 were $109.5 million compared to $92.1 million for the same period in 1994,
an increase of $17.4 million or 19%. Unit sales of virtually all pharmaceutical
products increased in the United States in 1995. Sales of Virazole(R) increased
to $44.8 million in 1995 from $35.9 million in 1994, an increase of 25%.
Prescription dermatologicals increased to $22.8 million in 1995 from $18.4
million in 1994, an increase of 24%.
Pharmaceutical net sales in Western Europe for the year ended December 31,
1996 were $35.8 million compared to $37.2 million. The decrease of $1.4 million
or 4% reflects primarily a decline in vision care sales in Holland and decline
in other pharmaceutical sales, partially offset by an increase in Virazole(R)
sales.
Pharmaceutical sales in Western Europe rose to $37.2 million in 1995 from
$28.9 million in 1994. This increase in net sales of 29% is primarily a result
of strong unit sales of Calcitonina (calcintonin) for osteoporosis and
Huberdoxina(TM), an antibiotic in Spain. In addition, expanded resources were
used to promote Virazole(R) sales in Western Europe for the 1995/1996 RSV season
contributing to an increase in net sales of $2.2 million.
Pharmaceutical net sales in Latin America for the year ended December 31,
1996 were $47.4 million compared to $42.0 million for the same period in 1995,
an increase of $5.4 million or 13%. Such increases were primarily due to price
increases, partially offset by a small decrease in unit sales and currency
exchange fluctuations. Pharmaceutical net sales in Latin America decreased to
$42.0 million in 1995 from $56.4 million in 1994, a decrease of 26%. In 1995,
sales were negatively impacted by inflation and the devaluation of the Mexican
peso.
The biomedicals business had net sales for 1996 of $64.3 million compared
to $61.3 million in 1995, an increase of $3.0 million, or 5%. This increase is
primarily due to the effect of the additional sales of diagnostic products
acquired from Becton-Dickinson in May 1995 of $1.8 million and additional
Dosimetry sales resulting from the acquisition of the former Siemens Dosimetry
Service in July 1996 of $4.4 million, which were partially offset by a decrease
in Instrument sales of approximately $4.4 million resulting from the sale of the
instrument business division in March 1996.
Biomedicals net sales for 1995 of $61.3 million, were $4.6 million or 8%
higher than 1994 net sales of $56.7 million, assuming the Merger occurred on
January 1, 1994, primarily due to the additional sales of diagnostic products
acquired from Becton-Dickinson in 1995.
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GROSS PROFIT: Gross profit as a percentage of sales was 52% for 1996
compared to 59% for 1995. The decrease in gross profit margins is primarily due
to a decrease in gross margins at ICN Yugoslavia reflecting the impact of the
November 1995 devaluation which was partially offset by an 83% price increase in
December 1995 and a 30% price increase in April 1996. Typically, sales made
subsequent to a devaluation are lower due to higher exchange rates and a lack of
sufficient price increases while the cost of sales for inventory manufactured
prior to the devaluation is expensed at a higher historical exchange rate.
Margins will begin to improve after a devaluation if price increases are
obtained and when older, higher priced inventory is replaced with inventory
manufactured after the devaluation. ICN Yugoslavia's gross margins for the
first, second, third and fourth quarters of 1996 were 29%, 37%, 43% and 53%,
respectively. Additionally, the gross profit margin of the newly acquired
companies of Leksredstva, Polypharm and ICN Hungary, 36%, 36% and 22%,
respectively, also contributed to the relative decline. The gross profit margin
in the Company's operating units outside of Eastern Europe remained consistent
with 1995 at 69%.
Gross profit as a percentage of sales was 59% for 1995 compared to 50% for
1994. The increase in gross profit was primarily due to improved unit costs at
ICN Yugoslavia where gross profit margins increased to 50% in 1995 from 29% in
1994. During 1993, the unit cost of inventory had risen due to higher material
prices resulting from the economic conditions that existed in Yugoslavia. This
higher priced inventory is reflected in cost of sales for 1994 and in 1995 was
replaced with inventory having a lower unit cost, as a result of an improved
economic environment in Yugoslavia and higher production levels. The gross
profit margin in the Company's operating units, other than ICN Yugoslavia,
decreased to 67% in 1995 from 69% in 1994 due primarily to a full year impact of
biomedical sales in 1995 compared to two months of biomedical sales in 1994. The
biomedical business gross profit margins were 56% compared to the pharmaceutical
business gross profit margins, excluding ICN Yugoslavia, of 71%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses were $192.4 million or 31% of sales in 1996 compared to
$191.5 million or 38% in 1995. For 1996, these costs reflect decreasing expenses
primarily at ICN Yugoslavia principally due to differences in exchange rates of
the Yugoslavian dinar in 1996 compared to 1995 and lower level of expenditures.
Offsetting such decrease are increases in selling, general and administrative
expenses in North America and Western Europe due to expanded marketing efforts
in these regions and a charge of $3.5 million related to the settlement of a
commercial dispute and a penalty imposed by the Canadian Patent Price Review
Board. Additionally, the new Eastern European acquisitions contributed $4.5
million of expenses in 1996.
Under the License Agreement with Schering-Plough, the Company retains the
right to co-market in the countries of the European Union. The Company expects
to incur significant pre-launch marketing expenses over the next two years.
These efforts may cause the ratio of selling, general and administrative
expenses to sales to increase during this period of time resulting from
additional expenses without immediate incremental revenues.
Selling, general and administrative expenses were $191.5 million or 38% of
sales in 1995 compared to $112.9 million, or 31% of sales in 1994. This increase
was primarily due to higher operating expenses at ICN Yugoslavia resulting from
inflationary pressures and the impact of a full year of biomedical operations in
1995 compared to two months of biomedical operations in 1994. The biomedical
selling, general and administrative expenses as a percentage of sales were 46%
compared to 29% for the pharmaceutical business.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs decreased
$1.5 million in 1996 compared to 1995. Such decrease occurred primarily at ICN
Yugoslavia and is principally due to differences in exchange rates of the
Yugoslavian dinar. The increase in research and development costs, excluding the
write-off of purchased research and development of $221.0 million in 1995
compared to 1994 of $9.5 million is primarily due to the acquisition of the
Viratek research programs in the Merger and increased spending at ICN
Yugoslavia.
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TRANSLATION AND EXCHANGE GAINS AND LOSSES, NET: Foreign exchange losses,
net, in 1996 were $2.3 million compared to foreign exchange gains, net, of $9.5
million in 1995. For the year ended December 31, 1996, ICN Yugoslavia's and
Oktyabr's translation losses were $4.3 million and $1.0 million, respectively,
which related to changes in local currency and its impact on their net monetary
asset position. Partially offsetting these losses were translation gains of $3.3
million related to the Company's foreign currency denominated debt.
Foreign exchange gains, net, in 1995 were $9.5 million compared to foreign
exchange losses, net, of $191,000 in 1994. Foreign exchange gains at ICN
Yugoslavia of $12.1 million in 1995 related to exchange rate fluctuations of the
dinar and a devaluation of the dinar on November 24, 1995 which was partially
offset by foreign exchange losses of $2.7 million on the Company's foreign
denominated debt.
INTEREST EXPENSE: The decrease in interest expense in 1996 compared to
1995 of $7.1 million is primarily due to the effect of the retirement of $34.2
million of the Company's 12 7/8% Sinking Fund Debentures during 1995 and the
capitalization of interest related to plant construction at ICN Yugoslavia. For
the year ended 1996, the Company capitalized $3.8 million compared to $2.0
million in 1995.
The increase in interest expense in 1995 compared to 1994 of $13.8 million
is primarily due to interest expense on additional debt assumed in the Merger
and the issuance of $115.0 million Convertible Notes in November 1994, the
proceeds of which were used to pay a portion of the debt assumed in the Merger.
Additionally, the weighted average interest rate on short-term borrowings
increased to 58% in 1995 compared to 9% in 1994. This increase reflects a
hyperinflationary 66% average short-term borrowing rate at ICN Yugoslavia in
1995 compared to a stabilized rate of 9.5% in 1994.
INCOME TAXES: The Company's effective income tax rate was (7%), 3% and 6%
for 1996, 1995 and 1994, respectively. The Company operates in many regions
where the tax rate is low or it benefits from a tax holiday. In Yugoslavia, the
Company benefited from tax credits arising from the acquisition of ICN
Yugoslavia and in Russia the tax rate was low due to special tax relief afforded
to pharmaceutical companies. In 1996, the Company recorded a tax benefit of $6.8
million primarily resulting from the favorable outcome of tax audits and the tax
benefit from the Company's current year tax loss in the U.S. which was carried
back to prior tax years resulting in the recovery of taxes previously paid. This
trend of low tax rates may not continue in the future. The special tax relief
for ICN Russia applied to only 1996.
In 1995, the Company benefited from a devaluation of ICN Yugoslavia's tax
liability balances, utilization of construction tax credits in Yugoslavia and
the revaluation of the Company's deferred tax assets. The Company's effective
tax rate of 6% in 1994 was significantly different than the expected United
States statutory rate of 35% due to the write-off of purchased research and
development related to the Merger for which there is no related tax benefit.
In 1997, certain tax benefits that were acquired in the acquisition of ICN
Yugoslavia will expire. The expiration of these tax benefits will raise the
overall effective tax rate for ICN Yugoslavia. However, this increase may be
partially offset by tax credits provided by Yugoslavia for plant construction.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities in 1996 was $25.5 million reflecting the
effect of increased levels of accounts receivable of $181.7 million, primarily
at ICN Yugoslavia and North America, partially offset by a decrease in inventory
levels of $43.3 million, primarily at ICN Yugoslavia. The increase in accounts
receivable at ICN Yugoslavia of $136.6 million relates to increasing sales and
the lengthening of the collection period of receivables resulting from the lack
of availability of dinars in Yugoslavia. See "Management's Discussion and
Analysis of Financial Condition and Results of
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Operations -- ICN Yugoslavia" for expanded discussion regarding liquidity at ICN
Yugoslavia. Additionally, the level of accounts receivable at December 31, 1995
was relatively low due to the devaluation in November 1995, the postponement of
sales in anticipation of a December price increase and the effect of actions to
reduce its overall monetary exposure. Cash provided by operations in 1995 was
$79.3 million. Included in cash from operations for 1995 is an advance payment
from Schering-Plough of $23.0 million related to the use of Virazole(R) for the
treatment of Hepatitis C and cash payments used for increased inventory levels
at ICN Yugoslavia of $23.3 million.
On July 28, 1995, the Company entered into the License Agreement with
Schering-Plough to license the Company's proprietary anti-viral drug ribavirin
as a treatment for chronic hepatitis C in combination with Schering-Plough's
alpha interferon. The License Agreement provided the Company an initial
non-refundable payment by Schering-Plough of $23.0 million and future royalty
payments to the Company for marketing of the drug, including certain minimum
royalty rates. Schering-Plough will have exclusive marketing rights for
ribavirin for the treatment of hepatitis C worldwide, except that the Company
will retain the right to co-market in the countries of the European Union. In
addition, Schering-Plough will purchase up to $42.0 million in common stock of
the Company upon the achievement of certain regulatory milestones. Under the
License Agreement, Schering-Plough is responsible for all clinical developments
worldwide.
The $23.0 million non-refundable payment was recorded by the Company as
prepaid royalty income of $10.0 million, a license fee of $8.0 million and a
liability to Schering-Plough for certain cost sharing agreements of $5.0
million. The prepaid royalty is being amortized to income based upon future
sales of the product and the license fee is being amortized on a straight line
basis to income over the exclusive period of the License Agreement, no more than
fifteen years.
Cash used in investing activities decreased $5.1 million to $42.0 million.
The Company reduced its level of capital expenditures by $23.5 million compared
to 1995, primarily at ICN Yugoslavia, where the Company has an on-going plant
expansion program. However, as a result of certain liquidity problems in
Yugoslavia, the Company made a decision to reduce its 1996 capital expenditures.
While the capital expenditures related to this expansion were substantially
lower in 1996 compared to 1995, the estimated cost of completing this project is
approximately $100.0 million, with a planned completion date in 2000. From the
beginning of the project in 1994, ICN Yugoslavia has expended $52.4 million. ICN
Yugoslavia intends to fund this program through existing funds and funds
generated from local operations and locally funded debt.
Additionally, $51.2 million was used in 1996 for acquisitions primarily in
Eastern Europe and the United States which was partially offset by the sale of
marketable securities of $27.7 million.
Cash provided by financing activities was $82.7 million. Included in 1996
are $32.8 million and $47.4 million of net proceeds from the issuance of common
stock and preferred stock, respectively, primarily used to fund acquisitions in
the United States and Eastern Europe and working capital, $10.2 million of
proceeds from the exercise of stock options partially offset by payment of short
term and long term debt of $42.3 million and $7.0 million of dividends paid.
In 1995, cash used by financing activities includes the early retirement of
the 12 7/8% Sinking Fund Debentures of $34.2 million and a reduction of notes
payable, collateralized by marketable securities, of $8.1 million. In 1995, the
Company sold common stock in the amount of $5.8 million of which approximately
$3.0 million of the proceeds were used to purchase the radioimmunoassay product
line from Becton-Dickinson and the remainder used for working capital purposes.
During the six months ended June 30, 1997, cash provided by operating
activities totaled $12.7 million. The level of accounts and notes receivable
increased $61.3 million, primarily at ICN Yugoslavia resulting from the
lengthening of the collection period of receivables, the conversion of accounts
receivables into one-year notes receivables and general liquidity problems in
Yugoslavia. Cash from operating activities includes an adjustment to reverse the
non-cash impact of a
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$21.0 million tax benefit from the revaluation of the Company's deferred tax
asset partially offset by the accrual of $12.0 million for the pending
settlement of the 1995 class action.
Cash used in investing activities of $20.4 million for the six months ended
June 30, 1997 include $11.9 million of cash paid for acquisitions that were
initially acquired in 1996 and $10.9 million of capital expenditures primarily
in the North America and Eastern European regions, related to production
facility improvements.
Cash provided by financing activities of $10.6 million for the six months
ended June 30, 1997 primarily includes $4.9 million of proceeds from the
exercise of stock options and $13.3 million of proceeds from long term
borrowings partially offset by net payments of short-term debt of $2.0 million
and $5.6 million of dividends paid. The increase in 1997 dividend payments is
primarily due to the timing of quarterly cash payments in 1997 compared to 1996.
The Company is subject to foreign currency risk on its foreign denominated
debt of approximately $14.4 million at June 30, 1997, which is primarily
denominated in Swiss francs.
On June 26, 1997, the Company's Board of Directors declared a second
quarter cash dividend of $0.08 per share of Common Stock payable on July 23,
1997 to shareholders of record on July 9, 1997.
In April 1997, the Company obtained and used a $15.0 million revolving
credit facility with a European financial institution. Funds borrowed under this
facility will be used for general operating requirements at a rate of LIBOR plus
one percent. This credit facility contains covenants that include restrictions
on redemption or repurchase of stock, limitation on dividend payments and on
acquiring new debt and the maintenance of certain financial ratios. In addition,
the Company has obtained from the same financial institution an uncommitted
foreign exchange facility for spot, option and forward contracts, under which
the amount of the contracts outstanding at any one time may not exceed $20.0
million. The Company has not yet entered into any such contracts.
In December 1985, the Company discontinued product liability insurance in
the United States. While to date, no material adverse claim for personal injury
resulting from allegedly defective products has been successfully maintained
against the Company, a substantial claim, if successful, could have a material
adverse effect on the Company's liquidity and financial performance.
Management believes that funds generated from operations will be sufficient
to meet its normal operating requirements during the coming year. The Company's
recent acquisitions in Hungary, Russia and China will require $23.0 million of
cash in 1997. Also, if the historic rate of growth in Eastern Europe continues,
these operations will require increasing levels of working capital and funds for
additional facilities or upgrading of existing facilities. Additionally, the
Company has several preliminary acquisition prospects that may require
significant funds in 1997. In August 1997, the Company completed its offering of
$275.0 million principle amount of 9.25% Senior Notes due 2005 (the "Notes").
Interest on the Notes will be payable semi-annually on February 15 and August 15
of each year, commencing February 15, 1998. The Notes will mature on August 15,
2005, unless previously redeemed. The Notes will be redeemable in cash at the
option of the Company, in whole or in part, on or after August 15, 2001. The
company intends to use the proceeds from this offering for expansion in Eastern
Europe, product acquisitions in the North America, payment of the $15.0 million
related to the acquisition of the Plant from Roche, and for general purposes.
INFLATION AND CHANGING PRICES
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, fluctuations in
the relative values of currencies, political instability and restrictive
governmental actions. Changes in the relative values of currencies occur from
time to time and may, in certain instances, materially affect the Company's
results of operations. The effect of these risks remains difficult to predict.
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During the last three years, the cumulative inflation rate in Mexico has
exceeded 100%. Starting in 1997, the Company began translating the financial
statements of its operations in Mexico using accounting methods that apply to
hyperinflationary economies. At December 31, 1996, Mexico had a net monetary
asset position of $7.5 million which would be subject to loss if a devaluation
were to occur.
The Company is subject to foreign currency risk on its foreign denominated
debt of $14.4 million, which is primarily denominated in Swiss francs, at March
31, 1997 and to devaluation losses on net monetary assets positions in
Yugoslavia and Russia. See "-- ICN Yugoslavia." At December 31, 1996, the net
monetary asset position of the Company's Russian operations was $9.7 million
which would be subject to a loss if a devaluation were to occur.
The effects of inflation are experienced by the Company through increases
in the costs of labor, services and raw materials. The Company is subject to
price control restrictions on its pharmaceutical products in the majority of
countries in which it operates. While the Company attempts to raise selling
prices in anticipation of inflation, the Company has been affected by the lag in
allowed price increases in Yugoslavia and Mexico, which has created lower sales
in U.S. dollars and reductions in gross profit. Future sales and gross profit
could be materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation. From a global perspective the Russian
pharmaceutical market and the United States market are unique in that
pharmaceutical prices are not heavily regulated by the government.
ICN YUGOSLAVIA
ICN Yugoslavia, a 75% owned subsidiary that contributed 40% and 28% of the
Company's pro forma net sales for 1996 and for the six months ended June 30,
1997, respectively, operates in a business environment that is subject to
significant economic volatility and political instability. The economic
conditions in Yugoslavia include continuing liquidity problems, inflationary
pressures, unemployment, a weakened banking system and a high trade deficit. The
future of the economic and political environment of Yugoslavia is uncertain and
could deteriorate to the point that a material adverse impact on the Company's
financial position and results of operations could occur.
Yugoslavia is subject to political instability. With Presidential and
parliamentary elections taking place in September 1997 and with the potential
for continued economic deterioration, political instability may continue.
Management believes that the 1997 elections may result in political change that
could lead to economic reform, although such elections also have the potential
to create additional political instability and currency devaluations.
Management believes that economic reform and privatization is necessary
before the Yugoslavian economy will improve. The lifting of sanctions has
provided opportunities to export outside of Yugoslavia; however, Yugoslavia has
not fully recovered the international status it held before sanctions. The
Yugoslavian government is still negotiating to regain membership in the
International Monetary Fund and World Bank.
Liquidity Problems: In an effort by the National Bank of Yugoslavia to
control inflation through tight monetary controls, Yugoslavia is now
experiencing severe liquidity problems. This has resulted in longer collection
periods on ICN Yugoslavia's receivables. Most of ICN Yugoslavia's customers are
slow to pay due to delays of health care payments by the government. This has
also resulted in ICN Yugoslavia being unable to make timely payments on its
payables. In 1997, ICN Yugoslavia will attempt to reduce its receivables and
improve its cash flow by restricting future sales; however, these actions may
result in sales and earnings in 1997 that are lower than 1996. ICN Yugoslavia
holds approximately $26.0 million of cash in a bank outside of Yugoslavia
originally intended to be used for future plant expansion in Yugoslavia. These
funds may be available for working capital purposes if necessary.
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Inflation and Monetary Exposure: ICN Yugoslavia operates in a highly
inflationary economy and uses the U.S. dollar as the functional currency rather
than the Yugoslavian dinar. Before the enactment of an economic stabilization
program in January 1994, the rate of inflation in Yugoslavia was over 1 billion
percent per year. The rate of inflation was dramatically reduced when, on
January 24, 1994, the Yugoslavian government enacted a "Stabilization Program"
designed to strengthen its currency. This program reduced the annualized
inflation rate to approximately 5% by the end of 1994, increasing the
availability of hard currency, stabilizing the exchange rate of the dinar, and
improving the overall economy in Yugoslavia.
In 1995, the effectiveness of the stabilization program weakened, resulting
in a decline in the availability of hard currency and inflation levels
accelerated to an approximate annual rate of 90% by the end of the year. In
expectation of a devaluation late in 1995, ICN Yugoslavia took action early in
the fourth quarter of 1995 to reduce its monetary exposure by shortening the
payment terms on its receivables, reducing sales levels, accelerating the
purchase of inventory and accelerating the purchase of building materials for
its plant expansion. On November 24, 1995, the dinar devalued from a rate of 1.4
dinars per U.S. $1 to a rate of 4.7 dinars per U.S. $1. On this date, ICN
Yugoslavia had a net monetary liability position that resulted in a gain of $8.7
million.
During 1996, inflation increased further to an annual rate of 95% and the
availability of hard and local currency continued to decline. The lifting of
sanctions by the United Nations eventually provided opportunities to export
outside of Yugoslavia. A policy of strict monetary control in Yugoslavia has
kept inflation at a current annual level of approximately 40%. However,
Yugoslavia has not fully recovered the international status it held before
sanctions were imposed and management believes that economic reform and
privatization is necessary before the economy will improve dramatically. The
Yugoslavian government is still negotiating to regain membership in the
International Monetary Fund and World Bank. Management believes that the 1997
Presidential and parliamentary elections may result in political change that
would lead to economic reform, although such elections also have the potential
to create additional political instability.
ICN Yugoslavia began 1997 with a net asset monetary exposure of $134.0
million which was subject to foreign exchange loss if a devaluation of the dinar
were to occur. During the first quarter of 1997, the Company was successful in
reducing its monetary exposure by converting dinar denominated accounts
receivable into notes receivable payable in dinars, but fixed in U.S. dollar
amounts. The first conversion was made early in the first quarter of 1997 with
$50.0 million of accounts receivable converted into a one year note with
interest at the rate of LIBOR plus one percent. A second conversion was arranged
in the middle of the first quarter of 1997 through an agreement with the
Yugoslavian government to purchase $50.0 million of products from ICN
Yugoslavia. The accounts receivable under this agreement were converted into a
non-interest bearing note receivable that has special payment guarantees from
the Serbian Government with the payment fixed in U.S. dollar amounts. The second
agreement also allows the Company to offset payroll tax obligations against
outstanding accounts receivable balances. As of June 30, 1997, ICN Yugoslavia
had a net monetary asset position of $49 million which would be subject to
foreign exchange loss if a devaluation of the dinar were to occur.
