ICN PHARMACEUTICALS INC
S-4/A, 2000-06-29
PHARMACEUTICAL PREPARATIONS
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<PAGE>   1


     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 2000


                                                      REGISTRATION NO. 333-63721
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------


                                AMENDMENT NO. 2

                                       TO

                                    FORM S-4
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------

                           ICN PHARMACEUTICALS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                      <C>                                      <C>
              DELAWARE                                   2834                                  33-0628076
    (State of Other Jurisdiction             (Primary Standard Industrial                   (I.R.S. Employer
  of Incorporation or Organization)           Classification Code Number)                Identification Number)
</TABLE>

        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
                            ------------------------

        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.  [ ]
                            ------------------------

                        CALCULATION OF REGISTRATION FEE


<TABLE>
<S>                              <C>                  <C>                  <C>                  <C>
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF                                 PROPOSED MAXIMUM     PROPOSED MAXIMUM
SECURITIES                          AMOUNT TO BE        OFFERING PRICE          AGGREGATE            AMOUNT OF
TO BE REGISTERED                     REGISTERED            PER UNIT          OFFERING PRICE      REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------
8 3/4% Series B Senior Notes
  Due 2008.....................     $325,000,000             100%             $325,000,000            $90,350
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>



                            ------------------------


     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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<PAGE>   2

     INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.


                   SUBJECT TO COMPLETION, DATED JUNE 29, 2000


                               OFFER TO EXCHANGE
                                ALL OUTSTANDING
                          8 3/4% SENIOR NOTES DUE 2008
                  ($325,000,000 PRINCIPAL AMOUNT OUTSTANDING)
                                      FOR
                     8 3/4% SERIES B SENIOR NOTES DUE 2008
                                       OF

                           ICN PHARMACEUTICALS, INC.
                            ------------------------
                               THE EXCHANGE OFFER
                  WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME

                     ON             , 2000, UNLESS EXTENDED

                            ------------------------


     ICN Pharmaceuticals, Inc., a Delaware corporation ("ICN" or the "Company"),
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 8 3/4% Series B Senior Notes Due 2008 of ICN
(the "1998 New Notes") for each $1,000 principal amount of the outstanding
$200.0 million principal amount of 8 3/4% Senior Notes Due 2008 of ICN issued on
August 20, 1998 (the "1998 Old Notes") and each $1,000 principal amount of
8 3/4% Series B Senior Notes Due 2008 of ICN (the "1999 New Notes" and, together
with the 1998 New Notes, the "New Notes") for each $1,000 principal amount of
the outstanding $125.0 million principal amount of 8 3/4% Senior Notes Due 2008
of ICN issued on July 20, 1999 (the "1999 Old Notes" and, together with the 1998
Old Notes, the "Old Notes"). The New Notes 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. Other than the issue dates and the original issue discount on the 1999
Old Notes, the form and terms of the 1998 Old Notes are identical in all
material respects to the form and terms of the 1999 Old Notes and both the 1998
Old Notes and the 1999 Old Notes are governed by the Indenture. 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             , 2000, 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 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 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 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT
                 SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

                            ------------------------

  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           , 2000.

<PAGE>   3

     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 20, 1998 with respect to the 1998 Old Notes and July 20, 1999 with
respect to the 1999 Old Notes (as the case may be). 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 20, 1998 with respect to the 1998 Old Notes
and July 20, 1999 with respect to the 1999 Old Notes (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 May 15 and November 15 of each year, accruing from the last
Interest Payment Date or August 20, 1998 with respect to the 1998 Old Notes and
July 20, 1999 with respect to the 1999 Old Notes (as the case may be) at a rate
of 8 3/4% per annum.

     Prior to the date hereof, the Company's Exchange Offer Registration
Statement relating to an exchange offer for the 1998 Old Notes had not been
declared effective under the Securities Act. Under the provisions of the
Registration Rights Agreement relating to such 1998 Old Notes, the Company
continued to pay additional interest on such 1998 Old Notes until the date
hereof.