The Company was able to reduce its overall accounts receivable balance from
the beginning of the year through collections and the conversion of $100,000,000
of accounts receivable into notes receivable discussed above. As of June 30,
1997, the accounts receivable balance was $93,056,000. Based on current levels
of collections, the Company will impose even stricter credit terms on its
customers which will likely result in lower future Yugoslavian sales. The
willingness of the Yugoslavian government to provide the Company protection
against devaluation on its receivables in exchange for longer payment terms is a
reflection of the strict adherence to government policy on controlling inflation
by limiting the amount of hard currency in circulation. This policy was
initially established with the start of the stabilization program in 1994. The
Company is currently negotiating an arrangement with the government of
Yugoslavia under which ICN Yugoslavia would commit to continue to provide
products, in dollar denominated sales, in an amount up to $50,000,000 per
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calendar quarter for one year, and the government would pay a minimum of
$9,000,000 per month toward outstanding receivables. However, at no point in
time can the amount due to ICN Yugoslavia from the government exceed
$200,000,000, including both accounts and notes receivable.
As required by United States generally accepted accounting principles
("GAAP"), the Company translates ICN Yugoslavia financial results at the
dividend payment rate established by the National Bank of Yugoslavia. To the
extent that changes in this rate lag behind the level of inflation, sales and
expenses will, at times, tend to be inflated. Future sales and expenses can
increase substantially if the timing of future devaluations falls significantly
behind the level of inflation.
Potential Devaluation: The potential loss arising from a devaluation will
depend on the size of the devaluation and the magnitude of the net monetary
asset position at the time of the devaluation. The timing and the size of a
devaluation are strongly influenced by the amount of inflation and length of
time from the last devaluation. The risk of devaluation increases as time passes
and inflation continues. The Company is unable to predict when a devaluation
will occur although it may occur subsequent to the election currently scheduled
for September 1997.
Government Spending Limitations: The government has expressed its
intention to limit total 1997 health care spending on pharmaceuticals.
Currently, ICN Yugoslavia maintains a 50% market share for pharmaceutical
products in Yugoslavia. With 80% of ICN Yugoslavia sales arising from the
government or government funded entities, ICN Yugoslavia is financially
dependent on the government. If the government continues to follow this course
of action, it could result in a significant decrease in 1997 domestic sales. ICN
Yugoslavia plans to partially mitigate the effects of decreased domestic
spending by placing more emphasis on its export business and by promoting sales
to privately funded pharmacies. The extent that these actions will mitigate the
decreases in government spending is uncertain. The government decision to reduce
health care spending could have a material adverse affect on the financial
results of the Company.
Credit Risk: ICN Yugoslavia is subject to credit risk in that 80% or
$196.9 million of 1996 Yugoslavian sales are to the government or government
funded entities of which $123.7 million is included in accounts receivable at
December 31, 1996. Included in Yugoslavian domestic sales and accounts
receivable to government funded entities are $82.0 million and $88.1 million,
respectively, to three major customers.
Sanctions: In December 1995, the United Nations Security Council adopted a
resolution that suspended most economic sanctions that had been imposed on
Yugoslavia since May 1992. A substantial majority of ICN Yugoslavia's business
is conducted in Yugoslavia.
Sanctions had contributed to an overall deteriorating business environment
in which ICN Yugoslavia operated and denied ICN Yugoslavia access to export
sales which previously totaled approximately $30.0 million a year. Sanctions
also created restrictions on ICN Yugoslavia's overseas investments and imposed
administrative burdens in obtaining raw materials outside of Yugoslavia.
The Company believes the suspension of sanctions continues to provide a
more favorable business environment; however, the beneficial effects of the
suspension will not take place immediately as the economy needs to adjust to new
opportunities. If Yugoslavia does not fully comply with the Dayton Accords,
there is a risk that sanctions could be reinstated or that the remaining
sanctions may not be lifted.
Price Controls: ICN Yugoslavia is subject to price controls in Yugoslavia.
The size and frequency of government approved price increases is influenced by
local inflation, devaluations, cost of imported raw materials and demand for ICN
Yugoslavia products. During 1996 and 1995, ICN Yugoslavia received fewer price
increases than in the past due to relatively lower levels of inflation. As
inflation rises, the size and frequency of price increases are expected to
increase. During the third quarter of 1995, ICN Yugoslavia received a 30% price
increase on its pharmaceutical products. This was the first price increase the
government had allowed since the start of the
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<PAGE> 48
Stabilization Program. Subsequent to the devaluation on November 24, 1995, ICN
Yugoslavia received an 80% price increase on its pharmaceutical products. Price
increases obtained by ICN Yugoslavia are based on economic events preceding the
price increase and not on expectations of ongoing inflation. This lag in
permitted price increase creates downward pressure on the gross margins that ICN
Yugoslavia receives on its products. When necessary, ICN Yugoslavia will limit
sales of products that have low margins until an acceptable price increase is
received. The impact of an inability to obtain adequate price increases in the
future could have an adverse impact on the Company as a result of declining
gross profit margins or declining sales in an effort to maintain existing gross
margin levels.
Dividends: In 1992, ICN Yugoslavia paid a $10.0 million dividend of which
the Company received 75% or $7.5 million. Yugoslavian law allows free
distribution of earnings whether to domestic (Yugoslavian) or international
investors. Under this law a dividend must be declared and paid immediately after
year end. Earnings that are not immediately paid as dividends cannot be used for
future dividends. Additionally, ICN Yugoslavia is allowed to pay dividends out
of earnings calculated under local statutory tax basis rules, not earnings
calculated under GAAP. ICN Yugoslavia dividends are payable in dinars which must
be exchanged for dollars before the dividend is repatriated. During high levels
of inflation the dinar denominated dividend could devalue substantially by the
time the dividend is exchanged for dollars. Under GAAP, ICN Yugoslavia had
accumulated earnings, which are not available for distributions, of
approximately $165.5 million at December 31, 1996. However, additional
repatriation of cash could be declared from contributed capital for Yugoslavian
purposes of $360.0 million at December 31, 1996, as provided for in the original
purchase agreement. In 1992, the Company made the decision to no longer
repatriate the earnings of ICN Yugoslavia and instead will use these earnings
for local operations, plant expansion, reduction of debt and additional
investment in Eastern Europe.
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<PAGE> 49
THE EXCHANGE OFFER
GENERAL
Registration Rights
The Company and the Initial Purchaser entered into the Registration Rights
Agreement on or pursuant to which the Company agreed, for the benefit of holders
of the Old Notes, that it will, at its expense (i) on or prior to the 30th day
following the Issue Date, file the Exchange Offer Registration Statement with
the Commission with respect to the Exchange Offer pursuant to which the Notes
will be exchanged for the Exchange Notes, which will have terms identical to the
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions or any provision relating to this paragraph) and (ii) use
its best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act by the 150th day after the Issue
Date. Upon effectiveness of the Exchange Offer Registration Statement, the
Company will offer to all holders of the Notes an opportunity to exchange their
securities for a like principal amount of the Exchange Notes. The Company will
keep the Exchange Offer open for acceptance for not less than 20 business days
after the date the Exchange Offer Registration Statement is declared effective.
For each Note surrendered to the Company for exchange pursuant to the Exchange
Offer, the holder of such Note will receive an Exchange Note having a principal
amount at maturity equal to that of the surrendered Note. Interest on each
Exchange Note will accrue from the last interest payment date on which interest
was paid on the Note surrendered in exchange therefor or, if no interest has
been paid on such Note, from the Issue Date.
Under existing interpretations of the staff of the Commission's Division of
Corporation Finance (the "Staff"), the Exchange Notes will generally be freely
transferable after the Exchange Offer without further registration under the
Securities Act; provided, however, that broker-dealers ("Participating
Broker-Dealers") receiving Exchange Notes in the Exchange Offer will be subject
to a prospectus delivery requirement with respect to resales of such Exchange
Notes. To date, the Staff has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as the exchange
pursuant to the Exchange Offer (other than a resale of an unsold allotment from
the sale of the Notes to the Initial Purchaser) with the prospectus contained in
the Exchange Offer Registration Statement. Pursuant to the Registration Rights
Agreement, the Company will permit Participating Broker-Dealers and other
persons, if any, subject to similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Notes.
Each holder of the Notes who wishes to exchange its Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations to
the Company, including that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in a public distribution (within the meaning of the
Securities Act) of the Exchange Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of the Company, or if it is such an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it.
In addition, each holder who is not a broker-dealer will be required to
represent that it is not engaged in, and does not intend to engage in, a public
distribution of the Exchange Notes. Each holder who is a broker-dealer and who
receives Exchange Notes for its own account in exchange for Notes that were
acquired by it as a result of market-making activities or other trading
activities will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such Exchange Notes.
In the event that applicable interpretations of the Staff do not permit the
Company to effect the Exchange Offer or if for any other reason the Exchange
Offer is not consummated by the 180th day following the Issue Date, or if the
Initial Purchaser so requests with respect to the Notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer or if any holder of Notes is
not eligible to
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<PAGE> 50
participate in the Exchange Offer or does not receive freely tradeable Exchange
Notes in the Exchange Offer, the Company will, at its expense, (a) promptly file
a Shelf Registration Statement (the "Shelf Registration Statement") permitting
resales from time to time of the Notes, (b) use its best efforts to cause the
Shelf Registration Statement to become effective and (c) use is best efforts to
keep the Shelf Registration Statement current and effective until two years from
the Issue Date or such shorter period that will terminate when all the Notes
covered by the Shelf Registration Statement have been sold pursuant thereto. The
Company, at its expense, will provide to each holder of the Notes copies of the
prospectus, that is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes from time to time. A holder of Notes who sells such Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
In the event that (i) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 30th day after the Issue Date or
declared effective on or prior to the 150th day after the Issue Date, (ii) the
Exchange Offer is not consummated on or prior to the 180th day following the
Issue Date, (iii) the Shelf Registration Statement is not filed or declared
effective within the required time periods or (iv) the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared effective
but thereafter ceases to be effective (except as specifically permitted therein)
for a period of 15 consecutive days without being succeeded immediately by an
additional Exchange Offer Registration Statement or Shelf Registration
Statement, as the case may be, filed and declared effective (each such event a
"Registration Default"), the interest rate borne by the Notes shall be increased
by 0.50% per annum for the 90-day period following such Registration Default.
Such interest rate will increase by an additional 0.25% per annum at the
beginning of each subsequent 90-day period following such Registration Default,
up to a maximum aggregate increase of 1.0% per annum. From and after the date
that all Registration Defaults have been cured, the Notes bear interest at the
rate set forth on the cover page of this Prospectus.
Notwithstanding the foregoing, to the extent necessary, there shall be
added to all time limitation periods that number of days representing delays in
the Company's filings with the Commission caused by events beyond the Company's
control despite its best efforts in either of the following categories: (i)
events affecting issuers generally, such as the temporary closure of federal
agencies; or (ii) events directly affecting the Company such as its inability to
obtain all information of an acquisition entity constituting a significant
subsidiary within a time period that would permit independent auditors to
prepare required audited information on a timely basis. In addition, if at any
time counsel to the Company has determined in good faith that it is reasonable
to conclude that the filing of the Exchange Offer Registration Statement or the
Shelf Registration Statement or the compliance by the Company with its
disclosure obligations in connection with the Exchange Offer Registration
Statement or the Shelf Registration Statement may require the disclosure of
information which the Board of Directors of the Company has identified as
material and which the Board of Directors has determined that the Company has a
bona fide business purpose for preserving as confidential, then the Company may
delay the filing or the effectiveness of the Exchange Offer Registration
Statement or Shelf Registration Statement (if not then filed or effective, as
applicable) and shall not be required to maintain the effectiveness thereof or
amend or supplement the Exchange Offer Registration Statement or Shelf
Registration Statement for a period expiring upon the earlier to occur of (A)
the date on which such material information is disclosed to the public or ceases
to be material or the Company is able to so comply with its disclosure
obligations and Commission requirements or (B) 30 days after the Company
notifies the holders of such good faith determination.
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<PAGE> 51
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
As of the date of this Prospectus, $275,000,000 aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, ICN arranged for the Old Notes initially purchased by qualified
institutional buyers, as defined pursuant in Rule 144A under the Securities Act
("Qualified Institutional Buyers"), to be issued and transferable in book-entry
form through the facilities of DTC, acting as depositary. The New Notes will
also be issuable and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal is
being sent to all registered holders of Old Notes as of __________ _ , 1997
(the "Record Date").
ICN shall be deemed to have accepted validly tendered Old Notes when, as
and if ICN has given oral or written notice thereof to the Exchange Agent. See
"Exchange Agent." The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purpose of receiving New Notes from ICN and delivering New
Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. ICN will pay all charges and expenses, other
than certain applicable taxes, in connection with the Exchange Offer. See "Fees
and Expenses."
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<PAGE> 52
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1997, unless ICN, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, ICN will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that ICN is extending the Exchange Offer for a
specified period of time.
ICN reserves the right (i) to delay acceptance of any Old Notes, to extend
the Exchange Offer or to terminate the Exchange Offer and to refuse to accept
Old Notes not previously accepted, if any of the conditions set forth herein
under "Termination" shall have occurred and shall not have been waived by ICN
(if permitted to be waived by ICN), by giving oral or written notice of such
delay, extension or termination to the Exchange Agent and (ii) to amend the
terms of the Exchange Offer in any manner deemed by it to be advantageous to the
holders of the Old Notes. Any such delay in acceptance, extension, termination
or amendment will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by ICN
to constitute a material change, ICN will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the Old Notes of such
amendment.
Without limiting the manner in which ICN may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, ICN shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
Interest on each New Note will accrue from the last Interest Payment Date
on which interest was paid on the Old Note tendered in exchange therefor or, if
no interest has been paid on such tendered Old Note, from August 14, 1997.
Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to
have waived the right to receive any payment in respect of interest on the Old
Notes accrued from the last Interest Payment Date or August 14, 1997 (as the
case may be) to the date of the issuance of the New Notes. Consequently, holders
who exchange their Old Notes for New Notes will receive the same interest
payment on the same Interest Payment Date that they would have received had they
not accepted the Exchange Offer. Interest on the New Notes is payable
semi-annually on February 15 and August 15 of each year accruing from the last
Interest Payment Date or, in the case of the first payment, August 14, 1997 at a
rate of 9 1/4% per annum.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for
book-entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at its
addresses set forth herein under "Exchange Agent" prior to 5:00 p.m., New
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York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and ICN in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to ICN.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of ICN or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Old Notes are held of record by DTC who desires to deliver such Old
Notes by book-entry transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered holder (including any
participant in DTC whose name appears on a security position listed as the owner
of Old Notes) who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by ICN, evidence
satisfactory to ICN of their authority to so act must be submitted with the
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by ICN in its sole discretion, which determination will be final and binding.
ICN reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes ICN's acceptance of which would, in the opinion of
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<PAGE> 54
counsel for ICN, be unlawful. ICN also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Old Notes. ICN's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as ICN shall determine. Neither ICN,
the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes
nor shall any of them incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Old Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, ICN reserves the right in its sole discretion to (a) purchase
or make offers for any Old Notes that remain outstanding subsequent to the
Expiration Date, or, as set forth under "Termination," to terminate the Exchange
Offer and (b) to the extent permitted by applicable law, purchase Old Notes in
the open market, in privately negotiated transactions or otherwise. The terms of
any such purchases or offers may differ from the terms of the Exchange Offer.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or if such holder cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within five business days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Old Notes to be tendered in prior form for
transfer and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the business day prior to the Expiration Date and prior to acceptance for
exchange thereof by ICN. Any such notice of withdrawal must (i) specify the name
of the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of
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such Old Notes), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to the Old
Notes to register the transfer of such Old Notes into the name of the Deposit or
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by ICN, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no New Notes
will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "Procedures
for Tendering" at any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, ICN will not be
required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court or by or before any
governmental agency with respect to the Exchange Offer, which, in ICN's
judgment, might materially impair ICN's ability to proceed with the Exchange
Offer or (ii) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by the
staff of the Commission in a manner, which, in ICN's judgment, might materially
impair ICN's ability to proceed with the Exchange Offer.
If ICN determines that it may terminate the Exchange Offer, as set forth
above, ICN may (i) refuse to accept any Old Notes and return any Old Notes that
have been tendered to the holders thereof, (ii) extend the Exchange Offer and
retain all Old Notes tendered prior to the Expiration Date of the Exchange
Offer, subject to the rights of such holders of tendered Old Notes to withdraw
their tendered Old Notes, (iii) waive such termination event with respect to the
Exchange Offer and accept all properly tendered Old Notes that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
ICN will disclose such change by means of a supplement to this Prospectus that
will be distributed to each registered holder of Old Notes, and ICN will extend
the Exchange Offer for a period of five to 10 business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Old Notes, if the Exchange Offer would otherwise expire during
such period.
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EXCHANGE AGENT
United States Trust Company of New York, the Trustee under the Indenture,
has been appointed as Exchange Agent for the Exchange Offer. Questions and
requests for assistance and requests for additional copies of this Prospectus or
of the Letter of Transmittal should be directed to the Exchange Agent addressed
as follows:
<TABLE>
<S> <C>
By Mail: United States Trust Company of New York
P.O. Box 843
Cooper Station
New York, NY 10276
Attention: Corporate Trust Services
By Hand Prior to 4:30 p.m.: United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
By Hand After 4:30 p.m.: United States Trust Company of New York
and by Overnight Courier: 770 Broadway, 13th floor
New York, NY 10003
Attention: Corporate Trust Redemption Unit
By Facsimile: (212) 780-0592
Confirm by Telephone: (800) 548-6565
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by ICN. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail. Additional solicitations may be made by officers
and regular employees of ICN and its affiliates in person, by telegraph or
telephone.
ICN will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. ICN, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. ICN may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this Prospectus, Letters of Transmittal and related documents to the
beneficial owners of the Old Notes and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by ICN.
ICN will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the Exchange Offer. If, however, certificates representing New
Notes or Old Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by ICN upon the
consummation of the Exchange Offer. The expenses of the Exchange Offer will be
amortized by ICN over the term of the New Notes under generally accepted
accounting principles. Unamortized expenses relating to the Old Notes will be
deferred and amortized over the life of the New Notes.
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BUSINESS
INTRODUCTION
ICN is a multinational pharmaceutical company that develops, manufactures,
distributes and sells pharmaceutical, research and diagnostic products and
provides radiation monitoring services. In fiscal year 1996, the Company had pro
forma revenues, giving effect to the Roche Transaction described below, of
$667.9 million, pro forma earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $163.0 million, and compounded annual EBITDA growth
rate of 58% since 1994, the year in which ICN and its predecessor companies were
merged. Based on the closing price of the Company's common stock on the New York
Stock Exchange on September 4, 1997, the Company has an equity market
capitalization of approximately $1.4 billion.
ICN distributes and sells a broad range of prescription (or "ethical") and
over-the-counter ("OTC") pharmaceutical and nutritional products in over 60
countries. These pharmaceutical products treat viral and bacterial infections,
diseases of the skin, myasthenia gravis, cardiovascular disease, diabetes and
psychiatric disorders.
The Company pursues a strategy of international expansion which includes
(i) the consolidation of the Company's leadership position in Eastern Europe and
Russia; (ii) the acquisition of high margin products that complement existing
product lines and can be registered and introduced into additional markets to
meet the specific needs of those markets; and (iii) the creation of a pipeline
of new products through internal research and development, as well as strategic
partnerships and licensing arrangements.
BACKGROUND
As measured by sales, the Company believes it is currently the largest
pharmaceutical company in Eastern Europe, a region with an estimated population
of 425.1 million people with a collective GNP of $838.3 billion. The rate of per
capita spending on pharmaceuticals in Eastern Europe currently is only 13% of
such rate in Western Europe. The Company believes it has also established itself
as the largest pharmaceutical company, as measured by sales, in Russia, a market
that is expected to grow significantly over the next decade. In 1996, the
Company entered the Hungarian market by acquiring 60% of Alkaloida, one of the
largest pharmaceutical companies in terms of sales in Hungary and a major world
producer of morphine and related compounds. In Yugoslavia, ICN Yugoslavia has an
approximate 50% market share with 1996 sales of $267.2 million. Although ICN
Yugoslavia's sales and profits have been adversely affected by an economic
environment that has included extended periods of hyperinflation and trade
sanctions, it historically has maintained profitability.
For more than ten years, the Company has pursued a strategy of targeted
expansion into regional markets which it considers to have significant potential
for the sale of pharmaceutical products. This strategy has been implemented in
large part through the acquisition of compatible businesses and product lines
and the formation of strategic alliances and joint ventures in targeted markets.
The Company believes that it has developed particular knowledge and skills in
the acquisition, development and conduct of pharmaceutical and related
businesses in Eastern Europe and Russia and it intends to continue its strategy
of seeking acquisition and other growth opportunities in those and other
emerging markets, such as China and Latin America, as well as in North America
and Western Europe. The Company is currently exploring acquisition opportunities
in Poland, Russia and the Czech Republic.
ICN believes it is uniquely positioned as being both large enough to have
an effective international distribution network not enjoyed by smaller
pharmaceutical companies and small enough to permit lower sales thresholds that
will achieve profitability that cannot be realized under the production and
marketing constraints of larger pharmaceuticals companies. The Company has
therefore increased sales and profitability in part by acquiring high margin
pharmaceutical products
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<PAGE> 58
that complement its existing product lines. Recently the Company purchased,
effective July 1, 1997, from Roche worldwide rights to seven products and
non-U.S. rights to two other products having aggregate sales in 1996 of $53.8
million for a price of $90.0 million, payable in common and convertible
preferred stock of the Company, valued at $25 per common share. In connection
with the Roche Transaction, the Company provided a price guarantee on a scaled
basis over the next three years. Any shortfall would be paid in stock or, at the
end of the guarantee period, cash or stock at the Company's option. Any excess
must be returned to the Company in stock, or at the end of the guarantee period,
cash or stock at the Company's option. Additionally, the Company will receive an
option, exercisable for one year beginning on the earlier of the date on which
Roche has realized cash consideration equal to $90.0 million and the date that
is two years after the closing of the Roche Transaction, to acquire the U.S.
rights to the two products as to which it will not initially hold such rights.
The initial option price at closing is $95.0 million, subject to downward
adjustment under certain circumstances. Roche is required to vote the stock of
the Company held by it as recommended by the Company's board of directors.
The Company's research and development activities are based upon the
expertise accumulated in over thirty years of nucleic acids research focusing on
the internal generation of novel molecules. The research and development
function works closely with corporate marketing on a local, regional and
worldwide basis. In this connection, the Company has entered into a number of
licensing arrangements with other larger pharmaceutical companies, as well as
strategic partnerships to develop its proprietary products.
Among the Company's products is the broad spectrum antiviral agent
ribavirin, which it markets in the United States, Canada and most of Europe
under the Virazole(R) trademark. Virazole(R) is currently approved for
commercial sale in over 40 countries for one or more of a variety of viral
infections, including respiratory syncytial virus ("RSV"), herpes simplex,
influenza, chicken pox, hepatitis and human immunodeficiency virus ("HIV"). In
the United States and Europe, Virazole(R) is approved only for use with
hospitalized infants and children with severe lower respiratory infections due
to RSV.
In 1995, the Company entered into the License Agreement with
Schering-Plough whereby Schering-Plough licensed all oral forms of ribavirin,
including for the treatment of chronic hepatitis C in combination with
Schering-Plough's alpha interferon (the "Combination Therapy"). The License
Agreement provided the Company an initial non-refundable payment by
Schering-Plough of $23.0 million and future royalty payments to the Company from
sales of the drug by Schering-Plough, including certain minimum royalty rates.
Schering-Plough will have exclusive marketing rights for oral forms of ribavirin
for hepatitis C worldwide, except that the Company will retain the right to
co-market in the countries of the European Union. In addition, Schering-Plough
agreed to purchase up to $42.0 million in common stock of the Company upon
achieving certain regulatory milestones. Under the License Agreement,
Schering-Plough will be responsible for all clinical development and regulatory
activities worldwide. The FDA approved a protocol for the testing of the
Combination Therapy, and Schering-Plough is conducting large-scale Phase III
clinical trials of the Combination Therapy, which are near completion.
Schering-Plough is also testing the Combination Therapy pursuant to protocols
approved by the European Union. Schering-Plough has announced that it intends to
file an NDA with the FDA for the Combination Therapy in the fourth quarter of
1997 and will make the equivalent filing in the European Union in the first
quarter of 1998.
Under the License Agreement, if the Company pursues regulatory approval to
market Virazole(R) for an additional hepatitis indication, Schering-Plough will
have the right to require that such indication become included in the License
Agreement on the same terms and conditions (including royalties), in which case
Schering-Plough must take responsibility for all further development activities
and reimburse the Company for its development costs.
Schering-Plough has the right to terminate the License Agreement on six
months' notice, in which event it would retain a non-exclusive license to all
oral forms of ribavirin, subject to the royalty
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<PAGE> 59
obligations of the License Agreement, but it would no longer have any obligation
to purchase common stock of the Company. Also, on such a termination,
Schering-Plough would be required to provide to the Company reference to any
regulatory approvals obtained by Schering-Plough and all information and data to
allow the Company to pursue regulatory approval of oral forms of ribavirin.
The Company believes that the approval of Virazole(R) in Combination
Therapy for the treatment of chronic hepatitis C would be important to the
Company because of the potential size of the chronic hepatitis C market both in
the United States, Western Europe, Japan and other markets. However, there can
be no assurance that the clinical trials will be successful or that the required
governmental approvals will be obtained with respect to Virazole(R) for the
treatment of hepatitis C in Combination Therapy. See "Risk Factors -- No
Assurance of Successful Development and Commercialization of Future Products"
and "-- Government Regulation."
In addition to its pharmaceutical operations, the Company also develops,
manufactures and sells, through its wholly-owned subsidiary, ICN Biomedicals,
Inc., a broad range of research products and related services, immunodiagnostic
reagents and radiation monitoring services. The Company markets these products
internationally to major scientific, academic, health care and governmental
institutions through catalog and direct mail marketing programs. ICN
Biomedicals, Inc. accounted for 10.5% of the Company's total 1996 revenues.
PRODUCTS
Ethical Drugs
Anti-infectives: Anti-infective drugs treat bacterial and viral
infections. The Company sells approximately 70 antibacterial products, and sells
its antiviral drug, ribavirin, under the tradename Virazole(R) in North America
and most European countries. Ribavirin is sold as Vilona(R) and Virazide(R) in
Latin America and Virazide(R) in Spain. References to the sale of Virazole(R) in
this Offering Memorandum includes sales made under the trademarks Vilona(R) and
Virazide(R).
Antivirals: Virazole(R) accounted for approximately 5%, 10% and 13% of the
Company's net sales for the years ended December 31, 1996, 1995 and 1994,
respectively. Virazole(R) is currently approved for sale in various
pharmaceutical formulations in over 40 countries for the treatment of several
different human viral diseases, including RSV, hepatitis, herpes, influenza,
measles, chicken pox and HIV. In the United States and Canada, Virazole(R) has
only been approved for hospital use in aerosolized form to treat infants and
young children who have severe lower respiratory infections caused by RSV. In
treating RSV, the drug is administered by a small particle aerosolized generator
("SPAG"), a system that permits direct delivery of Virazole(R) to the site of
the infection. Similar approvals for Virazole(R) for use in the treatment of RSV
have been granted by governmental authorities in 22 other countries.
A variety of small, independent clinical studies comparing the results of
combining Virazole(R) capsules and interferon alpha 2b therapies versus
interferon alone in the treatment of hepatitis C, demonstrated enhanced efficacy
of the combination. Based upon these clinical findings, the Company entered into
the License Agreement with Schering-Plough whereby Schering-Plough has assumed
responsibility for worldwide clinical development and registration of oral
ribavirin in combination with their product, INTRON-A(R) (interferon alpha 2b)
for the treatment of hepatitis C.
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<PAGE> 60
Antibacterials: Antibacterials accounted for approximately 22%, 21% and
22% of the Company's net sales for the years ended December 31, 1996, 1995 and
1994, respectively. The following table describes the Company's six largest
selling antibacterial products in 1996:
<TABLE>
<CAPTION>
% OF
SALES ANTIBACTERIALS
TRADE NAME GENERIC NAME LICENSOR ($000) SALES
- ------------ ------------------- ----------------- -------- --------------
<S> <C> <C> <C> <C>
Jugocillin(R) Benzyl penicillin Proprietary $ 9,392 6.95%
Pentrexyl(R) Ampicillin Bristol-Myers 18,831 13.94%
Squibb
Longaceph(R) Ceftriaxone Roche 11,952 8.85%
Palitrex(R) Cefalexin Eli Lilly 19,278 14.27%
Bactrim(R) Trimethoprimt Proprietary 9,064 6.71%
Sulfamethoxazole
Gentamicin Gentamicin Non-proprietary 23,836 17.64%
-------- -------
Total Top 6 92,353 68.36%
Other 42,745 31.64%
-------- -------
Total
Antibacterials $135,098 100.00%
======== =======
</TABLE>
Most of the antibacterials manufactured and sold by the Company are under
exclusive licenses held by ICN Yugoslavia for specific geographical areas,
primarily Yugoslavia, from other manufacturers, including Roche, Bristol-Meyers
Squibb and Eli Lilly.
Jugocillin(R) and Pentrexyl(R) belong to the penicillin group of
medications used in a wide variety of bacterial infections including urinary and
upper respiratory tract infections. Longaceph(R) and Palitrex(R) belong to the
cefalesporin group of medications used to treat afflictions that may not be
responsive to penicillin treatment. Bactrim(R) is a combination product that is
used in the treatment of urinary tract infections.
Other Ethicals: Other ethicals accounted for approximately 41%, 40% and
41% of net sales for the years ended December 31, 1996, 1995 and 1994,
respectively. The following table sets forth the Company's four largest selling
ethical products (excluding antivirals and antibacterials) in 1996:
<TABLE>
<CAPTION>
% OF
SALES OTHER ETHICALS
TRADE NAME GENERIC NAME LICENSOR ($000) SALES
- ----------------- ---------------- ---------------------- -------- --------------
<S> <C> <C> <C> <C>
Oxsoralen-
Ultra(R) Methoxsalen Proprietary $ 15,900 6.26%
Mestinon(R) Pyridostigmine
bromide Roche 17,838 7.03%
Bensedin Diazepam Proprietary 9,372 3.69%
Insulin Insulin Proprietary/Eli Lilly 6,570 2.59%
-------- ------
Total Top 4 49,680 19.57%
Other 204,167 80.43%
-------- ------
Total Other Ethicals $253,847 100.00%
======== ======
</TABLE>
The Company manufactures and/or markets a wide variety of other ethical
pharmaceuticals, including analgesics, anticholinesterases, antirheumatics,
cardiovasculars, dermatologicals, endocrine agents, gastrointestinals, hormonals
and psychotropics.
The Company's largest selling ethical pharmaceutical, excluding
anti-infectives, is a dermatological product called Oxsoralen-Ultra(R). The
Company manufactures and markets approximately
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75 dermatological products, primarily in North America and Eastern Europe.
Dermatological products include, in addition to Oxsoralen-Ultra(R), Solaquin(R),
Trisoralen(R) and Eldoquine(R), which are principally used for intractable
psoriasis and pigmentation disorders, hypopigmentation (the skin losing its
color) and hyperpigmentation (the skin aeftina darker than normal). The
Company's second largest selling other ethical product is Mestinon(R),
anticholinesterase.
The Company markets three anti-cholinesterase product lines in North
America under the trade names Mestinon(R), Prostigmin(R) and Tensilon(R). These
products, manufactured by and licensed from Roche Holding AG, are used in
treating myasthenia gravis, a progressive neuromuscular disorder, and in
reversing the effects of certain muscle relaxants. Bensedin(R), is a
tranquilizer manufactured by ICN Yugoslavia and is used in the treatment of
psychological and emotional disorders. ICN Yugoslavia also sells insulin for the
treatment of diabetes. Albumina(R)is sold in Spain and Mexico for use in
emergency treatment of shock due to burns, trauma, operations and infections,
and conditions where the restoration of blood volume is urgent.
Other OTC Products: Other OTC products accounted for approximately 22%,
17% and 18% of the Company's net sales for the years ended December 31, 1996,
1995 and 1994, respectively. Other OTC products encompass a broad range of
ancillary products, sold through the Company's existing distribution channels.
Research Products
Research chemicals, diagnostic and other biomedical products accounted for
approximately 10% and 12% of the Company's net sales for the years ended
December 31, 1996 and 1995, respectively.
Research Chemicals: The Company serves life science researchers throughout
the world through a catalog sales operation, direct sales and distributors. The
Company's catalog lists approximately 55,000 products which are used by medical
and scientific researchers involved in molecular biology, cell biology,
immunology and biochemistry, microbiology and other areas. A majority of these
products are purchased from third party manufacturers and distributed by the
Company. Products include biochemicals, immunobiologicals, radiochemicals,
tissue culture products and organic and rare and fine chemicals.
Diagnostics: Among the diagnostics marketed by the Company are reagents
that are routinely used by physicians and medical laboratories to accurately and
quickly diagnose hundreds of patient samples for a variety of disease
conditions. The Company manufactures both enzyme and radio-immunoassay kits,
which it markets under the ImmuChem(TM) product line. The Company is also a
supplier of immunodiagnostic tests for the screening of newborn infants for
inherited and other disorders.
Dosimetry: The Company is a supplier of analytical monitoring services to
detect personal occupational exposure to radiation. This service is provided to
dentists, veterinarians, chiropractors, podiatrists, hospitals, universities,
government institutions, nuclear power plants, small office practitioners and
others exposed to ionizing radiation. The Company's service includes both film
and thermo luminescent badges in several configurations to accommodate a broad
scope of users. This service includes the manufacture of badges, distribution to
and from clients, analysis of badges and a radiation report including exposure.
RESEARCH AND DEVELOPMENT
The Company's research and development activities use the expertise
accumulated by the Company and its predecessors in over 30 years of nucleic
acids research. In addition, the Company develops innovative products targeted
to address the specific needs of the Company's local markets. The Company
currently has 572 employees devoted to Research and Development activities.
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Long-Term Research and Development
The Company's long-term research and development activities are focused on
the identification and development of novel therapeutic and diagnostic agents
for the treatment of viral diseases, cancer, immunologic dysfunction, diseases
of the skin, hormonal therapy, and cardiovascular diseases.
The Company is engaged in two research areas which both involve nucleic
acids. One area is based on extending the library of nucleoside analogs through
new synthesis and screening efforts. This is a proven approach which led to the
identification of Virazole(R) by the Company and to other nucleoside
therapeutics by other companies. The second area is the use of "antisense"
oligonucleotide technology. This approach seeks to block the undesirable
expression of genetic material in a highly selective way through the
construction of short sequences of nucleotides which uniquely bind and
inactivate the disease-causing genetic material. Both these approaches take
advantage of the Company's knowledge base in nucleic acids.
Near and Medium-Term Research and Development
The Company's short-term development pipeline includes the registration of
a number of products in regional markets, including, but not limited to, Latin
America and Eastern and Central Europe. This ongoing activity introduces both
high quality generic and licensed proprietary products into under-served
markets. There can be no assurance of the results of the Company's research and
development efforts or the ultimate commercial success of any of the products in
the development.
The Company's medium-term research and development pipeline involves the
preclinical and clinical evaluation of certain nucleotide compounds which have
broad market attractiveness and which have shown promise for successful
commercialization (although there can be no assurances that these products will
be commercialized successfully). The majority of these compounds arose from the
nucleic acids programs but certain other compounds are in development to broaden
the portfolio of the Company. These compounds include:
Virazole(R) (ribavirin): The Company has entered into an agreement with
Schering-Plough whereby Schering-Plough assumes responsibility for worldwide
clinical development and registration of oral ribavirin in combination with
their product Intron A (interferon alpha 2b), for the treatment of hepatitis C
virus infections and receives certain geographically exclusive marketing rights.
Phase III clinical trials are underway. See "-- Background."
Clinical studies have been performed with Virazole(R) in various
formulations for the treatment of several other viral diseases. Among diseases
for which at least one governmental health regulatory agency, in countries other
than the United States, has approved commercialization of Virazole(R) are herpes
zoster, genital herpes, chicken pox, hemorrhagic fever with renal syndrome,
Lassa Fever, measles, influenza and HIV. The Company is initiating carefully
focused clinical studies evaluating the use of Virazole(R) in the treatment of
papilloma virus infections and for early intervention against RSV infections in
persons whose immune defenses are compromised as a consequence of bone marrow
transplantation.
Tiazole(TM) (tiazofurin): The Company has maintained an active research
program centered on tiazofurin, which the Company is developing under the
tradename Tiazole(TM). This product is a nucleoside analog demonstrated to cause
inhibition of IMP-dehydrogenase, whose activity is elevated in a number of
cancers. Studies of Tiazole(TM) by independent investigators indicate
significant activity in myelogenous leukemia. The Company is in the process of
conducting Phase II/III evaluation of Tiazole(TM) for use in the treatment of
the late stages of refractory chronic myelogenous leukemia. The Company is also
evaluating Tiazole(TM) for the treatment of ovarian carcinoma.
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<PAGE> 63
Adenazole(TM) (8-Cl-c-AMP): This nucleotide has been shown to control cell
proliferation and differentiation in certain cancers. Independent investigators
in Italy and Scotland have conducted human trials which indicate significant
utility of this compound. The Company is planning to continue to pursue the
development of Adenazole(TM).
Somatorelin (HGRF1-44): Somatorelin is a peptide which causes the
synthesis and release of human growth hormone. The Company believes that
somatorelin offers advantages over treatment with growth hormone. Notable among
these advantages are the induction of a normal daily cycle of growth hormone
levels and the induction of the ability of the body to produce growth hormone,
which should offer significant benefit to patients. The Company is currently
sponsoring Phase III trials in short stature pediatric patients.
A2545: This compound was acquired as part of the 1996 purchase of
Alkaloida. A2545 has a favorable preclinical profile and has shown good activity
in Phase I/II studies for the treatment of irregular heartbeat. The Company is
in the process of extending these studies.
Marketing and Customers
The Company markets its pharmaceutical products in some of the most
developed pharmaceutical markets, including the United States, Canada and
Western Europe, as well as developing markets, including Russia, Eastern Europe
and Latin America. The Company adjusts its marketing strategies according to the
individual markets in which it operates. The Company believes its marketing
strategy is distinguished by flexibility, allowing the Company to market
successfully a wide array of pharmaceutical products within diverse regional
markets as well as certain drugs, notably Virazole(R), on a worldwide basis.
The Company has a marketing and sales staff of approximately 1,900 persons
for its pharmaceutical products, including sales representatives in North
America, Latin America, Western Europe and Eastern Europe, who promote its
pharmaceutical products. As part of its marketing program for pharmaceuticals,
the Company uses direct mailings, advertises in trade and medical periodicals,
exhibits products at medical conventions, sponsors medical education symposia
and sells through distributors in countries where it does not have its own sales
staff.
In the United States, the Company currently promotes its pharmaceutical
products to physicians through its own sales force. These products are
distributed to drug stores and hospitals through wholesalers. In Latin America,
including Mexico, the Company promotes to physicians and distributes products
either directly or indirectly to hospitals and pharmacies. The Company's Spanish
and Dutch subsidiaries promote and sell pharmaceutical products through their
own sales forces to physicians, hospitals, retail outlets, pharmacies and
wholesalers. In other Western European markets, particularly the United Kingdom
and Germany, sales forces have recently been established and distribution
methods are in transition as ICN affiliates are formed. In Canada, the Company
has its own sales force and promotes and sells directly to physicians,
hospitals, wholesalers and large drug store chains.
ICN Yugoslavia sells a broad range of pharmaceutical and other products in
Yugoslavia through approximately 30 wholesalers, six sales offices and 85 sales
representatives. In December 1995, the UNSC adopted a resolution that suspended
economic sanctions imposed on Yugoslavia. The suspension of most economic
sanctions enabled ICN Yugoslavia to resume exporting certain of its product
lines to Russia, other Eastern European markets, Africa, the Middle East and the
Far East during 1996.
During 1996, 80% of ICN Yugoslavia's sales were to government sponsored
entities of Yugoslavia. Future sales by ICN Yugoslavia could be dependent on the
ability of the Yugoslavian government to continue to subsidize purchases of
pharmaceutical products.
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<PAGE> 64
The research chemical and diagnostic product lines are sold worldwide
primarily through the Company's mail order catalogs, with additional sales being
generated through affiliates and a network of distributors.
The Company's customer group for research products is principally composed
of biomedical research institutions, such as universities, the National
Institutes of Health, pharmaceutical companies, and, to a lesser extent,
hospitals. The Company has a sales and marketing organization of approximately
230 persons for its research products, approximately 130 persons in the United
States and Canada, approximately 95 in Europe and the balance in Australia.
Pursuant to the Company's Agreement with Schering-Plough, if Virazole(R) is
approved for use in Combination Therapy for the treatment of chronic hepatitis C
in the United States, or elsewhere (for which, in either case, there can be no
assurance), Schering-Plough will have exclusive marketing rights for Virazole(R)
for hepatitis C worldwide, except that the Company will retain the right to
co-market in the countries of the European Union.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors, many of whom have substantially greater capital resources and
marketing capabilities and larger research and development staffs and facilities
than the Company, are actively engaged in marketing products similar to those of
the Company and in developing new products similar to those proposed to be
developed and sold by the Company. The Company believes that many of its
competitors spend significantly more on research and development related
activities than the Company spends. Competitive factors vary by product line and
customer and include service, product availability and performance, price and
technical capabilities. The Company does business in an industry characterized
by extensive and ongoing research efforts. Others may succeed in developing
products that are more effective than those presently marketed or proposed for
development by the Company. Progress by other researchers in areas similar to
those explored by the Company may result in further competitive challenges.
The Company is aware of several ongoing research programs which are
attempting to develop new prophylactic and therapeutic products for treatment of
RSV. Although the Company will follow publicly disclosed developments in this
field, on the basis of currently available data it is unable to evaluate whether
the technology being developed in these programs poses a threat to its current
market position in the treatment of RSV or its revenue streams.
Competitors of the Company include Sigma-Aldrich Corporation, Amersham
International and New England Nuclear in biomedical research products; LKB
Instruments, Abbott Laboratories, Diagnostic Products Corporation and SmithKline
Beecham in diagnostic reagents; and Life Technologies, Inc. and BioWhittaker,
Inc. in cell biology products.
The Company may also face increased competition from manufacturers of
generic pharmaceutical products when certain of the patents covering certain of
its currently marketed products expire.
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<PAGE> 65
FACILITIES
The following are the principal facilities of the Company and its
subsidiaries:
<TABLE>
<CAPTION>
OWNED OR SQUARE
LOCATION PURPOSE LEASED FOOTAGE
- --------------------------------- ------------------------------------- --------- --------
<S> <C> <C> <C>
Costa Mesa, California Corporate headquarters and Owned 178,000
administrative offices
Moscow, Russia Administrative and sales office Leased 8,450
Budapest, Hungary Administrative and sales office Leased 8,740
High Wycombe, United Kingdom Administrative office Leased 5,000
Irvine, California Manufacturing facility Leased 27,000
Orangeburg, New York Manufacturing facility Owned 100,000
Aurora, Ohio Manufacturing and repackaging Leased 67,000
facility
Montreal, Canada Offices and manufacturing facility Owned 93,519
Zoetermeer, The Netherlands Offices and manufacturing facility Owned 23,430
Eschwege, Germany Offices and manufacturing facility Owned 13,278
Mexico City, Mexico Offices and manufacturing facilities Owned 290,000
Belgrade, Yugoslavia Offices and manufacturing facility Owned 781,000
St. Petersburg, Russia Offices and manufacturing facility Owned 319,102
Kursk, Russia Offices and manufacturing facility Owned 167,791
Chelyabinsk, Russia Offices and manufacturing facility Owned 157,873
Tiszavasvari, Hungary Offices and manufacturing facility Owned 623,489
Barcelona, Spain Offices and manufacturing facility Owned 93,991
Brussels, Belgium Sales Office Leased 6,000
Paris, France Sales Office Leased 3,885
Thame, United Kingdom Offices and warehouse Leased 19,500
Opera, Italy Sales Office and warehouse Owned 153,777
Bryan, Ohio Warehouse and manufacturing facility Owned 37,000
Sydney, Australia Sales Office Leased 10,650
</TABLE>
Effective July 1, 1997 the Company purchased a GMP-standard manufacturing
plant (the "Plant") located in Puerto Rico from Roche. The purchase price of the
Plant was $55.0 million and was funded by the assumption of $40.0 million in
existing bonds and the payment of $15.0 million in cash. During the Company's
first two years of ownership of the Plant it will lease the Plant to Roche. In
the third year, upon assuming operating control of the Plant, the Company will
provide contract manufacturing services to Roche. After that period, the
capacity of the Plant will be utilized by the Company for internal production
requirements and third party manufacturing services. The capacity of the plant
currently exceeds the existing production requirements of the Company. There can
be no guarantee that the excess capacity of the Plant can be utilized by
providing third party manufacturing services.
In the opinion of the Company's management, all facilities occupied by the
Company are adequate for present requirements, and the Company's current
equipment is considered to be in good condition and suitable for the operations
involved. For information concerning possible expansion of the Company's
capacity to manufacture Virazole(R) in the future, see "-- Manufacturing and Raw
Materials."
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<PAGE> 66
MANUFACTURING AND RAW MATERIALS
The Company manufactures or will manufacture pharmaceuticals at 16
facilities. The Company believes it has sufficient manufacturing capacity to
meet its needs for the foreseeable future. All of the manufacturing facilities
that require GMP approval from the FDA or foreign agencies have obtained such
approval. See "-- Facilities."