     The Notes will mature on November 15, 2008, unless previously redeemed. The
Company may redeem up to $70.0 million of the aggregate principal amount of the
Notes in cash at its option at any time prior to November 15, 2001 at 108.75% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption, with the net proceeds of one or more Public Equity Offerings
(as defined). 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 occurrence of such a Change in Control may also constitute a
default under the Company's other debt instruments which may contain similar
"change in control" provisions. Such debt instruments may not permit the
repurchase of the Notes absent consent of the lenders thereunder in the event of
a Change in Control. 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 repurchase all of the Notes that might be delivered by holders
seeking to accept the Company's offer to repurchase the Notes. The indenture may
not provide protection in the event of a highly leveraged transaction, including
a reorganization, restructuring or merger that does not result in a Change of
Control.


     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
of the Company, including its 9 1/4% Senior Notes due 2005, 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. As of
December 31, 1999, the Company had $3.1 million of secured indebtedness
outstanding and its subsidiaries had aggregate indebtedness and other
obligations of $9.4 million outstanding. The indenture governing the Notes will
permit the Company and its subsidiaries to incur additional indebtedness,
subject to 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

                                        2
<PAGE>   4

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 representations 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 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 Warburg Dillon Read LLC and Schroder & Co., Inc. have informed
ICN that they currently intend to make a market in the New Notes, they are 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
<PAGE>   5

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Available Information.......................................    i
Incorporation of Documents by Reference.....................   ii
Summary.....................................................    1
The Company.................................................    1
Offering of the Old Notes...................................    4
The Exchange Offer..........................................    4
The New Notes...............................................    8
Risk Factors................................................   12
Use of Proceeds.............................................   19
Capitalization..............................................   20
Selected Financial Data.....................................   21
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................   24
The Exchange Offer..........................................   41
Business....................................................   49
Management..................................................   62
Description of the New Notes................................   65
Book Entry; Delivery and Form...............................   87
U.S. Federal Income Tax Consequences........................   89
Plan of Distribution........................................   94
Legal Matters...............................................   94
Independent Accountants.....................................   94
Index to Financial Statements...............................  F-1
</TABLE>


                             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.

                                        i
<PAGE>   6


                    INCORPORATION OF DOCUMENTS BY REFERENCE



     The following documents filed by the Company with the Commission pursuant
to 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, 1999, dated March 30, 2000 as amended on Form 10-K/A dated April
28, 2000, (ii) Quarterly Report on Form 10-Q for the three months ended March
31, 2000, dated May 15, 2000, 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.

                                       ii
<PAGE>   7

                                    SUMMARY

     This summary is qualified in its entirety by the more detailed information
and financial statements 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 global, reasearch-based pharmaceutical company that develops,
manufactures, distributes and sells pharmaceutical, research and diagnostic
products. In 1999, the Company had revenues of $747.4 million and a net income
of $118.6 million. Based on the closing price of the Company's common stock on
the New York Stock Exchange on June 23, 2000, the Company has an equity market
capitalization of approximately $2.1 billion.


     ICN distributes and sells a broad range of prescription (or "ethical") and
over-the-counter ("OTC") pharmaceutical and nutritional products in over 90
countries. These pharmaceutical products treat viral and bacterial infections,
diseases of the skin, neuromuscular disorders, cancer, cardiovascular disease,
diabetes and psychiatric disorders.


     The Company pursues a strategy of international expansion which includes:
(i) the acquisition of high margin products that complement existing product
lines and can be introduced into additional markets to meet the specific needs
of those markets; (ii) the creation of a pipeline of new products through
internal research and development, as well as strategic partnerships and
licensing arrangements; (iii) the consolidation of the Company's leadership
position in Central and Eastern Europe, including Russia. In executing the
strategy, ICN believes it is uniquely positioned to continue to exploit its
basic competitive advantages: (i) large enough economies of scale in its global
distribution network not enjoyed by smaller pharmaceutical companies that
provide opportunities to develop and register multi-regional products; and (ii)
small enough economies of scale in much of its manufacturing and production
facilities and its local and regional sales and marketing groups that provide
for higher profitability on the Company's smaller, niche products that cannot be
achieved by the larger pharmaceutical companies.