In Bryan, Ohio, the Company manufactures topical and oral dosages of
several pharmaceutical products for the United States market. All of the
Company's dermatology products are packaged and distributed from the Bryan, Ohio
facility. The Bryan, Ohio facility also packages and distributes Virazole(R) on
a worldwide basis.
At the two facilities in Mexico City, the Company manufactures a variety of
pharmaceuticals in topical, oral and injectable dosage forms to serve the Latin
America market. In Montreal, Canada, the Company manufactures its line of
proprietary and generic pharmaceutical dosage forms for the U.S. and Canadian
markets, SPAG units for the administration of Virazole(R) in the treatment of
RSV, and other related medical devices. The Canadian facility also manufactures
a full line of products using the controlled drug substance morphine for the
management of pain in cancer and post-surgical states. In Spain, the Company
manufacturers and markets ethical pharmaceuticals principally for distribution
in Spain and Holland. In Yugoslavia, the Company manufactures over 450
pharmaceutical, veterinary, dental and other products in topical, oral and
injectable forms. In St. Petersburg, Russia, the Company manufactures primarily
pharmaceutical products in oral and injectable forms. At Kursk, Russia, the
Company produces bulk drugs as well as other chemically synthesized bulk drug
structures, and a variety of oral dosage forms for the Russian market. In
Chelyabinsk, Russia, the Company produces oral and injectable dosage forms for
the Russian market. In Tiszavasvari, Hungary the Company produces a variety of
bulk drug substances for sale worldwide and oral dosage forms for European and
Asian markets. At Wuxi in China the Company produces oral and injectable dosage
forms for the Chinese market.
The Company subcontracts all of the manufacture of bulk ribavirin to third
party suppliers. Most of the finishing and packaging of Virazole(R) is done by
the Company and the balance by third party subcontractors.
Manufacturing of the Company's research chemical products is chiefly
carried out in three domestic facilities and one foreign facility: Irvine,
California (radiochemicals), Orangeburg, New York (diagnostic and
immunobiologicals), Aurora, Ohio (biochemicals and immuno-biologicals) and
Eschwege, Germany (chromatography products).
In general, raw materials used by the Company in the manufacture of all of
its products are obtainable from multiple sources in the quantities desired.
However, the availability and costs of raw animal sera for distribution and for
manufacturing certain of its cell biology products may vary from time to time
and are largely beyond the Company's control. In the last decade, the number of
reactor sites producing radioactive raw materials has diminished.
ORDER BACKLOG
As is customary in the pharmaceutical industry, all the Company's products
are sold on an "open order" basis. Consequently, order backlog is not considered
a significant factor.
EMPLOYEES
As of December 31, 1996, the Company employed 12,784 persons, an increase
from 7,880 in 1994. The increase is primarily due to acquiring the controlling
interest of ICN Russia and ICN Hungary. At year-end, the Company employed 1,901
persons in sales and marketing, an increase from 1,780 in 1995. Additionally, at
year-end, the Company employed 572 in research and development, 8,633 in
production, and 1,678 in general and administrative matters. All of the
employees employed by ICN Yugoslavia and ICN Hungary, 3,089 of the employees of
ICN Russia,
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222 of the employees of the Company's Mexican subsidiaries, 247 employees of the
Company's Spanish subsidiary, 38 employees of the Company's German subsidiary
and 35 employees of the Company in the United States are covered by collective
bargaining agreements, or similar agreements. National labor laws in some
foreign countries in which the Company has substantial operations, including
Yugoslavia, Russia and Spain, govern the amount of wages and benefits paid to
employees and establish severance and related provisions. The Company has not
experienced any work stoppages, slowdown or other serious labor problems which
have materially impeded its business operations.
LICENSES, PATENTS AND TRADEMARKS
The Company may be dependent on the protection afforded by its patents
relating to Virazole(R) and no assurance can be given as to the breadth or
degree of protection which these patents will afford the Company. The Company
has patent rights in the United States expiring in 1999 relating to the use of
Virazole(R) to treat specified human viral diseases. If future development of
Virazole(R) in Combination Therapy is successful and approval granted in the
United States, an additional award of exclusivity will likely be granted for up
to three years from date of approval pursuant to the Waxman-Hatch Act; however,
there can be no assurance that such development will be successful or that such
approval will be obtained. The Company has patents in certain foreign countries
covering use of Virazole(R) in the treatment of certain diseases, which coverage
and expiration varies and which patents expire at various times through 2006.
The Company has no, or limited, patent rights with respect to Virazole(R) and/or
its use in certain foreign countries where Virazole(R) is currently, or in the
future may be, approved for commercial sale, including France, Germany and Great
Britain. However, it is expected that Schering-Plough and the Company will be
granted a favorable review classification (Concentration Procedure) for
Virazole(R) as a treatment for chronic hepatitis C in Combination Therapy in all
European Union countries (including France, Germany and Great Britain). As a
result, approval of the application of Virazole(R) for treatment of chronic
hepatitis C in Combination Therapy (if such approval is granted) would, in the
European Union, provide Schering-Plough and the Company six or more years of
regulatory protection from the date of such approval of the application against
generic substitutes of Virazole(R) for treatment of chronic hepatitis C. There
can be no assurance that the loss of the Company's patent rights with respect to
Virazole(R) upon expiration of the Company's patent rights in the United States,
Europe and elsewhere will not result in competition from other drug
manufacturers or will not otherwise have a significant adverse effect upon the
business and operations of the Company.
Marketing approvals in certain foreign countries provide an additional
level of protection for products approved for sale in such countries. As a
general policy, the Company expects to seek patents, where available, on
inventions concerning novel drugs, techniques, processes or other products which
it may develop or acquire in the future. However, there can be no assurance that
any patents applied for will be granted, or that, if granted, they will have
commercial value or as to the breadth or the degree of protection which these
patents, if issued, will afford the Company. The Company intends to rely
substantially on its unpatented proprietary know-how, but there can be no
assurance that others will not develop substantially equivalent proprietary
information or otherwise obtain access to the Company's know-how. Patents for
pharmaceutical compounds are not available in certain countries in which the
Company markets its products.
ICN Yugoslavia manufactures and sells three of its top-selling
antibacterial products, Pentrexyl(R), Longaceph(R) and Palitrex(R), under
licenses from Bristol-Myers Squibb, Roche Holding AG and Eli Lilly,
respectively. See "-- Products."
Many of the names of the Company's products are registered trademarks in
the United States, Yugoslavia, Mexico, Canada, Spain, The Netherlands and other
countries. The Company anticipates that the names of future products will be
registered as trademarks in the major markets in which it will operate. Other
organizations may in the future apply for and be issued patents or own
proprietary rights covering technology which may become useful to the Company's
business. The
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extent to which the Company at some future date may need to obtain licenses from
others is not known.
GOVERNMENT REGULATION
The Company is subject to licensing and other regulatory control by the
FDA, the Nuclear Regulatory Commission, other Federal and state agencies and
comparable foreign governmental agencies.
FDA approval must be obtained in the United States and approval must be
obtained from comparable agencies in other countries prior to marketing or
manufacturing new pharmaceutical products for use by humans. Obtaining FDA
approval for new products and manufacturing processes can take a number of years
and involve the expenditure of substantial resources. To obtain FDA approval for
the commercial sale of a therapeutic agent, the potential product must undergo
testing programs on animals, the data from which is used to file an
Investigational New Drug Application with the FDA. In addition, there are three
phases of human testing. Phase I: safety tests for human clinical experiments,
generally in normal, healthy people; Phase II: expanded safety tests conducted
in people who are sick with the particular disease condition that the drug is
designed to treat; and Phase III: greatly expanded clinical trials to determine
the effectiveness of the drug at a particular dosage level in the affected
patient population. The data from these tests is combined with data regarding
chemistry, manufacturing and animal toxicology and is then submitted in the form
of a NDA to the FDA. The preparation of a NDA requires the expenditure of
substantial funds and the commitment of substantial resources. The review by the
FDA could take up to several years. If the FDA determines that the drug is safe
and effective, the NDA is approved. No assurance can be given that authorization
for the commercial sale by the Company of any new drugs or compounds for any
application will be secured in the United States or any other country, or that,
if such authorization is secured, those drugs or compounds will be commercially
successful. The FDA in the United States and other regulatory agencies in other
countries also periodically inspect manufacturing facilities.
The Company is subject to price control restrictions on its pharmaceutical
products in the majority of countries in which it operates. To date, the Company
has been affected by pricing adjustments in Spain and by the lag in allowed
price increases in Yugoslavia and Mexico, which has created lower sales in U.S.
dollars and reductions in gross profit. Future sales and gross profit could be
materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation.
LITIGATION, GOVERNMENT INVESTIGATIONS AND OTHER MATTERS
Litigation: In 1995, numerous lawsuits were filed which named the Company,
the Chairman and several other officers of the Company as defendants (the
"Defendants"), all related to the Company's Hepatitis C NDA. These lawsuits were
consolidated into the Consolidated Amended Class Action Complaint For Violations
of Federal Securities Laws (the "Class Action") (In re ICN Pharmaceuticals, Inc.
Securities Litigation, Master File No. SACV-95-128-GLT (Eex) (C.D. Calif.)).
Simultaneously, four stockholders derivative lawsuits were filed against the
Company's board of directors, also related to the Company's Hepatitis C NDA, and
consolidated into the Second Amended Consolidated Verified Derivative Complaint
(the "Derivative Action") (In re ICN Pharmaceuticals, Inc. Securities
Litigation, SACV-95-165, 174, 197, 279-GLT (Eex) (C.D. Calif.)). In April 1996,
the Derivative Action was dismissed by the district court, without leave to
replead. An additional stockholders derivative suit which had been commenced in
Delaware was similarly dismissed.
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In the Class Action, plaintiffs alleged that Defendants made various
deceptive and untrue statements of material fact and omitted material facts
regarding its Hepatitis C NDA in connection with: (i) the Merger of the Company,
SPI, Viratek and Biomedicals in November 1994 and the issuance of convertible
debentures in connection therewith; and (ii) information provided to the public.
Plaintiffs also alleged that the Chairman of the Company traded on inside
information relating to the Hepatitis C NDA. The Class Action asserted claims
for alleged violations of Sections 11 and 15 of the Securities Act of 1933,
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. Plaintiffs sought unspecified compensatory damages, pre-
judgement and post-judgement interest and attorneys' fees and costs. Plaintiffs'
motion seeking the certification of (i) a class of persons who purchased ICN
securities from November 10, 1994 through February 17, 1995; and (ii) a subclass
consisting of persons who owned SPI and/or Biomedicals common stock prior to the
Merger was granted. Defendants filed their answer to the Class Action, and the
parties engaged in extensive pre-trial discovery. In July 1997, the Company and
plaintiffs in the Class Action agreed to settle the Class Action for the sum of
$15.0 million. The settlement is in the process of being documented and is
subject to the approval of the court. A settlement hearing is expected to be
held in the fall of 1997. The Class Action is currently scheduled to proceed to
trial in January 1998. The Company intends to urge the district court to approve
the settlement of the Class Action. If the settlement is not approved, and the
Class Action proceeds to trial, the ultimate outcome of any such trial cannot be
predicted with certainty, and any unfavorable outcome could have a material
adverse effect on the Company.
Four lawsuits have been filed with respect to the Merger in the Court of
Chancery in the State of Delaware (the "1994 Actions"). Three of these lawsuits
were filed by stockholders of SPI and, in one lawsuit, of Viratek against ICN,
SPI, Viratek (in the one lawsuit) and certain directors and officers of ICN, SPI
and/or Viratek (including the Chairman) and purport to be class actions on
behalf of all persons who held shares of SPI and Viratek common stock. The
fourth lawsuit was filed by a stockholder of Viratek against ICN, Viratek and
certain directors and officers of ICN, SPI and Viratek (including the Chairman)
and purports to be a class action on behalf of all persons who held shares of
Viratek common stock. These suits allege that the consideration provided to the
public stockholders of SPI and/or Viratek in the Merger was unfair and
inadequate, and that the defendants breached their fiduciary duties in approving
the Merger and otherwise. The 1994 Actions have been inactive. The Company
believes that these suits are without merit and intends to defend them
vigorously should they become active.
ICN, SPI and Viratek and certain of their current and former officers and
directors (collectively, the "ICN Defendants") were named defendants in certain
consolidated class actions. Plaintiffs alleged that the ICN Defendants made, or
aided and abetted PaineWebber, Inc. in making, misrepresentations of material
fact and omitted material facts concerning the business, financial condition and
future prospects of ICN, Viratek and SPI in certain public announcements,
PaineWebber, Inc. research reports and filings with the SEC. In October 1996,
following a jury verdict finding the Company not liable on eight of the 15
claims, the Company entered into a settlement agreement with the plaintiffs.
Under the terms of the settlement, the Company agreed to pay $4.5 million in
cash and $10.0 million in common stock of the Company, based upon the fair
market value of the stock on the date of settlement. On January 6, 1997, the
court approved the settlement and signed the order and judgment dismissing the
amended complaint with prejudice.
Investigations: Pursuant to an Order Directing Private Investigation and
Designating Officers to Take Testimony, entitled In the Matter of ICN
Pharmaceuticals, Inc. (P-177) (the "Order") a private investigation is being
conducted by the SEC with respect to certain matters pertaining to the status
and disposition of the Hepatitis C NDA. As set forth in the Order, the
investigation concerns whether, during the period June 1994 through February
1995, the Company, persons or entities associated with it and others, in the
offer and sale or in connection with the purchase and sale of ICN securities,
engaged in possible violations of Section 17(a) of the Securities Act of 1933
and Section 10(b) of
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the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, by having
possibly: (i) made false or misleading statements or omitted material facts with
respect to the status and disposition of the Hepatitis C NDA; or (ii) purchased
or sold ICN securities while in possession of material, non-public information
concerning the status and disposition of the Hepatitis C NDA; or (iii) conveyed
material, non-public information concerning the status and disposition of the
Hepatitis C NDA, to other persons who may have purchased or sold ICN securities.
The Company is cooperating with the SEC in its investigation. To date, the
Company has produced documents to the SEC pursuant to its request and the SEC
has taken depositions of certain officers, directors, and employees of the
Company.
In addition, the Company has received subpoenas (the "Subpoenas") from a
Grand Jury of the United States District Court, Central District of California,
requesting the production of documents covering a broad range of matters over
various time periods. The Company and Milan Panic are subjects of the
investigation. The Company has and continues to cooperate in the production of
documents pursuant to the Subpoenas. A number of current and former employees of
the Company have been interviewed by the government in connection with the
investigation.
The ultimate outcome of the SEC and Grand Jury investigations cannot be
predicted and any unfavorable outcomes could have a material adverse effect on
the Company. See "Risk Factors -- Dependence on Key Personnel."
Consent Decrees: In May 1991, ICN completed a civil settlement with the
United States Justice Department regarding a grand jury investigation initiated
in September 1988. The grand jury investigation, in which ICN and its
subsidiaries were targets, generally related to compliance by ICN and its
subsidiaries with applicable FDA statutes and regulations concerning the
marketing and sale of Virazole(R). In settling the matter, ICN entered into a
civil consent decree whereby it neither admitted nor denied any violations of
FDA statutes and regulations. In addition, ICN agreed that it and its affiliates
would abide by all FDA laws and regulations in the future and agreed to pay
$400,000 and to reimburse the FDA $200,000 for administrative costs. The consent
decree expired by its terms at the end of May 1994.
On October 7, 1991, ICN, Viratek, Milan Panic, Chairman of the Board and
Chief Executive Officer of the Company, and Dr. Weldon B. Jolley, a director of
ICN, entered into a settlement agreement in the form of a Consent Decree with
the Commission, ending the Commission's investigation of ICN and Viratek which
began in 1987 and generally concerned disclosures by ICN and Viratek in 1986 and
1987 relating to the safety and efficacy of Virazole(R) in treating certain
AIDS-related conditions. Without admitting or denying any violations of the
securities laws, ICN, Viratek and the individuals agreed not to violate
securities laws in the future.
Product Liability: The Company could be exposed to possible claims for
personal injury resulting from allegedly defective products. The Company
generally self-insures against potential product liability exposure with respect
to its marketed products. While to date no material claim for personal injury
resulting from allegedly defective products has been successfully maintained
against the Company, a substantial claim, if successful, could have a material
adverse effect on the Company. See "Risk Factors -- Potential Product Liability
Exposure and Lack of Insurance."
Environmental Matters: The Company has not experienced any material impact
on its capital expenditures, earnings or competitive position as a result of
compliance with any laws or regulations regarding the protection of the
environment. The Company believes it is in compliance in all material respects
with applicable laws relating to the protection of the environment.
In connection with the acquisition of Alkaloida from the government of
Hungary, an environmental remediation fund of approximately $7.2 million was
established by the government from the proceeds that the Company tendered. This
fund will be used to remediate a waste disposal site
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adjacent to Alkaloida, contaminated by past plant operations, by 1998. If the
cash from this fund is insufficient to fully remediate the waste disposal site,
the Company is liable for the shortfall. The Company believes, based upon
current third party studies and estimates, that the cash in the fund is adequate
to remediate the waste disposal site.
The Company is a party to a number of other pending or threatened lawsuits
arising out of, or incident to, its ordinary course of business, including two
complaints alleging sexual harassment. In the opinion of management, amounts
accrued for awards, assessments or potential losses in connection with these
matters and the unresolved matters referred to above, are adequate and the
ultimate resolution will not have a material effect on the Company's
consolidated financial position or results of operations. However, there can be
no assurance that any unfavorable outcome of any such matter would not have a
material adverse effect on the Company.
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MANAGEMENT
The following individuals are the members of the Board of Directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
---------------------------- ---- -------------------------------------------------
<S> <C> <C>
Milan Panic................. 67 Chairman of the Board and Chief Executive Officer
Norman Barker, Jr. ......... 74 Director
Birch E. Bayh .............. 69 Director
Alan F. Charles............. 59 Director
Roger Guillemin, M.D., 73 Director
Ph.D. ....................
Dale M. Hanson.............. 54 Director
Adam Jerney................. 55 Director, President -- Chief Operating Officer
Weldon B. Jolley, Ph.D. .... 70 Director
Jean-Francois Kurz.......... 62 Director
Thomas H. Lenagh............ 74 Director
Charles T. Manatt........... 60 Director
Stephen D. Moses............ 62 Director
Michael Smith, Ph.D. ....... 64 Director
Roberts A. Smith, Ph.D. .... 68 Director
Richard W. Starr............ 76 Director
Devron Averett.............. 48 Senior Vice President -- Research and Development
John E. Giordani............ 52 Executive Vice President Chief Financial Officer
and Corporate Controller
John Julian................. 52 Senior Vice President -- Worldwide Marketing
Bill A. MacDonald........... 46 Executive Vice President -- Strategic Planning
David C. Watt............... 44 Executive Vice President -- General Counsel and
Corporate Secretary
Jack Sholl.................. 53 Senior Vice President -- Human Resources
</TABLE>
Milan Panic, the founder of ICN, has been Chairman of the Board, Chief
Executive Officer and President of the Company since its inception in 1960;
except for a leave of absence from July 14, 1992 to March 4, 1993 while he was
serving as Prime Minister of Yugoslavia and a leave of absence from October 1979
to June 1980.
Norman Barker, Jr., has served as a director of the Company since 1988. Mr.
Barker is the retired Chairman of the Board of First Interstate Bank of
California and Former Vice Chairman of the Board of First Interstate Bancorp.
Mr. Barker joined First Interstate Bank of California in 1957 and was elected
President and Director in 1968, Chief Executive Officer in 1971 and Chairman of
the Board in 1973. He retired as Chairman of the Board at the end of 1985. Mr.
Barker is also Chairman of the Board of Fidelity Federal Bank and Pacific
American Income Shares, Inc., and a director of TCW Convertible Securities Fund,
Inc. and American Health Properties, Inc.
Birch E. Bayh, has served as a director of ICN since 1992. Senator Bayh is
a senior partner in the law firm of Bayh, Connaughton & Malone, P.C. Senator
Bayh was previously head of the Washington, D.C. office of Rivkin, Radler, Bayh,
Hart & Kremer, and a partner of the Indianapolis, Indiana and Washington, D.C.
law firm of Bayh, Tabbert & Capehart from April 1981 through June 1985. From
1963 to 1981, Senator Bayh served as United States Senator from the State of
Indiana. Senator Bayh is also a director of Acordia, Inc. and Simon Property
Group.
Alan F. Charles has served as a director of the Company since 1986. Mr.
Charles was Vice Chancellor of University Relations at the University of
California, Los Angeles from 1980 to 1993 and served in various administrative
capacities at that university since 1972. Mr. Charles is now an independent
consultant in higher education.
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Roger Guillemin, M.D., Ph.D., has served as a director of the Company since
1989, as a director of Viratek since 1992 and as a director of ICN since 1993.
Dr. Guillemin has been Distinguished Scientist at the Whittier Institute in La
Jolla, California from March 1989 to 1995 and as Resident Fellow and Chairman of
the Laboratories for Neuroendocrinology at the Salk Institute in La Jolla,
California, and Adjunct Professor of Medicine at the Medical School of the
University of California at San Diego. Dr. Guillemin was awarded the Nobel Prize
in Medicine in 1977 and, in the same year, was presented the National Medal of
Science by the President of the United States. He was affiliated with the
Department of Physiology at Baylor College of Medicine in Houston, Texas from
1952 to 1970. Dr. Guillemin is a member of the National Academy of Sciences, and
a Fellow of the American Association for the Advancement of Science. Dr.
Guillemin has also served as President of the American Endocrine Society. Dr.
Guillemin is also a director of Prizm Pharmaceuticals, Inc.
Dale M. Hanson has served as a director of the Company since 1995. He is
the Chief Executive Officer of American Partner's Capital Group, a provider of
financial services to institutional investors. From 1987 to 1994, Mr. Hanson was
Chief Executive Officer of the California Public Employees Retirement System
(CalPERS). From 1981 to 1987, Mr. Hanson served as Chief Operating Officer of
the Wisconsin Retirement System.
Adam Jerney has served as a director of the Company since 1992. Mr. Jerney
is currently Chief Operation Officer and President of ICN. He served as Chairman
of the Board and Chief Executive Officer of ICN, SPI, Viratek and Biomedicals
from July 14, 1992 to March 14, 1993 during Milan Panic's leave of absence. Mr.
Jerney joined ICN in 1973 as Director of Marketing Research in Europe and
assumed the position of General Manager of ICN Netherlands in 1975. In 1981, he
was elected Vice President -- Operations and in 1987 he became President and
Chief Operating Officer of SPI. Prior to joining ICN, he spent four years with
F. Hoffmann-La Roche & Company.
Weldon B. Jolley, Ph.D., has served as a director of the Company since
1960. Dr. Jolley is President of Golden Opportunities and was President of the
Nucleic Acid Research Institute, a former division of ICN, from 1985 to 1989.