     While most of the Company's businesses operate as part of an integrated
strategy, each region utilizes knowledge of the local markets to enhance the
overall performance of the Company. For example, the Company operates six
pharmaceutical companies throughout Eastern Europe and, as measured by sales,
the Company believes it is one of the largest pharmaceutical companies in
Eastern Europe. Long term, the Company believes that as the standard of living
(disposable income as a percentage of GNP) rises, the rate of spending on health
care will increase. The Company also believes it will benefit from the future
growth of the Russian market over the next decade.



     The Company's research and development activities are based upon the
expertise accumulated in over 35 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 and regional basis. In
connection with this, 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. In addition, the Company
develops innovative products targeted to address the specific needs of the
Company's local markets.



  Royalty Agreement and Revenues



     The Company receives royalty revenues from Schering-Plough Corporation
("Schering-Plough") under an Exclusive License and Supply Agreement with
Schering-Plough in 1995, as amended in July 1998 (the "License Agreement").



     Besides the use of ribavirin in combination with Schering-Plough's alpha
interferon (the "Combination Therapy"), the Company markets ribavirin under its
own trademark Virazole(R) for commercial sale in over 40 countries for one or
more of a variety of viral infections, including respiratory syncytial virus
("RSV"). In the United States and Europe, Virazole(R) is approved for use


                                        1
<PAGE>   8

in hospitalized infants and children with severe lower respiratory infections
due to RSV. 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 approximately 8% of the Company's total 1999
revenues.


  ICN Yugoslavia


     On February 6, 1999, the government of the Federal Republic of Yugoslavia,
acting through the Federal Ministry of Health and/or the Ministry of Health of
Serbia, seized control of the Company's 75% owned subsidiary, ICN Yugoslavia.
This action, based on a decision by the Ministry for Economic and Property
Transformation that was reached on November 26, 1998, effectively reduced the
Company's equity ownership of ICN Yugoslavia from 75% to 35%. The Ministry of
Economic and Property Transformation decision was based on a unilaterally
imposed recalculation of the Company's original capital contribution to ICN
Yugoslavia. Subsequent to the seizure, the Commercial Court of Belgrade issued
an order stating that a change in control had occurred. These actions were
taken, contrary to Yugoslav law, without any notification to or representation
by the Company. Since the change of control, representatives of the Company and
ICN Yugoslavia's management have been denied access to the premises and any
representation as to the management of ICN Yugoslavia. As a result, the Company
is no longer able to influence the operating and financial affairs of ICN
Yugoslavia and deconsolidated the financial statements of ICN Yugoslavia as of
November 26, 1998. Accordingly, the Company recorded a charge of $235.3 million
in the fourth quarter of 1998. This charge reduces the carrying value of the
Company's investment in ICN Yugoslavia to its fair value, currently estimated to
be zero. The Company has commenced litigation in the United States District
Court of the District of Columbia against the government of Yugoslavia and
related agencies to recover damages and obtain injunctive relief. In addition,
the government of Yugoslavia, through a related agency, filed an arbitration
proceeding against the Company before the International Chamber of Commerce for
damages related to the Company's acquisition of majority control of ICN
Yugoslavia. See "Risk Factors -- Legal Proceedings."


  ICN Russia


     In August 1998, the Russian Central Bank announced that it was no longer
able to support the ruble at its then-current exchange rate of approximately 6.3
rubles to $1, and that it would allow the ruble to fall as far as 9.5 rubles to
$1. Subsequently, the ruble fell sharply to a rate of 20.7 rubles to $1 at
December 31, 1998 and has further declined to a rate of 27.5 rubles to $1 at
December 31, 1999. As a result of the decline in the ruble exchange rate, the
Company recorded translation and exchange losses of $53.8 and $6.7 million
related to its Russian operations during 1998 and 1999, respectively. As of
March 31, 2000, the Company had a net monetary asset position in Russia of
approximately $10.7 million which is subject to loss in the event of a further
decline in the value of the ruble. The Company's management continues to work to
reduce its net monetary exposure, including the tightening of credit sales
policies and increasing efforts to reduce accounts receivable, as well as to
take steps to improve operating margins, such as improving product mix and
expanding the retail pharmaceutical business. However, there can be no assurance
that such efforts will be successful. See "Risk Factors -- Risk of Operations in
Russia, Eastern Europe and China."



  Acquisitions



     Effective September 1, 1999, the Company acquired a chain of 88 retail
outlets in Moscow and St. Petersburg, Russia, for $7.6 million. The purchase
complements the Company's plan to vertically integrate the Russian market and
provides the Company with the ability to effectively implement one element of
its distribution strategy.


                                        2
<PAGE>   9


     Effective January 1, 1999, the Company acquired 97% of Fuzio-Pharma Rt., a
Hungarian distributor of pharmaceutical products with both wholesale
distribution and retail pharmacy operations, for approximately $2.2 million.



     Effective October 1, 1998, the Company completed the acquisition of the
worldwide rights (except India) to four products from Roche. The products
include Dalmadorm(R), a sleep disorder drug; Fluorouracil(R), an oncology
product; Librax(R), a treatment for gastrointestinal disorders; and Mogadon(R),
a sleep disorder drug also used to treat epilepsy. Aggregate consideration for
the products was $178.8 million, paid in a combination of $89.4 million in cash
and 2,883,871 shares of the Company's common stock, valued at $89.4 million.



     In October 1998, the Company entered into agreements with Senetek plc under
which it obtained the rights to market certain products, including worldwide
rights to market Kinetin(R) (marketed by the Company as Kinerase(R)), a skin
cream to help reduce signs of aging, through physicians and pharmacies. In 1998,
the Company launched the product and is marketing it through its existing
operations.

                            ------------------------

     The Company's principal executive offices are located at 3300 Hyland
Avenue, Costa Mesa, California and its telephone number is (714) 545-0100.

                                        3
<PAGE>   10

                           OFFERING OF THE OLD NOTES


     On August 20, 1998, ICN completed the private sale to Schroder & Co., Inc.
and Warburg Dillon Read LLC (the "1998 Initial Purchasers") of $200.0 million
principal amount of the 1998 Old Notes with net proceeds to ICN of approximately
$190.8 million. The 1998 Initial Purchasers resold the 1998 Old Notes to a
limited number of qualified institutional buyers at an initial price to
investors of 98.326% of the principal amount thereof (the "1998 Offering"). On
July 20, 1999, ICN completed the private sale to Warburg Dillon Read LLC and
Schroder & Co., Inc. (the "1999 Initial Purchasers" and, together with the 1998
Initial Purchasers, the "Initial Purchasers") of an additional $125 million
principal amount of the 1999 Old Notes with net proceeds to ICN of approximately
$118.5 million. The 1999 Initial Purchasers resold the 1999 Old Notes to a
limited number of qualified institutional buyers at an initial price to
investors of 96.899% of the principal amount thereof (the "1999 Offering," and
together with the 1998 Offering, 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 $325.0 million
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 (as defined herein) 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,
                                 $325.0 million 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. See
                                 "The Exchange Offer -- General" and "Plan of
                                 Distribution."


EXPIRATION DATE...............   5:00 p.m., New York City time, on
                                                     , 2000, unless the Exchange
                                 Offer is extended, in which case the term
                                 "Expiration Date" means the latest date and
                                 time to


                                        4
<PAGE>   11

                                 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 tendered in exchange
                                 therefor or, if no interest has been paid on
                                 such tendered Old Note, from August 20, 1998
                                 with respect to the 1998 Old Notes and July 20,
                                 1999 with respect to the 1999 Old Notes (as the
                                 case may be). 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 20, 1998 with respect to the 1998 Old
                                 Notes and July 20, 1999 with respect to the
                                 1999 Old Notes (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
                                 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,

                                        5
<PAGE>   12

                                 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."