Dr. Jolley was a Vice-President of ICN until 1991. Prior to that, he was, for
eleven years, Professor of Surgery at the Loma Linda University School of
Medicine in Loma Linda, California and a physiologist at the Veterans Hospital
in Loma Linda, California.
Jean-Francois Kurz has served as a director of the Company since 1989. Mr.
Kurz was a Member of the Board of Directors and the Executive Committee of the
Board of DG Bank Switzerland Ltd. from 1990 to 1992. In 1988 and 1989, Mr. Kurz
served as a General Manager of TDB American Express Bank of Geneva and, from
1969 to 1988, he was Chief Executive Officer of Banque Gutzweiler, Kurz,
Bungener in Geneva. Mr. Kurz is also Chairman of the Board and a director of
Banque Pasche S.A., Geneva.
Thomas H. Lenagh has served as a director of the Company since 1979. Mr.
Lenagh is an independent financial advisor. He was Chairman of the Board of
Greiner Engineering, Inc. from 1982 to 1985. Mr. Lenagh served as Financial Vice
President to the Aspen Institute from 1978 to 1980, and since then as an
independent financial consultant. From 1964 to 1978 he was Treasurer of the Ford
Foundation. Mr. Lenagh is also a director of Adams Express Company, U.S. Life
Corporation, SCI Systems, Inc., Gintel Funds, Irvine Sensors, Inc., CML, Inc.,
Clemente Global Funds, Franklin Quest, and V Band Corp.
Charles T. Manatt has served as a director of the Company since 1992. Mr.
Manatt is a partner in the law firm of Manatt, Phelps & Phillips, of which he
was a founder in 1965. Mr. Manatt served as Chairman of the Democratic Party
from 1981 to 1985. Mr. Manatt is also a director of Federal Express and Comsat.
Stephen D. Moses has served as a director of the Company since 1988. Mr.
Moses is Chairman of the Board of Stephen Moses Interests. He was formerly
Chairman of the Board of National Investment Development Corporation and
Brentwood Bank in Los Angeles, California and a
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member of the National Advisory Board of the Center for National Policy. Mr.
Moses serves on the Board of Visitors of Hebrew Union College, as well as the
Board of Trustees of Franklin and Marshall College and the UCLA Foundation. From
1967 to 1971, Mr. Moses was an executive of the Boise Cascade Corporation,
serving in several capacities, including President of Boise Cascade Home and
Land Corporation. In the early 1970's, Mr. Moses was President of Flagg
Communities, Inc.
Michael Smith, Ph.D., has served as a director of ICN since 1994. Dr. Smith
is Director of the Biotechnology Laboratory, an interdisciplinary unit and a
privately funded research institute at the University of British Columbia. He is
a Peter Wall Distinguished Professor of Biotechnology. In 1993, Dr. Smith
received the Nobel Prize in Chemistry. He has been a Career Investigator of the
Medical Research Council of Canada since 1966 and is a member of the American
Endocrine Society.
Roberts A. Smith, Ph.D., has served as a director of ICN since 1960. Dr.
Smith was President of Viratek and Vice President -- Research and Development of
SPI through 1992. Dr. Smith was also a director of the Nucleic Acid Research
Institute from 1985 to 1989. For more than eleven years, Dr. Smith was Professor
of Chemistry and Biochemistry at the University of California at Los Angeles.
Dr. Smith is also a director of PLC Systems.
Richard W. Starr has served as a director of ICN since 1983. Mr. Starr is
the retired Executive Vice President and Chief Credit Officer Worldwide of First
Interstate Bank of California. Mr. Starr spent 31 years with First Interstate
before retiring in 1983 and has over 44 years of experience in commercial
banking.
Devron Averett, Ph.D., joined ICN in May 1996 as Senior Vice President,
Research and Development. From 1995 to 1996, Dr. Averett was head of the
Department of Molecular and Cellular Virology at Glaxo Wellcome Research
Laboratories. From 1974 to 1995, Dr. Averett held positions of increasing
responsibility in the division of Experimental Therapy at Glaxo Wellcome Inc.
and its predecessor, Burroughs Wellcome Co. Dr. Averett holds his Ph.D. in
microbiology and immunology from the University of North Carolina at Chapel
Hill, where he serves as adjunct associate professor in the Department of
Microbiology and Immunology. He is the author of 37 scientific publications in
refereed journals on work involving the areas described above and holds 17
patents and patent applications. He is a member of the American Society for
Microbiology, the International Society for Antiviral Research and the American
Association for the Advancement of Science.
John E. Giordani joined ICN in June 1986 after serving as Vice President
and Corporate Controller of Revlon, Inc., in New York, New York since February
1982. Prior to the Merger, Mr. Giordani's primary duties were as Chief Financial
Officer of ICN. He devoted insubstantial time to Biomedicals and Viratek. From
1978 until February 1982, he held Deputy and Assistant Corporate Controller
positions with Revlon, Inc. He was with Peat, Marwick, Mitchell & Co. from 1969
to 1978.
John Julian joined ICN in October 1995 as Senior Vice President, Worldwide
Marketing. From 1989 to 1995, Mr. Julian was Vice President of U.S. Marketing
for Marion Merrell Dow. From 1985 to 1989, Mr. Julian was Director, Global
Commercial Development of Marion Merrell Dow. From 1967 to 1985, Mr. Julian held
positions of increasing responsibility with Marion Merrell Dow and its
predecessor companies.
Bill A. MacDonald joined ICN in March 1982. Prior to the Merger, he was
President of Biomedicals since March 18, 1993. From 1980 to 1982, he served as
the Tax Manager of Pertec Computer Corporation. From 1973 to 1980, he was Tax
Manager and Assistant Treasurer of Republic Corporation.
David C. Watt joined ICN in March 1988 as Assistant General Counsel and
Secretary. He was elected Vice President -- Law and Secretary in December 1988.
In January 1992, Mr. Watt was promoted to Senior Vice President of ICN. On
February 1, 1994, Mr. Watt was elected Executive Vice President -- Corporate
Development of ICN. From 1986 to 1987, he was President and Chief Executive
Officer of Unitel Corporation. He also served as Executive Vice President and
General
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Counsel and Secretary of Unitel Corporation during 1986. From 1983 to 1986, he
served with ICA Mortgage Corporation as Vice President, General Counsel and
Corporate Secretary. Prior to that time, he served with Central Savings
Association as Assistant Vice President and Associate Counsel from 1981 to 1983
and as Assistant Vice President from 1980 to 1981.
Jack A. Sholl joined ICN in August 1987 as Vice President, Public
Relations. He was promoted to Senior Vice President in January 1991 and was
elected Senior Vice President -- Human Resources in September 1994. From 1979 to
August 1987, he served as Director of Financial and Media Communications with
Warner-Lambert Company of Morris Plains, New Jersey, and from 1973 to 1979 as
Manager, Department of Communications with Equibank, N.A. of Pittsburgh,
Pennsylvania. Prior to that time, he served on the Public Relations staff of the
New York Stock Exchange (1971-1973) and in editorial positions with The
Associated Press (1968-1971), the last as supervising Business and Financial
Editor in New York.
DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued under an Indenture (the "Indenture"), dated as
of August 14, 1997, by and between the Company and United States Trust Company
of New York, as trustee (the "Trustee"). Upon the issuance of the New Notes or
the effectiveness of a Shelf Registration Statement (as defined below), the
Indenture will be subject to and governed by the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). As used in this "Description of the New
Notes" section, references to the Notes means the New Notes and the "Company"
means ICN Pharmaceuticals, Inc., but not any of its subsidiaries (unless the
context otherwise requires).
The following is a summary of the material provisions of the Indenture.
This summary does not purport to be complete and is subject to the detailed
provisions of, and is qualified in its entirety by reference to, the Trust
Indenture Act, the New Notes and the Indenture, including the definitions of
certain terms contained therein and including those terms made part of the
Indenture by reference to the Trust Indenture Act. A copy of the form of
Indenture may be obtained from the Company. The definitions of certain terms
used in the following summary are set forth below under "-- Certain
Definitions." Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
MATURITY AND INTEREST
The Notes will be unsecured senior obligations of the Company limited in
aggregate principal amount to $275,000,000. The Notes will mature on August 15,
2005. Interest on the Notes will accrue at the rate of 9 1/4% per annum and will
be payable semi-annually in arrears on February 15 and August 15 in each year,
commencing on February 15, 1998, to holders of record on the immediately
preceding February 1 and August 1, respectively. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of the original issuance of the Notes (the
"Issue Date"). Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable at
the office or agency of the Company maintained for such purpose in The City of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the holders of the Notes at their respective addresses as set
forth in the register of holders of Notes. Until otherwise designated by the
Company, the Company's office or agency in The City of New York will be the
office of the Trustee maintained for such purpose. The Notes will be issued in
fully registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof. No service charge will be made for any transfer,
exchange or redemption of Notes, except in certain circumstances for any tax or
other governmental charge that may be imposed in connection therewith.
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REDEMPTION
Mandatory Redemption. The Notes are not subject to any mandatory sinking
fund redemption prior to maturity.
Optional Redemption. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after August 15, 2001 at the
redemption prices (expressed as percentages of the principal amount of the
Notes) set forth below plus in each case accrued and unpaid interest, if any, to
the date of redemption, if redeemed during the twelve-month period beginning on
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------- ----------
<S> <C>
2001............................................. 104.625
2002............................................. 103.083
2003............................................. 101.542
2004 and thereafter.............................. 100.000%
</TABLE>
Selection and Notice. If less than all of the Notes are to be redeemed at
any time, selection of the Notes to be redeemed will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not listed on a
securities exchange, on a pro rata basis or by lot or any other method as the
Trustee shall deem fair and appropriate; provided, however, that Notes redeemed
in part shall only be redeemed in integral multiples of $1,000. Notices of any
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at such
holder's registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed, and the Trustee shall authenticate and
mail to the holder of the original Note a new Note in principal amount equal to
the unredeemed portion of the original Note promptly after the original Note has
been cancelled. On and after the redemption date, interest will cease to accrue
on Notes or portions thereof called for redemption.
RANKING
The Notes will be general unsecured obligations of the Company. The Notes
will rank pari passu in right of payment with all unsecured senior indebtedness
and senior to all subordinated indebtedness of the Company, including the
Company's 8.5% Convertible Subordinated Notes due 1999. As of June 30, 1997, the
Company had approximately $6.0 million of unsecured senior indebtedness
outstanding and approximately $138.9 million of subordinated indebtedness
outstanding. The Notes will be effectively subordinated to all secured
indebtedness of the Company to the extent of the assets securing such
indebtedness and will also be effectively subordinated to all indebtedness of
the Company's subsidiaries. As of June 30, 1997, the Company had approximately
$14.5 million of secured indebtedness outstanding and its subsidiaries had
aggregate indebtedness and other obligations of approximately $32.0 million
outstanding. See "Risk Factors -- Ranking of the Notes; Subsidiary Operations."
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will have the
right, unless the Company has given a notice of redemption, subject to the terms
and conditions of the Indenture, to require the Company to offer to purchase all
or any portion (equal to $1,000 or an integral multiple thereof) of such
holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the terms set forth below (a "Change of Control
Offer").
Other debt instruments of the Company may in the future restrict the
Company's ability to purchase Notes pursuant to a Change of Control Offer.
Moreover, such debt instruments may
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contain a "change of control" provision that is similar to the provision in the
Indenture relating to a Change of Control, and the occurrence of such a "change
of control" would constitute a default under such debt instruments. Such debt
instruments may not permit the purchase of the Notes absent consent of the
lenders thereunder in the event of a Change of Control. Notwithstanding the
foregoing, the failure of the Company to effect a Change of Control Offer would
constitute an Event of Default under the Indenture.
If the Company is unable to obtain the requisite consents and/or repay all
indebtedness which restricts the Company's ability to repurchase the Notes upon
the occurrence of a Change of Control, the Company may not be able to commence a
Change of Control Offer to purchase the Notes within 30 days of the occurrence
of the Change of Control. Such failure would constitute an Event of Default
under the Indenture. If a Change of Control were to occur, there can be no
assurance that the Company would have sufficient assets to first satisfy its
obligations under any other agreements relating to indebtedness, if accelerated,
and then to purchase all of the Notes that might be delivered by holders seeking
to accept a Change of Control Offer.
On or before the 30th day following the occurrence of any Change of
Control, the Company shall mail to each holder of Notes at such holder's
registered address a notice stating: (i) that a Change of Control has occurred
and that such holder has the right to require the Company to purchase all or a
portion (equal to $1,000 or an integral multiple thereof) of such holder's Notes
at a purchase price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Purchase Date"), which shall be a business day, specified in
such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Change of Control Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Change of
Control Offer, any Notes accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest on the Change of Control Purchase Date, (v)
the procedures, consistent with the Indenture, to be followed by a holder of
Notes in order to accept a Change of Control Offer or to withdraw such
acceptance, and (vi) such other information as may be required by the Indenture
and applicable laws and regulations.
On the Change of Control Purchase Date, the Company will (x) accept for
payment all Notes or portions thereof tendered pursuant to the Change of Control
Offer, (y) deposit with the Paying Agent the aggregate purchase price of all
Notes or portions thereof accepted for payment, and (z) deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Change of Control
Offer. The Paying Agent shall promptly mail to each holder of Notes or portions
thereof accepted for payment an amount equal to the purchase price for such
Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall
promptly authenticate and mail to each holder of Notes accepted for payment in
part a new Note equal in principal amount to any unpurchased portion of the
Notes, and any Note not accepted for payment in whole or in part shall be
promptly returned to the holder of such Note. On and after a Change of Control
Purchase Date, interest will cease to accrue on the Notes or portions thereof
accepted for payment, unless the Company defaults in the payment of the purchase
price therefor. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Purchase
Date.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Change
of Control Offer and will be deemed not to be in violation of any of the
covenants under the Indenture to the extent such compliance is in conflict with
such covenants.
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CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or directly or indirectly guarantee or in any other manner become
directly or indirectly liable for ("incur") any Indebtedness (including Acquired
Debt), except that the Company may incur Indebtedness (including Acquired Debt)
if, at the time of, and immediately after giving pro forma effect to, such
incurrence of Indebtedness, the Consolidated Cash Flow Coverage Ratio of the
Company for the most recently ended four fiscal quarters would be at least (a)
prior to August 15, 1999, 2.50 to 1.0 and (b) on and after August 15, 1999, 3.0
to 1.0.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(i) Senior Bank Debt of the Company or any of its Restricted
Subsidiaries, in an aggregate principal amount not to exceed at any time
outstanding the greater of (x) $50.0 million, and (y) the sum, at such
time, of (I) 85% of the consolidated book value of net accounts receivable
and current notes receivable of the Company and the Restricted Subsidiaries
and (II) 60% of the consolidated book value of inventory of the Company and
the Restricted Subsidiaries;
(ii) Indebtedness of the Company represented by the Notes and the
Exchange Notes;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
covered by any other clause of this paragraph which is outstanding on the
Issue Date ("Existing Indebtedness");
(iv) Indebtedness owed by any Restricted Subsidiary to the Company or
to another Restricted Subsidiary, or owed by the Company to any Restricted
Subsidiary; provided, however, that any such Indebtedness shall at all
times be held by a Person which is either the Company or a Restricted
Subsidiary; provided, further, however, that upon either (a) the transfer
or other disposition of any such Indebtedness to a Person other than the
Company or another Restricted Subsidiary or (b) the sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of any such Restricted Subsidiary to a Person other than the
Company or another Restricted Subsidiary resulting in such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, the incurrence of such
Indebtedness shall be deemed to be an incurrence that must be permitted by
this covenant other than by virtue of this clause (iv);
(v) Indebtedness of the Company or any Restricted Subsidiary arising
with respect to Interest Rate Agreement Obligations and Currency Agreement
Obligations incurred for the purpose of fixing or hedging interest rate
risk or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding or with respect to any receivable or liability the payment of
which is determined by reference to a foreign currency;
(vi) Indebtedness represented by performance, completion, guarantee,
surety and similar bonds provided by the Company or any Restricted
Subsidiary in the ordinary course of business consistent with past
practice;
(vii) Any Indebtedness incurred in connection with or given in
exchange for the renewal, extension, substitution, refunding, defeasance,
refinancing or replacement, in whole or in part (a "refinancing"), of any
Indebtedness incurred as permitted under the first paragraph of this
covenant or any Indebtedness described in clauses (ii) or (iii) above and
this clause (vii) ("Refinancing Indebtedness"); provided, however, that (a)
the principal amount of such Refinancing Indebtedness shall not exceed the
principal amount (or accreted amount, if less) of the Indebtedness so
refinanced (plus the premiums and reasonable expenses to be paid in
connection therewith); (b) if the Weighted Average Life to Maturity of the
Indebtedness being refinanced is equal to or greater than the Weighted
Average Life to Maturity of the Notes, the
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<PAGE> 79
Refinancing Indebtedness shall have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being refinanced; (c) with respect to Refinancing Indebtedness
that is subordinated to the Notes, such Refinancing Indebtedness shall be
at least as subordinated in right of payment to the Notes as, the
Indebtedness being refinanced; and (d) the Company or the obligor on such
Refinancing Indebtedness shall be the obligor on the Indebtedness being
refinanced;
(viii) Indebtedness incurred by the Company or any Restricted
Subsidiary constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims or self-insurance;
(ix) Indebtedness of the Company or any Restricted Subsidiary arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, in each case incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
Guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided that the maximum liability in respect
of such Indebtedness shall not exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition; and
(x) Indebtedness of the Company or any Restricted Subsidiary in
addition to that described in clauses (i) through (ix) above, and any
renewals, extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such
Indebtedness incurred pursuant to this clause (x) does not exceed $20.0
million at any one time outstanding.
Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary or is merged with or into or consolidated with
the Company or a Restricted Subsidiary shall be deemed to have been incurred at
the time such Person becomes a Restricted Subsidiary or is merged with or into
or consolidated with the Company or a Restricted Subsidiary, and Indebtedness
which is assumed at the time of the acquisition of any asset shall be deemed to
have been incurred at the time of such acquisition.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Restricted Payment, unless at the time of and immediately
after giving effect to the proposed Restricted Payment (with the value of any
such Restricted Payment, if other than cash, to be determined reasonably and in
good faith by the Board of Directors of the Company):
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "-- Limitation on Incurrence of Indebtedness"; and
(iii) the aggregate amount of all Restricted Payments made after the
Issue Date shall not exceed the sum of:
(a) an amount equal to 50% of the Company's aggregate cumulative
Consolidated Net Income accrued on a cumulative basis during the period
(treated as one accounting period) beginning on the Issue Date and
ending on the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income for such period shall be a
deficit, minus 100% of such deficit); plus
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(b) the aggregate amount of all net cash proceeds received since
the Issue Date by the Company from the issuance and sale (other than to
a Restricted Subsidiary) of, or equity contribution with respect to,
Capital Stock (other than Disqualified Stock) and the principal amount
of Indebtedness of the Company or any Restricted Subsidiary issued or
incurred on or after the Issue Date that has been converted into or
exchanged for Capital Stock (other than Disqualified Stock), in any such
case to the extent that such proceeds are not used to redeem,
repurchase, retire or otherwise acquire Capital Stock or any
Indebtedness of the Company or any Restricted Subsidiary pursuant to
clause (ii) of the next paragraph; plus
(c) the amount of the net reduction in Restricted Investments
resulting from (x) the payment of dividends or the repayment in cash of
the principal of loans or the cash return on any Restricted Investment,
in each case to the extent received by the Company or any Restricted
Subsidiary, (y) the release or extinguishment of any guarantee of
Indebtedness which guarantee constituted a Restricted Investment, and
(z) in the case of Investments in Unrestricted Subsidiaries the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued as provided in the definition of "Investment"), such aggregate
amount of the net reduction in Restricted Investments not to exceed the
amount of Restricted Investments previously made by the Company or any
Restricted Subsidiary, which amount was included in the calculation of
the amount of Restricted Payments.
The foregoing provisions do not prohibit, so long as no Default or Event of
Default is continuing, the following actions (collectively, "Permitted
Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under the Indenture (which payment shall be deemed to have
been paid on such date of declaration for purposes of clause (iii) of the
preceding paragraph);
(ii) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or any Indebtedness of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary) of, or equity
contribution with respect to, Capital Stock of the Company (other than any
Disqualified Stock); and
(iii) cash dividends on the Common Stock of the Company paid in the
ordinary course consistent with past practice; provided that the Company
could incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "-- Limitation on
Incurrence of Indebtedness";
(iv) the redemption, repurchase or other acquisition of Capital Stock
of the Company issued to Roche in an amount not to exceed $40.0 million out
of net proceeds received by the Company from the issuance and sale of the
Notes; and
(v) other payments not otherwise permitted by the foregoing clauses
(i) through (iv) in an aggregate amount not to exceed $10 million.
For purposes of clause (iii) of the first paragraph of this covenant, the
Permitted Payments referred to in clauses (i), (iii) and (v) above shall be
included in the aggregate amount of Restricted Payments made since the Issue
Date.
Limitation on Asset Sales. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) of the assets or other
property sold or disposed of in the Asset Sale and (ii) at least 75% of such
consideration consists of either cash or Cash
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Equivalents; provided, however, that for purposes of this covenant, "cash" shall
include (x) the amount of any Indebtedness (other than any Indebtedness that is
by its terms subordinated to the Notes) of the Company or such Restricted
Subsidiary as shown on the Company's or such Restricted Subsidiary's most recent
balance sheet or in the notes thereto that is assumed by the transferee of any
such assets or other property in such Asset Sale (and excluding any liabilities
that are incurred in connection with or in anticipation of such Asset Sale), but
only to the extent that such assumption is effected on a basis such that there
is no further recourse to the Company or any of the Restricted Subsidiaries with
respect to such liabilities and (y) any notes, obligations or securities
received by the Company or such Restricted Subsidiary from such transferee that
are converted within 60 days by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received).
Within one year after any Asset Sale, the Company may elect to apply the
Net Proceeds from such Asset Sale to (a) permanently reduce any Senior Bank Debt
of the Company and/or (b) make an investment in, or acquire assets and
properties that will be used in, a Related Business. Any Net Proceeds from an
Asset Sale not applied or invested as provided in the first sentence of this
paragraph within one year of such Asset Sale will be deemed to constitute
"Excess Proceeds."
Each date that the aggregate amount of Excess Proceeds in respect of which
an Asset Sale Offer (as defined below) has not been made exceeds $10.0 million
shall be deemed an "Asset Sale Offer Trigger Date." As soon as practicable, but
in no event later than 20 business days after each Asset Sale Offer Trigger
Date, the Company shall commence an offer (an "Asset Sale Offer") to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds. Any Notes to be purchased pursuant to an Asset Sale Offer shall be
purchased pro rata based on the aggregate principal amount of Notes outstanding,
and all Notes shall be purchased at an offer price in cash in an amount equal to
100% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase. To the extent that any Excess Proceeds remain after
completion of an Asset Sale Offer, the Company may use the remaining amount for
general corporate purposes otherwise permitted by the Indenture. Upon the
consummation of any Asset Sale Offer, the amount of Excess Proceeds shall be
deemed to be reset to zero.