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 the 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."



INCOME TAX CONSEQUENCES.......   The exchange pursuant to the Exchange Offer
                                 will generally not be a taxable event for
                                 federal income tax purposes. See "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 Services. 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 has used and
                                 intends to use the net proceeds from the sale
                                 of the 1998 and 1999 Old Notes for the cash
                                 portion of the purchase price of the
                                 acquisition of businesses


                                        6
<PAGE>   13


                                 and products ($116.2 million), to repay
                                 subsidiary debt and other debt ($83.6 million)
                                 and to repurchase Series D Convertible
                                 Preferred Stock ($28.3 million). Currently, the
                                 Company has no firm commitment or other
                                 agreement, arrangement or understanding with
                                 respect to any such acquisition. The remainder
                                 of the net proceeds from the Offering will be
                                 used for general corporate purposes, including
                                 other potential acquisitions of businesses,
                                 minority interests and capital expenditures.


                                        7
<PAGE>   14

                                 THE NEW NOTES

NOTES OFFERED.................   $325.0 million aggregate principal amount of
                                 8 3/4% Senior Notes due 2008.

MATURITY......................   November 15, 2008.

INTEREST PAYMENT DATES........   May 15 and November 15 of each year, commencing
November 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 of the Company, including its
                                 9 1/4% Senior Notes due 2005, 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
                                 indebtedness and other obligations of the
                                 Company's subsidiaries. As of December 31,
                                 1999, the Company had $3.1 million of secured
                                 indebtedness outstanding and its subsidiaries
                                 had aggregate indebtedness and other
                                 obligations of $9.4 million outstanding. The
                                 Indenture governing the Notes permits the
                                 Company and its subsidiaries to incur
                                 additional indebtedness, subject to
                                 limitations. See "Risk Factors -- Ranking of
                                 the Notes; Subsidiary Operations" and
                                 "Description of the New Notes."


OPTIONAL REDEMPTION...........   The Company may redeem up to $70.0 million of
                                 the aggregate principal amount of the Notes in
                                 cash at its option at any time prior to
                                 November 15, 2001 at 108.75% of the principal
                                 amount thereof, plus accrued and unpaid
                                 interest, if any, to the date of redemption,
                                 with the net proceeds of one or more Public
                                 Equity Offerings (as defined).
                                 See "-- Description of the New
                                 Notes -- Optional 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 New Notes -- Change of
                                 Control."


CERTAIN COVENANTS.............   The Indenture contains covenants with respect
                                 to the Company and its Restricted Subsidiaries
                                 (as defined), which restrict, among other
                                 things, (a) the incurrence of additional
                                 indebtedness, (b) the payment of dividends and
                                 other restricted payments, (c) the creation of
                                 liens, (d) the sale of assets, (e) payment
                                 restrictions affecting Restricted Subsidiaries,
                                 (f) transactions with affiliates and (g) the
                                 issuance of capital stock by Restricted
                                 Subsidiaries. The Indenture also restricts the
                                 Company's ability to consolidate or merge with
                                 or into, or to transfer all or substantially
                                 all of its assets to, another person. See
                                 "Description of the New Notes -- Covenants."


REGISTRATION RIGHTS...........   Pursuant to a Registration Rights Agreement
                                 (the "Registration Rights Agreement") between
                                 the Company and the
                                        8
<PAGE>   15


                                 Initial Purchasers, the Company agreed to file
                                 by the 30th day following the date of closing
                                 of each of the 1998 Offering and the 1999
                                 Offering (each, an "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 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 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 exceptions, if the Exchange Offer is
                                 not consummated within 180 days after the Issue
                                 Date or with respect to notes not eligible to
                                 be exchanged in the circumstances, if the
                                 Initial Purchasers so request, 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
                                 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
                                 Prospectus.


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.