Notice of an Asset Sale Offer shall be mailed by the Company not later than
the 20th business day after the related Asset Sale Offer Trigger Date to each
holder of Notes at such holder's registered address, stating: (i) that an Asset
Sale Offer Trigger Date has occurred and that the Company is offering to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds (to the extent provided in the immediately preceding paragraph),
at an offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of the purchase
(the "Asset Sale Offer Purchase Date"), which shall be a business day, specified
in such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Asset Sale
Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Asset Sale Offer Purchase Date, (v) the
procedures, consistent with the Indenture, to be followed by a holder of Notes
in order to accept an Asset Sale Offer or to withdraw such acceptance, and (vi)
such other information as may be required by the Indenture and applicable laws
and regulations.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds
from such Asset Sale that are to be applied to an Asset Sale Offer, (ii) deposit
with the Paying Agent the aggregate purchase price of all Notes or portions
thereof accepted for payment, and (iii) deliver or cause to be delivered to the
Trustee all Notes tendered pursuant to the Asset Sale Offer. If less than all
Notes tendered pursuant to the Asset Sale Offer are accepted for payment by the
Company for any reason consistent with the Indenture,
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selection of the Notes to be purchased by the Company shall be in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not so listed, on a pro rata
basis or by lot; provided, however, that Notes accepted for payment in part
shall only be purchased in integral multiples of $1,000. The Paying Agent shall
promptly mail to each holder of Notes or portions thereof accepted for payment
an amount equal to the purchase price for such Notes plus accrued and unpaid
interest, if any, thereon, and the Trustee shall promptly authenticate and mail
to such holder of Notes accepted for payment in part a new Note equal in
principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part shall be promptly returned to the
holder of such Note. On and after an Asset Sale Offer Purchase Date, interest
will cease to accrue on the Notes or portions thereof accepted for payment,
unless the Company defaults in the payment of the purchase price therefor. The
Company will publicly announce the results of the Asset Sale Offer on or as soon
as practicable after the Asset Sale Offer Purchase Date.
The foregoing provisions will not apply to a transaction consummated in
compliance with the provisions of the Indenture described under "-- Merger,
Consolidation and Sale of Assets" below.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Asset
Sale Offer and will be deemed not to be in violation of any of the covenants
under the Indenture to the extent such compliance is in conflict with such
covenants.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien securing Indebtedness (other than
Permitted Liens) on any asset now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any right to receive income therefrom to
secure any such Indebtedness, unless (i) if such Lien secures Indebtedness which
is pari passu with the Notes, then the Notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligation is no
longer secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to a Lien granted
to the holders of the Notes in the same collateral as that securing such Lien to
the same extent as such subordinated Indebtedness is subordinated to the Notes.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause to become effective any consensual encumbrance or consensual restriction
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions to the Company or any other Restricted Subsidiary on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (ii) make loans or advances to, or issue Guarantees
for the benefit of, the Company or any other Restricted Subsidiary or (iii)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (a) applicable law, (b) any instrument governing Indebtedness or
Capital Stock of an Acquired Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition); provided, however, that no such encumbrance or restriction
is applicable to any Person, or the properties or assets of any Person, other
than the Acquired Person, (c) by reason of customary non-assignment, subletting
or net worth provisions in leases or other agreements entered into the ordinary
course of business and consistent with past practices, (d) Purchase Money
Obligations for property acquired in the ordinary course of business that impose
restrictions only on the property so acquired, (e) an agreement for the sale or
disposition of assets or the Capital stock of a Restricted Subsidiary; provided,
however, that such restriction or encumbrance is only applicable to such
Restricted Subsidiary or assets, as applicable, and such sale or disposition
otherwise is permitted by the
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provisions described under "-- Limitation on Asset Sales"; provided, further,
however, that such restriction or encumbrance shall be effective only for a
period from the execution and delivery of such agreement through a termination
date not later than 180 days after such execution and delivery, (f) the
Indenture and the Notes and (g) Refinancing Indebtedness permitted under the
Indenture; provided that such encumbrances and restrictions are, in the good
faith judgment of the Company's Board of Directors, no more restrictive, in any
material respect, than those contained in the Indebtedness being so refinanced.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of the Company unless (1) such transaction or
series of transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could reasonably
be obtainable at such time in a comparable transaction in arm's-length dealings
with an unrelated third party, and (2) the Company delivers to the Trustee (a)
with respect to any transaction or series of transactions involving aggregate
payments in excess of $1.0 million, an Officers' Certificate certifying that
such transaction or series of related transactions complies with clause (1)
above and (b) with respect to any transaction or series of transactions
involving aggregate payments in excess of $2.0 million, an Officer's Certificate
certifying that such transaction or series of related transactions has been
approved by a majority of the members of the Board of Directors of the Company
(and approved by a majority of the Independent Directors or, in the event there
is only one Independent Director, by such Independent Director), and (c) with
respect to any transaction or series of transactions involving aggregate
payments in excess of $10.0 million, an opinion as to the fairness to the
Company from a financial point of view issued by an investment banking firm of
national standing. Notwithstanding the foregoing, this covenant will not apply
to (i) employment agreements or compensation or employee benefit arrangements
with any officer, director or employee of the Company or any of its Restricted
Subsidiaries entered into in the ordinary course of business (including
customary benefits thereunder and including reimbursement or advancement of
out-of-pocket expenses, and director's and officer's liability insurance), (ii)
any transaction entered into by or among the Company or one of its Restricted
Subsidiaries with one or more Restricted Subsidiaries of the Company, (iii) any
transaction permitted by the second paragraph under "-- Limitation on Restricted
Payments", and (iv) transactions permitted by, and complying with, the
provisions described under "-- Merger, Consolidation and Sale of Assets."
Limitation on Designation of Unrestricted Subsidiaries. The Indenture
provides that the Company will not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under the Indenture (a "Designation")
unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) immediately after giving effect to such Designation, the Company
would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant described under "-- Limitation
on Incurrence of Indebtedness"; and
(c) the Company would not be prohibited under the Indenture from
making an Investment at the time of such Designation in an amount (the
"Designation Amount") equal to the greater of (x) the book value of such
Restricted Subsidiary on such date and (y) the Fair Market Value of such
Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "-- Limitation on Restricted Payments" for all purposes of the
Indenture in an amount equal to the Designation Amount.
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The Indenture further provides that the Company will not designate an
Unrestricted Subsidiary as a Restricted Subsidiary (a "Redesignation"), unless:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Redesignation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Redesignation shall be deemed to
have been incurred at such time and shall have been permitted to be
incurred for all purposes of the Indenture.
An Unrestricted Subsidiary shall be deemed to be redesignated as a
Restricted Subsidiary at any time if (a) the Company or any other Restricted
Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness
of such Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) or (ii) is directly or indirectly
liable for any Indebtedness of such Unrestricted Subsidiary or (b) a default
with respect to any Indebtedness of such Unrestricted Subsidiary (including any
right which the holders thereof may have to take enforcement action against it)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity, except in the case of clause (a)
to the extent permitted under the covenant described above under the caption
" -- Limitation on Restricted Payments."
All Designations and Redesignations must be evidenced by Board Resolutions
delivered to the Trustee certifying compliance with the foregoing provisions.
Subsidiaries that are not designated by the Board of Directors as Restricted or
Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries. The
Designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be
deemed a Designation of all of the Subsidiaries of such Unrestricted Subsidiary
as Unrestricted Subsidiaries.
Provision of Financial Statements and Information. Whether or not the
Company is then subject to Section 13(a) or 15(d) of the Exchange Act, the
Indenture provides that the Company will file with the Securities and Exchange
Commission (the "Commission"), so long as any Notes are outstanding, the annual
reports, quarterly reports and other periodic reports which the Company would
have been required to file with the Commission pursuant to such Section 13(a) or
15(d) if the Company were so subject, and such documents shall be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (i) within 15 days
of each Required Filing Date, file with the Trustee, and supply the Trustee with
copies for delivery to the holders of the Notes, the annual reports, quarterly
reports and other periodic reports which the Company would have been required to
file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
if the Company were subject to such Sections and (ii) if the Commission will not
accept the filing of such documents promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective holder of the Notes.
Additional Covenants. The Indenture also contains covenants with respect
to the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) maintenance of
corporate existence; (iv) payment of taxes and other claims; (v) maintenance of
properties; and (vi) maintenance of insurance.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that the Company shall not, in any single
transaction or series of related transactions, consolidate or merge with or into
(whether or not the Company is the Surviving Person), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets (determined on a consolidated basis for the Company and its Restricted
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Subsidiaries) in one or more related transactions to, another Person, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries, taken
as a whole, to another Person, unless (i) the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Surviving Person (if other than the Company)
assumes all the obligations of the Company under the Notes, the Indenture and,
if then in effect, the Registration Rights Agreement pursuant to a supplemental
indenture or other written agreement, as the case may be, in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default shall have occurred and be continuing; and (iv)
after giving pro forma effect to such transaction, the Surviving Person (x)
would have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of the Company immediately preceding such transaction and (y) would be
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the covenant described under "-- Limitation
on Incurrence of Indebtedness." Notwithstanding clauses (iii) and (iv) above,
any Restricted Subsidiary may consolidate with, merge into or transfer all or
part of its properties and assets to the Company or another Restricted
Subsidiary.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the Surviving Person, such Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, and the Company shall be discharged from its obligations under, the
Indenture, the Notes and the Registration Rights Agreement.
EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default:
(i) a default for 30 days in the payment when due of interest on, or
Liquidated Damages (if any) with respect to, any Note;
(ii) a default in the payment when due of principal on any Note,
whether upon maturity, acceleration, optional redemption, required
repurchase or otherwise;
(iii) failure to perform or comply with any covenant, agreement or
warranty in the Indenture (other than the defaults specified in clauses (i)
and (ii) above) which failure continues for 30 days after written notice
thereof has been given to the Company by the Trustee or to the Company and
the Trustee by the holders of at least 25% in aggregate principal amount of
the then outstanding Notes;
(iv) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Restricted
Subsidiary then has outstanding Indebtedness in excess of $10.0 million in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated;
(v) one or more judgments, orders or decrees for the payment of money
in excess of $10.0 million, either individually or in the aggregate, shall
be entered against the Company or any Restricted Subsidiary or any of their
respective properties and which judgments, orders or decrees are not paid,
discharged, bonded or stayed or stayed pending appeal for a period of 60
days after their entry; or
(vi) certain events of bankruptcy, insolvency or reorganization of the
Company or any Restricted Subsidiary.
If any Event of Default (other than as specified in clause (vi) of the
preceding paragraph with respect to the Company) occurs and is continuing, the
Trustee or the holders of at least 25% in
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aggregate principal amount of the then outstanding Notes may, and the Trustee at
the request of such holders shall, declare all the Notes to be due and payable
immediately by notice in writing to the Company, and to the Company and the
Trustee if by the holders, specifying the respective Event of Default and that
such notice is a "notice of acceleration," and the Notes shall become
immediately due and payable. Notwithstanding the foregoing, in the case of an
Event of Default arising from the events specified in clause (vi) of the
preceding paragraph with respect to the Company, the principal of, premium, if
any, and any accrued interest on all outstanding Notes shall ipso facto become
immediately due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except (i) a continuing Default or Event of Default in the payment
of the principal of, or premium, if any, or interest on, the Notes (which may
only be waived with the consent of each holder of Notes affected), or (ii) in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding. Subject
to certain limitations, holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium or interest on the Notes, a Default in payment
on the Change of Control Purchase Date pursuant to a Change of Control Offer or
on the Asset Sale Offer Purchase Date pursuant to an Asset Sale Offer or a
Default in compliance with the provisions described under " -- Merger,
Consolidation and Sale of Assets") if it determines that withholding notice is
in their interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, interest on or Liquidated Damages, if any, with respect to
any of the Notes or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture, or in any of the Notes or because of the creation of
any Indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer, director, employee or controlling person of the Company or
of any successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability.
DEFEASANCE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding Notes
and to have satisfied all other obligations under the Notes and the Indenture
except for (i) the rights of holders of the outstanding Notes to receive, solely
from the trust fund described below, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and
the maintenance of an office or agency for payment, (iii) the rights, powers,
trusts, duties and immunities of the Trustee under the Indenture, and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture ("covenant
defeasance") and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Notes. In the
event that a covenant defeasance occurs, certain events (not including
non-payment, bankruptcy and insolvency events) described under "-- Events of
Default" will no longer constitute Events of Default with respect to the Notes.
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In order to exercise either defeasance or covenant defeasance, (i) the
Company shall irrevocably deposit with the Trustee, as trust funds in trust, for
the benefit of the holders of the Notes, cash in United States dollars, U.S.
Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the report of a nationally recognized
firm of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes to redemption or maturity; (ii) the Company
shall have delivered to the Trustee an opinion of counsel in the United States
to the effect that the holders of the outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance or covenant defeasance, as the case may be, and will be subject to
Federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance or covenant defeasance, as the
case may be, had not occurred (in the case of defeasance, such opinion must
refer to and be based upon a ruling of the Internal Revenue Service or a change
in applicable Federal income tax laws); (iii) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
clause (vi) under the first paragraph under "-- Events of Default" is concerned,
at any time during the period ending on the 91st day after the date of deposit;
(iv) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a Default under, the Indenture or any other
agreement or instrument to which the Company is a party or by which it is bound;
(v) the Company shall have delivered to the Trustee an opinion of counsel to the
effect that (A) the trust funds will not be subject to any rights of holders of
Indebtedness (other than holders of the Notes) and (B) after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (vi) the Company shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Indebtedness would result
therefrom.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust and
thereafter repaid to the Company) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee an amount in United States
dollars sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for the principal of,
premium, if any, and interest to the date of deposit; (ii) the Company has paid
or caused to be paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an Officers' Certificate and
an opinion of counsel each stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the Indenture or the Notes
may be amended or supplemented with the written consent of the holders of at
least a majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes), and any existing Default or Event of Default or compliance with
any provision of the Indenture or the Notes may be waived with the consent of
the holders of a majority in aggregate principal amount of the then outstanding
Notes (including consents obtained in connection with a tender offer or exchange
offer for Notes).
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Without the consent of each holder affected, an amendment or waiver shall
not: (i) reduce the principal amount of the Notes whose holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note, or alter or waive the provisions with respect to the
redemption of the Notes in a manner adverse to the holders of the Notes other
than with respect to a Change of Control Offer or an Asset Sale Offer, (iii)
reduce the rate of or change the time for payment of interest on any Notes, (iv)
waive a Default or Event of Default in the payment of principal of, premium, if
any, or interest on the Notes (except that holders of at least a majority in
aggregate principal amount of the then outstanding Notes may (a) rescind an
acceleration of the Notes that resulted from a non-payment default, and (b)
waive the payment default that resulted from such acceleration), (v) make any
Note payable in money other than that stated in the Notes, (vi) make any change
in the provisions of the Indenture relating to waivers of past Defaults or the
rights of holders of Notes to receive payments of principal of, or premium, if
any, or interest on, the Notes, or (vii) following the occurrence of a Change of
Control, amend, change or modify the Company's obligation to make and consummate
a Change of Control Offer in the event of a Change of Control or modify any of
the provisions or definitions with respect thereto in a manner adverse to the
holders of the Notes, or following the occurrence of an Asset Sale, amend,
change or modify the Company's obligation to make and consummate an Asset Sale
Offer or modify any of the provisions or definitions with respect thereto in a
manner adverse to the holders of the Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
(i) to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, (iii) to
provide for the assumption of the Company's obligations to holders of the Notes
in the event of any Disposition involving the Company in which the Company is
not the Surviving Person, (iv) to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the rights of any such holder, or (v) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
TRANSFER AND EXCHANGE
The registered holder of a Note will be treated as the owner of it for all
purposes. A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. Neither the Company nor the Registrar shall be
required to issue, register the transfer of or exchange any Note (i) during a
period beginning at the opening of business on the day that the Trustee receives
notice of any redemption from the Company and ending at the close of business on
the day the notice of redemption is sent to holders, (ii) selected for
redemption, in whole or in part, except the unredeemed portion of any Note being
redeemed in part may be transferred or exchanged, and (iii) during a Change of
Control Offer or an Asset Sale Offer if such Note is tendered pursuant to such
Change of Control Offer or Asset Sale Offer and not withdrawn.
THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
The Indenture (including the provisions of the Trust Indenture Act
incorporated by reference therein) contains limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
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GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for the definition of all other terms used in the
Indenture.
"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person (the "Acquired Person") existing at the time the Acquired
Person merges with or into, or becomes a Restricted Subsidiary of, such
specified Person, including Indebtedness incurred in connection with, or in
contemplation of, the Acquired Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person; provided, however, that
Indebtedness of such Acquired Person which is redeemed, defeased, retired or
otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Acquired Person merges with or into or becomes a
Restricted Subsidiary of such specified Person shall not be Acquired Debt.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") of any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) any sale, lease, conveyance or other disposition by
the Company or any Restricted Subsidiary of any assets (including by way of a
sale-and-leaseback) other than in the ordinary course of business, or (ii) the
issuance or sale of Capital Stock of any Restricted Subsidiary, in the case of
each of (i) and (ii), whether in a single transaction or a series of related
transactions, to any Person (other than to the Company or a Restricted
Subsidiary and other than directors' qualifying shares) for Net Proceeds in
excess of $1.0 million. Notwithstanding the foregoing, (a) the transfer of any
assets constituting an Investment by the Company or any Restricted Subsidiary
shall not be considered an Asset Sale if such Investment is permitted pursuant
to the covenant described under "-- Limitation on Restricted Payments" and (b)
exchanges of assets of the Company for assets of any other Person in the
ordinary course of business shall not constitute an Asset Sale.
"Capital Lease Obligation" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, of
such Person, including any Preferred Stock.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Rating
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Services or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates
of deposit or bankers' acceptances (or, with respect to foreign banks, similar
instruments) maturing within one year from the date of acquisition thereof
issued by any bank organized under the laws of the United States of America or
any state thereof or the District of Columbia or any member of the European
Union or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $200 million; (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above; and (vi) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
"Cash Flow" means, with respect to any period, Consolidated Net Income for
such period, plus, to the extent deducted in computing such Consolidated Net
Income: (i) extraordinary net losses, plus (ii) provision for taxes based on
income or profits and any provision for taxes utilized in computing the
extraordinary net losses under clause (i) hereof, plus (iii) Consolidated
Interest Expense, plus (iv) depreciation, amortization and all other non-cash
charges (including amortization of goodwill and other intangibles but excluding
any items that will require cash payments in the future for which an accrual or
reserve is made).
"Change of Control" means the occurrence of any of the following events
after the Issue Date: (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes (including by
merger, consolidation or otherwise) the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 50% or more of the voting power of the
total outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
nomination for election by the stockholders of the Company was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board of Directors of the Company then in office; (iii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the terms of the Indenture); or (iv) the sale or other
disposition (including by merger, consolidation or otherwise) of all or
substantially all of the Capital Stock or assets of the Company to any Person or
group (as defined in Rule 13d-5 of the Exchange Act) as an entirety or
substantially as an entirety in one transaction or a series of related
transactions.
"Consolidated Cash Flow Coverage Ratio" means, for any period, the ratio of
(i) the aggregate amount of Cash Flow for such period, to (ii) Consolidated
Interest Expense for such period, each determined on a pro forma basis after
giving pro forma effect to (a) the incurrence of the Indebtedness giving rise to
the calculation of the Consolidated Cash Flow Coverage Ratio and (if applicable)
the application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such period; (b) the incurrence,
repayment or retirement of any other Indebtedness by the Company and its
Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average balance of
such Indebtedness at the end of each month during such period); (c) in the case
of Acquired Debt, the related acquisition as if such acquisition had occurred at
the beginning of such period; and (d) any acquisition or disposition by the
Company and its Restricted Subsidiaries of any company or any business or any
assets out of the ordinary course of business, or any related repayment of
Indebtedness, in each case since the first day of such period, assuming such
acquisition or disposition had been consummated on the first day of such period.
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"Consolidated Interest Expense" means, with respect to any period, the sum
of (i) the interest expense of the Company and its Restricted Subsidiaries for
such period, including, without limitation, (a) amortization of debt discount,
(b) the net payments, if any, under interest rate contracts (including
amortization of discounts), (c) the interest portion of any deferred payment
obligation and (d) accrued interest, plus (ii) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued
by the Company and its Restricted Subsidiaries during such period, and all
capitalized interest of the Company and its Restricted Subsidiaries, plus (iii)
all dividends paid during such period by the Company and its Restricted
Subsidiaries with respect to any Disqualified Stock (other than by any
Restricted Subsidiary to the Company or any other Restricted Subsidiary and
other than any dividend paid in Capital Stock (other than Disqualified Stock)),
in each case, as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied,
adjusted to the extent included in calculating such net income (or loss), by
excluding, without duplication, (i) all extraordinary gains and losses (less all
fees and expenses relating thereto), (ii) the portion of net income (or loss) of
the Company and its Restricted Subsidiaries allocable to interests in
unconsolidated Persons or Unrestricted Subsidiaries, except to the extent of the
amount of dividends or distributions actually paid to the Company or its
Restricted Subsidiaries by such other Person during such period, (iii) for
purposes of the covenant entitled "-- Limitation on Restricted Payments", net
income (or loss) of any Person combined with the Company or any of its
Restricted Subsidiaries on a "pooling-of-interests" basis attributable to any
period prior to the date of combination, (iv) net gains and losses (less all
fees and expenses relating thereto) in respect of disposition of assets
(including, without limitation, pursuant to sale and leaseback transactions)
other than in the ordinary course of business, or (v) the net income of any
Restricted Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income to the Company is not
at the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Worth" means, with respect to any Person at any date, the
sum of (i) the consolidated stockholders' equity of such Person less the amount
of such stockholders' equity attributable to Disqualified Stock of such Person
and its Subsidiaries (Restricted Subsidiaries, in the case of the Company), as
determined on a consolidated basis in accordance with GAAP consistently applied
and (ii) the amount of any Preferred Stock of such Person not included in the
stockholders' equity of such Person in accordance with GAAP, which Preferred
Stock does not constitute Disqualified Stock.
"Currency Agreement Obligations" means the obligations of any person under
a foreign exchange contract, currency swap agreement or other similar agreement
or arrangement to protect such person against fluctuations in currency values.
"Default" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Stock" means (i) any Preferred Stock of any Restricted
Subsidiary and (ii) that portion of any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the
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option of the holder thereof (other than upon a Change of Control of the Company
in circumstances where the holders of the Notes would have similar rights), in
whole or in part on or prior to the stated maturity of the Notes.
"Dollars" and "$" means lawful money of the United States of America.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession in the United States of America, which are applicable
as of the Issue Date and consistently applied.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection or deposit in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, and
whether or not contingent, (i) all indebtedness of such Person for borrowed
money or which is evidenced by a note, bond, debenture or similar instrument,
(ii) all obligations of such Person to pay the deferred or unpaid purchase price
of property or services, which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such service, (iii) all Capital Lease Obligations
of such Person, (iv) all obligations of such Person in respect of letters of
credit or bankers' acceptances issued or created for the account of such Person,
(v) to the extent not otherwise included in this definition, all net obligations
of such Person under Interest Rate Agreement Obligations or Currency Agreement
Obligations of such Person, (vi) all liabilities of others of the kind described
in the preceding clause (i), (ii) or (iii) secured by any Lien on any property
owned by such Person; provided, however, if the obligations secured by a Lien
(other than a Permitted Lien not securing any liability that would itself
constitute Indebtedness) on any assets or property have not been assumed by such
Person in full or are not such Person's legal liability in full, the amount of
such Indebtedness for purposes of this definition shall be limited to the lesser
of the amount of Indebtedness secured by such Lien and the Fair Market Value of
the property subject to such Lien, (vii) all Disqualified Stock issued by such
Person and all Preferred Stock issued by a Subsidiary of such Person, and (viii)
to the extent not otherwise included, any guarantee by such Person of any other
Person's indebtedness or other obligations described in clauses (i) through
(vii) above. "Indebtedness" of the Company and the Restricted Subsidiaries shall
not include current trade payables incurred in the ordinary course of business
and payable in accordance with customary practices, and non-interest bearing
installment obligations and accrued liabilities incurred in the ordinary course
of business which are not more than 90 days past due. The principal amount
outstanding of any Indebtedness issued with original issue discount is the
accreted value of such Indebtedness. Notwithstanding the foregoing, Indebtedness
shall not include Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business; provided
that such Indebtedness is extinguished within 3 business days of the incurrence
thereof.
"Independent Director" means a director of the Company other than a
director (i) who (apart from being a director of the Company or any Subsidiary
of the Company) is an employee, associate or Affiliate of the Company or a
Subsidiary of the Company, or (ii) who is a director, employee,
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associate or Affiliate of another party (other than the Company or any of its
Subsidiaries) to the transaction in question.
"Interest Rate Agreement Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any other Person. "Investment" shall exclude travel and similar advances to
officers and employees of the Company in the ordinary course of business and
extensions of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Company or such Restricted Subsidiary, as the case may be. For the purposes of
the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include
and be valued at the Fair Market Value of the net assets of any Restricted
Subsidiary (to the extent of the Company's equity interest in such Restricted
Subsidiary) at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the Fair Market Value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
writedowns or write-offs with respect to such Investment, reduced by the payment
of dividends or distributions in connection with such Investment or any other
amounts received in respect of such Investment; provided, however, that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, greater than
50% of the outstanding Common Stock of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the Fair Market Value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Notes are first issued under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages owing under the
Registration Rights Agreement.
"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash or Cash Equivalent proceeds received by such Person and/or its
Affiliates in respect of such Asset Sale, which amount is equal to the excess,
if any, of (i) the cash or Cash Equivalents received by such Person and/or its
Affiliates (including any cash payments received by way of deferred payment
pursuant to, or monetization of, a note or installment receivable or otherwise,
but only as and when received) in connection with such Asset Sale, over (ii) the
sum of (a) the amount of any Indebtedness that is secured by such asset and
which is required to be repaid by such person in
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connection with such Asset Sale, plus (b) all fees, commissions and other
expenses incurred by such Person in connection with such Asset Sale, plus (c)
provision for taxes, including income taxes, directly attributable to the Asset
Sale or to required prepayments or repayments of Indebtedness with the proceeds
of such Asset Sale, plus (d) if such Person is a Restricted Subsidiary, any
dividends or distributions payable to holders of minority interests in such
Restricted Subsidiary from the proceeds of such Asset Sale, plus (e) appropriate
amounts to be provided by the Company or any Restricted Subsidiary as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale; provided that upon the release of
any such reserves, such amounts shall constitute "Net Proceeds" hereunder.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or any
Restricted Subsidiary; provided, that the primary business of such Restricted
Subsidiary is a Related Business; (ii) any investment in cash or Cash
Equivalents; (iii) any Investment in a Person (an "Acquired Person") the primary
business of which is a Related Business if, as a result of such Investment, (a)
the Acquired Person becomes a Restricted Subsidiary, or (b) the Acquired Person
either (1) is merged, consolidated or amalgamated with or into the Company or
one of its Restricted Subsidiaries and the Company or such Restricted Subsidiary
is the Surviving Person, or (2) transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or one of its Restricted
Subsidiaries; (iv) Investments in accounts and notes receivable acquired in the
ordinary course of business; (v) any notes, obligations or other securities
received in connection with an Asset Sale that complies with the covenant
described under "Limitation on Asset Sales" or any other disposition not
constituting an "Asset Sale"; (vi) Interest Rate Agreement Obligations and
Currency Agreement Obligations permitted pursuant to clause (v) of the second
paragraph of the covenant described under "Limitation on Incurrence of
Indebtedness" above; (vii) investments in or acquisitions of Capital Stock or
similar interests in Persons (other than Affiliates of the Company) received in
the bankruptcy or reorganization of or by such Person or any exchange of such
investment with the issuer thereof or taken in settlement of or other resolution
of claims or disputes and (viii) other Investments not to exceed $50 million,
which shall be reinstated to the extent of any net cash proceeds, dividends,
repayments of loans or other transfers of cash or assets received by the Company
or any Restricted Subsidiary as a return of or on such Investment.
"Permitted Liens" means (i) Liens on assets or property of the Company that
secure Senior Bank Debt of the Company and Liens on assets or property of a
Restricted Subsidiary that secure Indebtedness of a Restricted Subsidiary; (ii)
Liens securing Indebtedness of a Person existing at the time that such Person is
merged into or consolidated with the Company or a Restricted Subsidiary;
provided, however, that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of such Person; (iii) Liens on property acquired by the Company or a Restricted
Subsidiary; provided, however, that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any other property; (iv)
Liens in respect of Interest Rate Agreement Obligations and Currency Agreement
Obligations permitted under the Indenture; (v) Liens in favor of the Company or
any Restricted Subsidiary; (vi) Liens existing or created on the Issue Date; and
(vii) Liens securing the Notes.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or
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distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over Capital Stock of any
other class of such Person.
"Purchase Money Obligation" means any Indebtedness which is incurred in
connection with the purchase, construction or improvement of assets and is
secured by a Lien on such assets related to the business of the Company or the
Restricted Subsidiaries, and any additions and accessions thereto, which are
purchased, constructed or improved by the Company or any Restricted Subsidiary.
"Related Business" means any business that is reasonably related to or
complementary to the businesses conducted by the Company and the Restricted
Subsidiaries on the Issue Date.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or other distribution declared
or paid on any Capital Stock of the Company (other than (A) dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock) of
the Company, or (B) dividends or distributions payable to the Company or any
Restricted Subsidiary); (ii) any payment to purchase, redeem or otherwise
acquire or retire for value any Capital Stock of the Company; (iii) any payment
to purchase, redeem, defease or otherwise acquire or retire for value, prior to
any scheduled maturity, repayment or sinking fund payment, any subordinated
Indebtedness other than a purchase, redemption, defeasance or other acquisition
or retirement for value that is paid for with the proceeds of Refinancing
Indebtedness that is permitted under the covenant described under "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness"; or (iv) any Restricted
Investment.
"Restricted Subsidiary" means each direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Senior Bank Debt" means Indebtedness incurred under any credit facility
entered into between the Company, any Restricted Subsidiary and bank lenders at
any time, as the same may be amended, modified, renewed, refunded, replaced or
refinanced from time to time, including (i) any related notes, letters of
credit, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time, and (ii) any notes, guarantees,
collateral documents, instruments and agreements executed in connection with any
such amendment, modification, renewal, refunding, replacement or refinancing.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding voting power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries thereof, or
(ii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or (iii) any other Person (other than a corporation
or limited partnership) in which such Person or one or more other Subsidiaries
of such Person, or such Person and one or more other Subsidiaries thereof,
directly or indirectly, has more than 50% of the outstanding partnership or
similar interests or has the power, by contract or otherwise, to direct or cause
the direction of the policies, management and affairs thereof.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under
"-- Limitation on Designations of Unrestricted Subsidiaries" and not
redesignated a Restricted Subsidiary in compliance with such covenant.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances
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to elect at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Old Notes were and the Certificates
representing the New Notes will be issued in fully registered form. Except as
described in the next paragraph, the Old Notes initially were represented by a
single global certificate in fully registered form (the "Global Note") that was
deposited with the Trustee as custodian for DTC and registered in the name of a
nominee of DTC. The Global Old Note (and any Notes issued in exchange therefor)
will be subject to certain restrictions on transfer set forth therein and will
bear the legend regarding such restrictions set forth under the heading "Notice
to Investors."
Notes (i) originally purchased by "foreign purchasers" (as defined in
"Notice to Investors") or (ii) held by qualified institutional buyers as defined
in Rule 144A under the Securities Act ("QIBs") which elect to take physical
delivery of their certificates instead of holding their interest through the
Global Note (and which are thus ineligible to trade through DTC) (collectively
referred to herein as the "Non-Global Purchasers") will be issued in registered
form (the "Certificated Notes"). Certificated Notes will initially be registered
in the name of a nominee of DTC and be deposited with, or on behalf of, DTC.
Beneficial owners of Certificated Notes, however, may request registration of
such Certificated Notes in their names or in the names of their nominees. Upon
the transfer to a QIB of Certificated Notes initially issued to a Non-Global
Purchaser, such Certificated Notes will, unless the transferee requests
otherwise or the Global Note has previously been exchanged in whole for
Certificated Notes, be exchanged for an interest in the Global Note.
Global Note. DTC or its custodian will credit, on its book-entry
registration and transfer system, the respective principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
accounts of persons who have accounts with such depositary. Ownership of
beneficial interest in the Global Note will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Note will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants) and
the records of participants (with respect to interests of persons other than
participants). QIBs may hold their interests in the Global Note directly through
DTC if they are participants in such system, or indirectly through organizations
which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in the Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, premium (if any) and interest on the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, the Trustee nor any Paying Agent will have
any responsibility or liability for any aspect of the record relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any record relating to such beneficial
ownership interest.
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The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
The Company expects that transfers between participants in DTC will be
effected in the ordinary way in accordance with DTC rules and will be settled in
same-day funds. If a holder requires physical delivery of a Certificated Note
for any reason, including to sell Notes to persons in states which require
physical delivery of such Notes or to pledge such Notes, such holder must
transfer its interest in the Global Note in accordance with the normal
procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interest in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants have given such direction. However, if there is an
Event of Default under the Notes or the Indenture, DTC will exchange the Global
Note for Certificated Notes, which it will distribute to its participants and
which, if representing interests in the Global Note, will be legended as set
forth under the heading "Notice to Investors."
To the Company's knowledge, DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants).
Although DTC customarily agrees to the foregoing procedures in order to
facilitate transfers of interests in global notes among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Notes will be issued in
exchange for the Global Note which certificates will bear the legend referred to
under the heading "Notice to Investors."
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary presents the material U.S. federal income tax
consequences of the Exchange Offer and the ownership and disposition of the New
Notes. The summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations (including proposed Treasury regulations)
("Regulations"), Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decisions currently in effect, all of which are subject to change,
possibly on a retroactive basis.
This summary does not discuss all aspects of U.S. federal income taxation
that may be relevant to investors in light of their personal investment
circumstances, including any elections made by the investors under any
applicable tax law. This summary applies to beneficial owners of the Notes who
hold such Notes as capital assets and does not apply to certain types of holders
subject to special treatment under the U.S. federal income tax laws (for
example, dealers in securities, tax-exempt organizations, insurance companies,
persons other than the initial holders of the New Notes, persons that will hold
Notes as a position in an integrated transaction (including a "straddle")
consisting of Notes and one or more other positions and persons that have a
"functional currency" other than the U.S. dollar) and does not discuss the
consequences to a holder under state, local or foreign tax laws.
ICN has not sought and will not seek any rulings from the IRS with respect
to the positions discussed below. There can be no assurance that the IRS will
not take a different position concerning the tax consequences of the Exchange
Offer and ownership or disposition of the Old Notes or New Notes or that any
such position would not be sustained.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for U.S. federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States federal income taxation regardless of its source or (iv) any other
person or entity whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS OF THE EXCHANGE
OFFER AND THE OWNERSHIP AND DISPOSITION OF THE NOTES.
(i) Exchange Offer. The exchange pursuant to the Exchange Offer of Old
Notes for New Notes will not be treated as a taxable exchange for U.S. federal
income tax purposes and the New Notes will be treated as a continuation of the
Old Notes, because the terms of the New Notes are identical in all material
respects to the terms of the Old Notes. Accordingly, a U.S. Holder will not
recognize gain or loss upon such exchange.
(ii) Interest. Interest on a Note generally will be taxable to a U.S.
Holder as ordinary interest income at the time it is paid or accrued in
accordance with the U.S. Holder's method of accounting for tax purposes.
(iii) Sales, Exchange or Retirement of Notes. Upon the sale, exchange
(except pursuant to the Exchange Offer as provided above), retirement or other
disposition of a Note, a U.S. Holder will recognize gain or loss equal to the
difference between the amount realized (except to the extent attributable to
accrued interest) and the U.S. Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note will be equal to the cost of the Note,
increased by accrued market discount, if any, if the U.S. Holder has included
such market discount in income (see "Market Discount" below), and decreased by
any amortized bond premium (defined below) and payments received. Generally, and
subject to the discussion under "Market Discount" below, any
97
<PAGE> 99
gain or loss recognized by a U.S. Holder upon a sale, retirement or other
disposition of the Note will be long-term capital gain or loss if the Note has
been held for more than one year, generally subject to maximum tax rate of 28
percent. Pursuant to recently enacted legislation, with respect to any capital
asset held for more than 18 months, capital gains will be subject to tax at a
rate of 20 percent.
(iv) Acquisition at a Premium. If a subsequent U.S. Holder acquires a Note
for an amount (exclusive of accrued and unpaid interest through the acquisition
date) in excess of the Note's stated redemption price at maturity ("Bond
Premium"), the U.S. Holder may elect, in accordance with applicable Code
provisions, to amortize the Bond Premium using a constant yield method. The
amount of Bond Premium amortized in any year will be treated as a reduction of
the U.S. Holder's interest income from the Note.
(v) Market Discount. If a U.S. Holder purchases a Note for an amount that
is less than its issue price (or, in the case of a subsequent purchaser, its
"revised issue price," as defined in the Code) as of the purchase date, the
amount of the difference will be treated as "market discount," unless such
difference is less than a specified de minimis amount. Market discount generally
will accrue ratably during the period from the date of acquisition to the
maturity date of the Note, unless the U.S. Holder elects to accrue such discount
on the basis of the constant interest method, in accordance with applicable Code
provisions.
A U.S. Holder of a Note with market discount generally will be required to
treat as ordinary income any gain recognized on the sale, exchange, retirement
or other disposition of the Note to the extent of accrued market discount unless
the U.S. Holder elects in accordance with the applicable Code provisions to
include market discount in income as it accrues. A U.S. Holder of a Note
acquired at market discount who does not make a current inclusion election will
be required to defer the deduction of all or a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the Note until the
maturity of the Note or its earlier disposition in a taxable transaction.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The "backup" withholding and information reporting requirements may apply
to certain payments of principal, redemption or repurchase premium, if any, and
interest on a Note and to certain payments of proceeds of the sale or retirement
of a Note. ICN, its agent, a broker, or any paying agent, as the case may be,
will be required to withhold tax from any payment that is not subject to backup
withholding at a rate of 31 percent of such payment if the U.S. Holder of the
Note fails to furnish his taxpayer identification number (social security number
or employer identification number), to certify that such U.S. Holder is not
subject to backup withholding or to otherwise comply with the applicable
requirements of the backup withholding rules. Certain U.S. Holders (including,
among others, all corporations) are not subject to the backup withholding and
reporting requirements.
Any amount withheld under the backup withholding rules from a payment to a
U.S. Holder may be claimed as a credit against such U.S. Holder's United States
federal income tax liability.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF
THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
98
<PAGE> 100
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. ICN has agreed that for a period of 10 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
ICN will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market rates prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The legality of the New Notes offered hereby will be passed upon for the
Company by Proskauer Rose LLP, 1585 Broadway, New York, New York 10036.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1995, and the consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996,
incorporated by reference in this Prospectus, have been included herein in
reliance on the report, which includes an emphasis-of-a-matter paragraph related
to the Company's net monetary assets at ICN Yugoslavia, which would be subject
to foreign exchange loss if a devaluation of the Yugoslavian dinar were to
occur, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in auditing and accounting. With respect to
the unaudited interim financial information for the periods ended June 30, 1997
and 1996, incorporated by reference in this Prospectus, the independent
accountants have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report included in the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated by reference
herein, states that they did not audit and they do not express an opinion on the
interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited interim financial information because that report is not
a "report" or a "part" of the Registration Statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Act.
99
<PAGE> 101
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN 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 THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON 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 ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................... 4
Incorporation of Certain Documents by
Reference............................... 5
Summary................................... 6
Risk Factors.............................. 15
Use of Proceeds........................... 22
Capitalization............................ 23
Pro Forma Combined Condensed Financial
Statements.............................. 24
Selected Financial Data................... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 35
The Exchange Offer........................ 48
Business.................................. 56
Management................................ 71
Description of the New Notes.............. 74
Book Entry; Delivery and Form............. 95
Certain U.S. Federal Income Tax
Consequences............................ 97
Plan of Distribution...................... 98
Legal Matters............................. 98
Independent Public Accountants............ 98
</TABLE>
======================================================
======================================================
----------------
PROSPECTUS
----------------
LOGO
ICN
PHARMACEUTICALS, INC.
OFFER TO EXCHANGE
9 1/4% SERIES B SENIOR NOTES
DUE 2005
FOR ALL OUTSTANDING
9 1/4% SENIOR NOTES
DUE 2005
, 1997
======================================================
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action or proceeding, had no
cause to believe his or her conduct was unlawful. In the case of an action by or
in the right of the corporation, no indemnification may be made in respect to
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith. However, if the
director or officer is not successful in the defense of any action, suit or
proceeding as referred to above or in the defense of any claim, issue or matter
therein, he shall only be indemnified by the corporation as authorized in the
specific case upon a determination that indemnification is proper because he or
she met the applicable standard set forth above as determined by a majority of
the disinterested Board of Directors or by the stockholders.
The Registrant's bylaws provide indemnification to its officers and
directors against liability they may incur in their capacity as such, which
indemnification is similar to that provided by Section 145, unless a
determination is reasonably and promptly made by a majority of the disinterested
Board of Directors that the indemnitee acted in bad faith and in a manner that
the indemnitee did not believe to be in or not opposed to the best interests of
the Registrant, or, with respect to any criminal proceeding, that the indemnitee
believed or had reasonable cause to believe that his or her conduct was
unlawful.
The Registrant carries directors' and officers' liability insurance,
covering losses up to $5,000,000 (subject to a $500,000 deductible). The
Registrant, as a matter of policy, enters into indemnification agreements with
its directors and officers indemnifying them against liability they may incur in
their capacity as such. The indemnification agreements require no specific
standard of conduct for indemnification and make no distinction between civil
and criminal proceedings, except in proceedings where the dishonesty of an
indemnitee is alleged. Such indemnification is not available if an indemnitee is
adjudicated to have acted in a deliberately dishonest manner with actual
dishonest purpose and intent where such acts were material to the adjudicated
proceeding. Additionally, the indemnity agreements do not provide
indemnification for any claim against an indemnitee where the claim is based
upon the indemnitee obtaining personal advantage or profit to which he or she
was not legally entitled, the claim is for an accounting of profits made in
connection with a violation of Section 16(b) of the Securities Exchange Act of
1934, or similar state law provision, or the claim was brought about or
contributed to by the dishonesty of the indemnitee.
II-1
<PAGE> 103
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the directors' duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividend and unlawful stock purchase and redemption), or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant has provided in its certificate of incorporation, as
amended, that its directors shall be exculpated from liability as provided under
Section 102(b)(7).
The foregoing summaries are necessarily subject to the complete text of the
Delaware General Corporation Law, the Registrant's Certificate of Incorporation
and the agreements referred to above and are qualified in their entirety by
reference thereto.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- ----------------------------------------------------------------------------------
<S> <C>
1.1 Purchase Agreement dated as of August 14, 1997, by and among ICN and Schroder &
Co. Inc. (incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the Three Months ended June 30, 1997).
3.1 Restated Certificate of Incorporation of Registrant previously filed as Exhibit
3.1 to Registration Statement No. 33-84534 on Form S-4, which is incorporated
herein by reference, as amended by the Certificate of Merger, dated November 10,
1994, of ICN Pharmaceuticals, Inc., SPI Pharmaceuticals, Inc. and Viratek, Inc.
with and into ICN Merger Corp. previously filed as Exhibit 4.1 to Registration
Statement No. 333-08179 on Form S-3, which is incorporated herein by reference.
3.2 Bylaws of the Registrant previously filed as Exhibit 3.2 to Registration Statement
No. 33-84534 on Form S-4, which is incorporated herein by reference.
4.1 Indenture between ICN Pharmaceuticals, Inc. and American Stock Transfer and Trust
Company, as trustee, relating to $115,000,000 8 1/2% Convertible Subordinated
Notes due 1999 (incorporated by reference to the Company's Annual Report on Form
10-K for the Year ended December 31, 1996).
4.2 Indenture, dated as of August 14, 1997, by and among ICN and United States Trust
Company of New York (incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the Three Months ended June 30, 1997).
4.3 Registration Rights Agreement, dated as of August 14, 1997, by and among ICN and
Schroder & Co. Inc. (incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the Three Months ended June 30, 1997).
4.4 Form of Old Note (included in Exhibit 4.2).
4.5 Form of New Note (included in Exhibit 4.2).
4.6 Form of letter of transmittal and notice of guaranteed delivery.
5.1 Opinion of Proskauer Rose LLP.*
11.1 Statement re computation of pro forma per share earnings.*
12.1 Statement re computation of ratios.*
15.1 Awareness letter of Independent Accountants regarding Unaudited Interim Financial
Information.
</TABLE>
II-2
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- ----------------------------------------------------------------------------------
<S> <C>
21.1 List of Subsidiaries (incorporated herein by reference to Exhibit 21 to the
Company's Annual Report on Form 10-K for the Year ended December 31, 1996).
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Proskauer Rose LLP (contained in opinion filed as Exhibit 5.1).*
24 Power of Attorney (included on pages II-5 and II-6).*
25 Statement of eligibility of trustee.*
</TABLE>
- ---------------
* Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) To file, during any period in which officers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(d) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(e) That every prospectus (i) that is filed pursuant to paragraph (d)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415 (Section 230.415 of this chapter),
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(f) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be
II-3
<PAGE> 105
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(g) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 15, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(h) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(i) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE> 106
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Costa Mesa, State of California, on the 2nd day of
October, 1997.