                                        9
<PAGE>   16

                        SUMMARY SELECTED FINANCIAL DATA


     The following table sets forth summary selected historical and other data
on the Company on a consolidated basis for each of the years in the five year
period ended December 31, 1999 and the unaudited three month periods ended March
31, 2000 and 1999. The summary selected historical financial data for each of
the five years in the five year period ended December 31, 1999 were derived from
the audited consolidated financial statements of the Company. The summary
selected historical financial data as at March 31, 2000 and for the three month
periods ended March 31, 2000 and 1999 were derived from the unaudited
consolidated condensed financial statements of the Company included elsewhere 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 three months ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the full year. The trends in the Company's
sales and net income are affected by several business combinations completed in
the fiscal years 1995 through 1999. See "Business." The information contained in
this table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
historical consolidated financial statements, including the notes thereto,
included elsewhere in this Prospectus.



<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED
                                         YEAR ENDED DECEMBER 31,                          MARCH 31,
                        ---------------------------------------------------------   ----------------------
                          1995        1996       1997        1998         1999        1999         2000
                        ---------   --------   --------   ----------   ----------   ---------   ----------
                                         (DOLLARS IN THOUSANDS)                          (UNAUDITED)
<S>                     <C>         <C>        <C>        <C>          <C>          <C>         <C>
STATEMENTS OF
  OPERATIONS -
  CONSOLIDATED:
Product sales.........  $ 507,905   $614,080   $752,202   $  800,639   $  638,475   $ 160,246   $  159,340
Royalties.............         --         --         --       37,425      108,937      15,828       33,000
                        ---------   --------   --------   ----------   ----------   ---------   ----------
Total revenues........    507,905    614,080    752,202      838,064      747,412     176,074      192,340
Gross profit --
  product sales.......    301,856    322,273    400,224      447,039      382,329      93,850       98,574
Income (loss) from
  operations(1).......     93,166    114,113    125,298     (289,568)     198,857      44,774       52,565
Interest expense......     22,889     15,780     22,849       38,069       55,943      13,100       15,221
Net income (loss)(1)..     67,337     86,928    113,924     (352,074)     118,626      22,619       27,399
</TABLE>






<TABLE>
<CAPTION>
                                              DECEMBER 31,
                        ---------------------------------------------------------               MARCH 31,
                          1995        1996       1997        1998         1999                     2000
                        ---------   --------   --------   ----------   ----------               ----------
                                         (DOLLARS IN THOUSANDS)
<S>                     <C>         <C>        <C>        <C>          <C>          <C>         <C>
BALANCE SHEET DATA:
Working capital.......  $ 190,802   $306,764   $585,606   $  236,994   $  424,108               $  450,392
Total assets..........    518,298    778,651   1,491,745   1,356,396    1,472,261                1,496,855
Total debt............    166,269    195,681    348,206      556,489      606,035                  606,032
Stockholders'
  equity..............    162,172    315,350    796,328      586,164      683,572                  699,932
</TABLE>






<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED
                                          YEAR ENDED DECEMBER 31,                          MARCH 31,
                         ---------------------------------------------------------   ---------------------
                           1995        1996       1997        1998         1999        1999        2000
                         ---------   --------   --------   ----------   ----------   --------   ----------
                                          (DOLLARS IN THOUSANDS)
<S>                      <C>         <C>        <C>        <C>          <C>          <C>        <C>
OTHER DATA --
  CONSOLIDATED:
Depreciation and
  amortization.........  $  13,814   $ 17,936   $ 28,753   $   51,096   $   65,502   $ 15,460   $   15,885
Cash flows provided by
  (used in):
  Operating
    activities.........     79,326    (25,548)     9,315        9,624       87,123      3,728       52,981
  Investing
    activities.........    (47,025)   (41,962)  (100,096)    (295,046)     (50,360)   (13,913)     (10,485)
  Financing
    activities.........    (50,518)    82,680    262,675      186,019       36,399     16,788       (4,790)
Ratio of earnings to
  fixed
  charges(2)(3)(4).....       4.4x       5.9x       4.5x           --         3.5x       3.0x         3.5x
Pro forma ratio of
  earnings to fixed
  charges(2)(3)(4)(5)..                                                       3.3x       2.7x
</TABLE>