ICN PHARMACEUTICALS, INC.
By: /s/ MILAN PANIC
------------------------------------
Milan Panic,
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: October 2, 1997 ICN PHARMACEUTICALS, INC.
By: /s/ MILAN PANIC
------------------------------------
Milan Panic,
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<S> <C> <C>
/s/ MILAN PANIC Chairman of the Board and October 2, 1997
- --------------------------------------------- Chief Executive Officer
Milan Panic
* Executive Vice President, October 2, 1997
- --------------------------------------------- Chief Financial Officer and
John E. Giordani Corporate Controller
* Director October 2, 1997
- ---------------------------------------------
Norman Barker, Jr.
* Director October 2, 1997
- ---------------------------------------------
Senator Birch Bayh
* Director October 2, 1997
- ---------------------------------------------
Alan F. Charles
* Director October 2, 1997
- ---------------------------------------------
Roger Guillemin, M.D., Ph.D.
* President, Director October 2, 1997
- ---------------------------------------------
Adam Jerney
</TABLE>
II-5
<PAGE> 107
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<S> <C> <C>
* Director October 2, 1997
- ---------------------------------------------
Dale M. Hanson
* Director October 2, 1997
- ---------------------------------------------
Weldon B. Jolley, Ph.D.
* Director October 2, 1997
- ---------------------------------------------
Jean-Francois Kurz
* Director October 2, 1997
- ---------------------------------------------
Thomas Lenagh
* Director October 2, 1997
- ---------------------------------------------
Charles T. Manatt
* Director October 2, 1997
- ---------------------------------------------
Stephen Moses
* Director October 2, 1997
- ---------------------------------------------
Michael Smith, Ph.D.
* Director October 2, 1997
- ---------------------------------------------
Roberts A. Smith, Ph.D.
* Director October 2, 1997
- ---------------------------------------------
Richard W. Starr
</TABLE>
*By: /s/ DAVID C. WATT
- ------------------------------------
David C. Watt
Attorney-in-fact
II-6
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ -------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Purchase Agreement dated as of August 14, 1997, by and among ICN and
Schroder & Co. Inc. (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the Three Months ended June 30,
1997)...............................................................
3.1 Restated Certificate of Incorporation of Registrant previously filed
as Exhibit 3.1 to Registration Statement No. 33-84534 on Form S-4,
which is incorporated herein by reference, as amended by the
Certificate of Merger, dated November 10, 1994, of ICN
Pharmaceuticals, Inc., SPI Pharmaceuticals, Inc. and Viratek, Inc.
with and into ICN Merger Corp. previously filed as Exhibit 4.1 to
Registration Statement No. 333-08179 on Form S-3, which is
incorporated herein by reference....................................
3.2 Bylaws of the Registrant previously filed as Exhibit 3.2 to
Registration Statement No. 33-84534 on Form S-4, which is
incorporated herein by reference....................................
4.1 Indenture between ICN Pharmaceuticals, Inc. and American Stock
Transfer and Trust Company, as trustee, relating to $115,000,000
8 1/2% Convertible Subordinated Notes due 1999 (incorporated by
reference to the Company's Annual Report on Form 10-K for the Year
ended December 31, 1996)............................................
4.2 Indenture, dated as of August 14, 1997, by and among ICN and United
States Trust Company of New York (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Three Months ended
June 30, 1997)......................................................
4.3 Registration Rights Agreement, dated as of August 14, 1997, by and
among ICN and Schroder & Co. Inc. (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Three Months ended
June 30, 1997)......................................................
4.4 Form of Old Note (included in Exhibit 4.2)..........................
4.5 Form of New Note (included in Exhibit 4.2)..........................
4.6 Form of letter of transmittal and notice of guaranteed delivery.....
5.1 Opinion of Proskauer Rose LLP*......................................
11.1 Statement re computation of pro forma per share earnings*...........
12.1 Statement re computation of ratios*.................................
15.1 Awareness letter of Independent Accountants regarding Unaudited
Interim Financial Information.......................................
21.1 List of Subsidiaries (incorporated herein by reference to Exhibit 21
to the Company's Annual Report on Form 10-K for the Year ended
December 31, 1996)..................................................
23.1 Consent of Coopers & Lybrand L.L.P. ................................
23.2 Consent of Proskauer Rose LLP (contained in opinion filed as Exhibit
5.1)*...............................................................
24 Power of Attorney (included on pages II-5 and II-6)*................
25 Statement of eligibility of trustee*................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 4.6
LETTER OF TRANSMITTAL
FOR
9 1/4% SENIOR NOTES
OF
ICN PHARMACEUTICALS, INC.
PURSUANT TO THE
EXCHANGE OFFER
IN RESPECT OF
ALL OF ITS OUTSTANDING 9 1/4% SENIOR NOTES DUE 2005
FOR
9 1/4% SERIES B SENIOR NOTES DUE 2005
------------------------
PURSUANT TO THE PROSPECTUS DATED OCTOBER 13, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON NOVEMBER 10,
1997 UNLESS THE EXCHANGE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF
OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE BUSINESS DAY
PRIOR TO THE EXPIRATION DATE.
TO: UNITED STATES TRUST COMPANY OF NEW YORK, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Mail: By Hand to 4:30: By Hand After 4:30 and
By Overnight Courier:
United States Trust Company of United States Trust Company of United States Trust Company of
New York New York New York
P.O. Box 843 111 Broadway 770 Broadway, 13th floor
Cooper Station New York, New York 10006 New York, New York 10003
New York, New York 10276 Attention: Lower Level Attention: Corporate Trust
Attention: Corporate Trust Corporate Trust Window Redemption Unit
Services
</TABLE>
By Facsimile Transmission: (212) 780-0592
Confirm by Telephone: (800) 548-6565
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION VIA
TELEGRAM, TELEX OR FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE
A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR OLD NOTES
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR OLD
NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
By execution hereof, the undersigned acknowledges receipt of the Prospectus
(the "Prospectus"), dated October 13, 1997, of ICN Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), which, together with this Letter of
Transmittal and the instructions hereto (the "Letter of Transmittal"),
constitute the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 9 1/4% Senior B Senior Notes Due 2005 (the "New Notes")
that have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
constitutes a part, for each $1,000 principal amount of its outstanding 9 1/4%
Senior Notes Due 2005 (the "Old Notes"), upon the terms and subject to the
conditions set forth in the Prospectus.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders; (ii) tender of Old Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in the Prospectus under "The Exchange
Offer -- Procedures for Tendering" by any financial institution that is a
participant in DTC and whose name appears on a security position listing as the
owner of Old Notes (such participants, acting on behalf of Holders, are referred
to herein, together with such Holders, as "Acting Holders"); or (iii) tender of
Old Notes is to be made according to the guaranteed delivery procedures set
forth in the Prospectus under "The Exchange Offer -- Guaranteed Delivery
Procedures." DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
<PAGE> 2
If Holders desire to tender Old Notes pursuant to the Exchange Offer and
(i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Old Notes or other required documents to reach
the Exchange Agent prior to the Expiration Date or (iii) the procedures for book
entry transfer cannot be completed prior to the Expiration Date, such Holders
may effect a tender of such Old Notes in accordance with the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offer Guaranteed
Delivery Procedures."
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder; or (ii) whose Old Notes are held of record by DTC who desires to deliver
such Old Notes by book-entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus.
The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this latter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 8 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES
MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tenders of Old Notes will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DESCRIPTION OF OLD NOTES
- --------------------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S)* AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF HOLDER(S) (ATTACH SIGNED LIST IF AMOUNT TENDERED
(PLEASE FILL IN, IF BLANK) NECESSARY) (IF LESS THAN ALL)**
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OLD NOTES TENDERED
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Need not be completed by Holders who wish to tender with respect to all
Old Notes listed. See Instruction 2.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
---------------------------------------------------------------------------
DTC Book Entry Account No.:
---------------------------------------------------------------------------
Transaction Code No.:
---------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Holder(s) of Old Notes:
---------------------------------------------------------------------------
Window Ticket No. (if any):
---------------------------------------------------------------------------
2
<PAGE> 3
Date of Execution of Notice of Guaranteed Delivery:
---------------------------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
If Delivered by Book Entry Transfer: Name of Tendering Institution:
---------------------------------------------------------------------------
DTC Book Entry Account No.:
---------------------------------------------------------------------------
Transaction Code No.:
---------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THIS PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
---------------------------------------------------------------------------
Address:
---------------------------------------------------------------------------
Ladies and Gentlemen:
Subject to the terms of the Exchange Offer, the undersigned hereby tenders
to the Company the principal amount of Old Notes indicated above. Subject to and
effective upon the acceptance for exchange of the principal amount of Old Notes
tendered in accordance with this Letter of Transmittal, the undersigned sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to the Old Notes tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Company and as Trustee under the Indenture for the Old Notes and
the New Notes) with respect to the tendered Old Notes with full power of
substitution to (i) deliver certificates for such Old Notes to the Company, or
transfer ownership of such Old Notes on the account books maintained by DTC,
together in either such case, with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company and (ii) present such Old
Notes for transfer on the books of the Company and receive all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he has full power and
authority to tender, sell, assign and transfer the Old Notes tendered hereby and
that the Company will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim, when the same are acquired by the Company. The undersigned
also acknowledges that this Exchange Offer is being made in reliance upon an
interpretation by the staff of the Securities and Exchange Commission that the
New Notes issued in exchange for the Old Notes pursuant to the Exchange Offer
may be offered for sale, resold and otherwise transferred by holders thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such New Notes. If the undersigned is not a broker-dealer,
the undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of the New Notes.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder has no arrangements with any person to participate in
the distribution of such New Notes and (iii) such holder is not a "affiliate,"
as defined under Rule 405 of the Securities Act of the Company or, if such
holder is an affiliate, that such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes.
If the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
has no arrangements with any person to participate in the distribution of the
New Notes and that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
3
<PAGE> 4
The undersigned will upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered
hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent. If any tendered Old Notes are
not accepted for exchange pursuant to the Exchange Offer for any reason,
certificates for any such unaccepted Old Notes will be returned (except as noted
below with respect to tenders through DTC), without expense, to the undersigned
at the address shown below or at a different address shown below or at a
different address as may be indicated under "Special Issuance Instructions" as
promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation under this Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, successors and
assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by DTC, by credit to the account at DTC). Similarly,
unless otherwise indicated under "Special Delivery Instructions," please send
the certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and any certificates for Old Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned's signatures, unless, in either event,
tender is being made through DTC. In the event that both "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and return any Old Notes not tendered or not exchanged in
the name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered holder(s) thereof if the Company
does not accept for exchange any of the Old Notes so tendered.
4
<PAGE> 5
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF
OLD NOTES REGARDLESS OF WHETHER OLD NOTES ARE BEING
PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below under "Capacity" and submit evidence satisfactory to the
Company of such person's authority to so act. See Instruction 3 herein.
If the signature appearing below is not of the registered Holder(s) of the
Old Notes, then the registered Holder(s) must sign a valid proxy
<TABLE>
<S> <C>
X Date:
- ------------------------------------------------- -------------------------------------------------
X Date:
- ------------------------------------------------- -------------------------------------------------
SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY
Name(s): Address:
------------------------------------------------ -------------------------------------------------
------------------------------------------------
- ------------------------------------------------ (INCLUDING ZIP CODE)
(PLEASE PRINT)
Capacity Area Code and Telephone No:
- ------------------------------------------------- -------------------------------------------------
Social Security No:
- -------------------------------------------------
</TABLE>
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
5
<PAGE> 6
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered are to be issued in the name of, or the New Notes issued pursuant
to the Exchange Offer are to be issued to the order of, someone other than the
person or persons whose signature(s) appear(s) within this Letter of Transmittal
or issued to an address different from that shown in the box entitled
"Description of Old Notes" within this Letter of Transmittal, or if Old Notes
tendered by book-entry transfer that are not accepted for purchase are to be
credited to an account maintained at DTC
Name:
- ------------------------------------------------------------
(PLEASE PRINT)
Address:
- ------------------------------------------------------------
(PLEASE PRINT)
- ------------------------------------------------------------
ZIP CODE
- ------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered or not accepted for purchase or the New Notes issued pursuant to
the Exchange Offer are to be sent to someone other than the person or persons
whose signature(s) appear(s) within this Letter of Transmittal or to an address
different from that shown in the box entitled "Description of Old Notes" within
this Letter of Transmittal
Name:
- ------------------------------------------------------------
(PLEASE PRINT)
Address:
- ------------------------------------------------------------
(PLEASE PRINT)
- ------------------------------------------------------------
ZIP CODE
- ------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The certificates
for the tendered Old Notes (or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Old Notes delivered electronically), as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof and any other documents required by this Letter
of Transmittal, must be received by the Exchange Agent at its address set forth
herein prior to 5:00 P.M., New York City time, on the Expiration Date. The
method of delivery of the tendered Old Notes, this Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holder and, except as otherwise provided below, the delivery will be deemed
made only when actually received the Exchange Agent. Instead of delivery by
mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Old Notes should be sent to the Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes am not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date must tender their Old Notes and follow the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution; (ii) prior
to the Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder of the Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five business days
after the Expiration Date, this Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes (or a confirmation
of electronic delivery of book-entry delivery into the Exchange Agent's account
at DTC) and any the required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile hereof), as well as all other
documents required by this Letter of Transmittal and the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of electronic mail delivery of book-entry delivery into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
five business days after the Expiration Date, all as provided in the Prospectus
under the caption, "The Exchange Offer -- Guaranteed Delivery Procedures." Any
Holder of Old Notes who wishes to tender his Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 P.M., New York
City time, on the Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in this Letter of Transmittal)
will be and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost by the Exchange Agent to the tendering
Holders of Old Notes, unless otherwise provided in this Letter of Transmittal,
as soon as practicable following the Expiration Date.
2. PARTIAL TENDERS. Tenders of Old Notes will be accepted in all
denominations of $1,000 and integral multiples in excess thereof. If less than
the entire principal amount of any Old Notes is tendered, the tendering Holder
should fill in the principal amount tendered in the third column of the chart
entitled "Description of Old Notes." The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, Old Notes for the principal amount of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Old Notes is not tendered, Old Notes for
the principal amount of the Old Notes not tendered and a certificate or
certificates representing New Notes issued in exchange of any Old Notes accepted
will be sent to the Holder at his registered address, unless a different address
is provided in the appropriate box on this Letter of Transmittal or unless
tender is made through DTC, promptly after the Old Notes are accepted for
exchange.
7
<PAGE> 8
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Old Notes tendered and the certificate(s) for New Notes
issued in exchange therefor is to be issued (or any untendered principal amount
of Old Notes is to be reissued) to the registered Holder, such Holder need not
and should not endorse any tendered Old Note, nor provide a separate bond power.
In any other case, such holder must either properly endorse the Old Notes
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder(s) of any Old Notes listed, such Old Notes must
be endorsed or accompanied by appropriate bond powers signed as the name of the
registered Holder(s) appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered Holder (including any participant in
DTC whose name appears on a security position listing as the owner of Old Notes)
who has not completed the box set forth herein entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" or (ii) for
the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
7. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instruction.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
8
<PAGE> 9
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
======================================================================================================
Delivery Prepared by ------------------------Checked by -------------------- Date --------------------
</TABLE>
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made with respect to New Notes may be subject to backup
withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
20% of any payments made to the Holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the Exchange
Offer, the Holder is required to provide the Exchange Agent with either: (i) the
Holder's correct TIN by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN and that (A) the Holder has not been notified by the Internal Revenue
Service that the Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (B) the Internal Revenue Service has
notified the Holder that the Holder is no longer subject to backup withholding;
or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (E.G., social
security number or employer identification number) of the registered Holder of
the Old Notes. If the Old Notes are held in more than one name or are held not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
9
<PAGE> 10
PAYER'S NAME:
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Social Security Number
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY OR
SIGNING AND DATING BELOW. ---------------------------------
Employer Identification Number
-------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 -- Certification -- Under Penalties of Perjury, I PART 3 --
INTERNAL REVENUE SERVICE certify that:
(1) The number shown on this form is my correct Taxpayer Awaiting TIN
PAYER'S REQUEST FOR TAXPAYER Identification Number (or I am waiting for a number [ ]
IDENTIFICATION NUMBER to be issued to me) and
(2) I am not subject to backup withholding either because
I have not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as a
result of failure to report all interest or dividends,
or the IRS has notified me that I am no longer subject
to backup withholding.
-------------------------------------------------------------------------
Certificate instructions -- You must cross out item (2) in Part 2 above
if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS
stating that you are no longer subject to backup withholding, do not
cross out item (2).
SIGNATURE DATE
---------------------------------- ---------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF NEW NOTES PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number within 60 days, 31 percent of all reportable
payments made to me thereafter will be withheld until I provide a number.
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
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By Mail: By Hand After 4:30: By Hand to 4:30: and
By Overnight Courier:
United States Trust Company of United States Trust Company of United States Trust Company of
New York New York New York
P.O. Box 843 111 Broadway 770 Broadway, 13th floor
New York, New York 10276 New York, New York 10006 New York, New York 10003
Attention: Corporate Trust Services Attention: Lower Level Attention: Corporate Trust
Corporate Trust Window Redemption Unit
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By Facsimile Transmission: (212) 780-0592
Confirm by Telephone: (800) 548-6565
10
<PAGE> 11
NOTICE OF GUARANTEED DELIVERY
FOR
9 1/4% SENIOR NOTES DUE 2005
OF
ICN PHARMACEUTICALS, INC.
As set forth in the Prospectus, dated October 13, 1997 (the "Prospectus"),
of ICN Pharmaceuticals, Inc. (the "Company"), in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept the Company's
exchange offer (the "Exchange Offer") to purchase all of its outstanding 9 1/4%
Senior Notes due 2005 (the "Old Notes") if (i) certificates representing the Old
Notes to be tendered for purchase and payment are not lost but are not
immediately available, (ii) time will not permit the Letter of Transmittal,
certificates representing such Old Notes or other required documents to reach
the Exchange Agent prior to the Expiration Date or (iii) the procedure for
book-entry transfer cannot be completed prior to the Expiration Date. This form
may be delivered by an Eligible Institution by mail or hand delivery or
transmitted, via telegram, telex or facsimile, to the Exchange Agent as set
forth below. All capitalized terms used herein but not defined herein shall have
the meanings ascribed to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 10,
1997 UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES
MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE BUSINESS DAY PRIOR TO THE
EXPIRATION DATE.
TO: UNITED STATES TRUST COMPANY OF NEW YORK, EXCHANGE AGENT
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By Mail: By Hand to 4:30: By Hand After 4:30 and
By Overnight Courier:
United States Trust Company of United States Trust Company of United States Trust Company of New
New York New York York
P.O. Box 843 111 Broadway 770 Broadway, 13th floor
Cooper Station New York, New York 10006 New York, New York 10003
New York, New York 10276 Attention: Lower Level Attention: Corporate Trust
Attention: Corporate Trust Corporate Trust Window Redemption Unit
Services
By Facsimile Transmission: (212) 780-0592
Confirm by Telephone: (800) 548-6565
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DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA TELEGRAM,
TELEX OR FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Exchange Offer and the Letter of Transmittal,
receipt of which is hereby acknowledged, the aggregate principal amount of Old
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus.
The undersigned understands that tenders of Old Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange Offer
may not be withdrawn after 5:00 p.m., New York City time on the Business Day
prior to the Expiration Date. Tenders of Old Notes may also be withdrawn if the
Exchange offer is terminated without any such Old Notes being purchased
thereunder or as otherwise provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
11
<PAGE> 12
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Signature(s) of the Registered Owner(s) or Authorized Name(s) of Registered Holder(s):
Signatory: -------------------------------------------------------
-------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
Principal Amount of Old Notes Tendered: Address:
---------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
Certificate No(s). of Old Notes (if available): Area Code and Telephone No.:
---------------------------
- ------------------------------------------------------- If Old Notes will be delivered by book-entry transfer
at The Depository Trust Company,
- ------------------------------------------------------- Depository Account No.:
Date: -------------------------
- -------------------------------------------------------
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This Notice of Guaranteed Delivery must be signed by the registered holder(s) of Old Notes exactly
as its (their) name(s) appear on certificates for Old Notes or on a security position listing as
the owner of Old Notes or by person(s) authorized to become registered Holder(s) by endorsements
and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary
or representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s):
===================================================================================
Capacity:
-----------------------------------------------------------------------------------
Address(s):
===================================================================================
-----------------------------------------------------------------------------------
Do not send Old Notes with this form. Debentures should be sent to the Exchange Agent together with
a properly completed and duly executed Letter of Transmittal.
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GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., or a commercial bank or trust company having an
office or a correspondent in the United States, hereby (a) represents that each holder of Old
Notes on whose behalf this tender is being made "own(s)" the Old Notes covered hereby within the
meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) represents that
such tender of Old Notes complies with such Rule 14e-4, and (c) guarantees that, within five New
York Stock Exchange trading days from the date of this Notice of Guaranteed Delivery, a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof), together with
certificates representing the Old Notes covered hereby, in proper form for transfer (or
confirmation of the book-entry transfer of such Old Notes into the Exchange Agent's account at
The Depository Trust Company, pursuant to the procedure for book-entry transfer set forth in the
Prospectus) and required documents will be deposited by the undersigned with the Exchange Agent.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVERY THE LETTER OF TRANSMITTAL AND OLD NOTES
TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET FORTH ABOVE AND THAT FAILURE TO
DO SO COULD RESULT IN FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm:
---------------------------------------
----------------------------------------------
AUTHORIZED SIGNATURE
Address: Name:
---------------------------------------------- ----------------------------------------------
Title:
----------------------------------------------
----------------------------------------------
Area Code and Telephone No.:
--------------------- Date:
----------------------------------------------
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12
<PAGE> 1
EXHIBIT 15.1
October 2, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: ICN Pharmaceuticals, Inc.
Registrations on Form S-4 (File No. 333-35517)
We are aware that our report dated July 31, 1997, on our review of interim
financial information of ICN Pharmaceuticals, Inc. for the three and six month
periods ended June 30, 1997 and included in the Company's quarterly report on
Form 10-Q for the quarter then ended is incorporated by reference in this
Registration Statement. Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration statement
prepared or certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 (File No. 333-35517) of our report dated March 4, 1997, which includes
an emphasis of a matter paragraph related to the Company's net monetary assets
at ICN Yugoslavia, which would be subject to foreign exchange loss if a
devaluation of the Yugoslavian dinar were to occur, on our audits of the
consolidated financial statements and financial statement schedule of ICN
Pharmaceuticals, Inc. We also consent to the reference to our firm under the
caption "Independent Public Accountants".
Coopers & Lybrand L.L.P.
Newport Beach, California
October 2, 1997