                                       10
<PAGE>   17

---------------
NOTES TO SUMMARY SELECTED FINANCIAL DATA:


(1) As a result of political and economic events in Eastern Europe, including
    the Yugoslavian government's seizure of the Company's Yugoslavian operations
    effective November 26, 1998, the Company recorded Eastern European charges
    totaling $451.0 million in the year ended December 31, 1998. Of this amount,
    $440.8 million is included in operating expenses, representing the write-off
    of the Company's investment in Yugoslavia and related assets ($235.3
    million), provisions for losses on accounts and notes receivable (including
    accounts and notes receivable from the Yugoslavian government) ($203.5
    million) and the write-off of investments ($2.0 million). The losses related
    to Eastern Europe also include reductions in the value of inventories ($6.1
    million) included in cost of product sales and a charge against interest
    ($4.1 million). As a result of the seizure of the Company's Yugoslavian
    operation, the Company deconsolidated the financial statements of ICN
    Yugoslavia and is currently accounting for its ongoing investments using the
    cost method. See "Management's Discussion and Analysis of Financial
    Condition and Results of Operations -- Foreign Operations."



(2) Fixed charges consist of interest expense and capitalized interest.



(3) For purposes of determining the ratio of earnings to fixed charges, earnings
    consist of income before minority interests, provision (benefit) for income
    taxes and interest expense.



(4) For the year ended December 31, 1998, the Company had a deficiency of
    earnings compared to its fixed charges of $398.6 million.



(5) The pro forma ratio reflects the Offering of $125.0 million principal amount
    of 8 3/4% Senior Notes as if it had occurred on January 1, 1999 at an annual
    effective interest rate of approximately 9.31% (coupon rate of 8.75%).
    Accordingly, the pro forma ratio for the year ended December 31, 1999,
    includes an adjustment of $6.4 million to interest expense, including the
    amortization of the debt discount and deferred loan issuance costs. The
    balances of the debt discount and deferred loan issuance cost, at the time
    of the issuance, were $6.4 million and $3.9 million, respectively. The pro
    forma ratio also reflects the repayment of existing debt totalling $83.6
    million as if it had occurred on January 1, 1999. Such debt bears interest
    at rates ranging from 3.9% to 21.0%, having a weighted-average of 7.15%. In
    the computation of the pro forma ratio, interest expense for the year ended
    December 31, 1999 has been reduced by $2.6 million.


                                       11
<PAGE>   18

                                  RISK FACTORS


     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for 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.


CONSEQUENCES OF FAILURE TO EXCHANGE

     Untendered Old Notes not exchanged for New Notes pursuant to the Exchange
Offer 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 8 3/4%.

INDEBTEDNESS AND OTHER OBLIGATIONS OF THE COMPANY


     As of March 31 2000, including the Offering, the Company had outstanding
total debt of $606.0 million. Subject to the restrictions in the indenture (the
"1997 Indenture") governing the Company's 9 1/4% Senior Notes due 2005 (the
"9 1/4% Senior Notes") and the Indenture, the Company may incur additional
indebtedness from time to time to finance working capital needs, acquisitions,
capital expenditures or other purposes. See "Capitalization." 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 negative 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 and the 1997 Indenture contain, 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, including the 9 1/4%
                                       12
<PAGE>   19


Senior Notes, and will be effectively subordinated to all secured indebtedness
of the Company to the extent of the assets securing such indebtedness. As of
December 31, 1999, the Company had approximately $3.1 million of secured
indebtedness collateralized by certain properties of the Company. Additionally,
the Indenture governing the Notes permits the Company to incur Senior Bank Debt
(as defined)of up to $50.0 million (or, if greater, 80% of certain receivables
plus 60% of inventory) which may be collateralized by inventories, receivables
and other assets 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 the New Notes."



     Some of the Company's United States 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
will be therefore effectively subordinated to all indebtedness and other
obligations of such subsidiaries with respect to the assets of such
subsidiaries. As of December 31, 1999, the Company's subsidiaries had aggregate
indebtedness and other obligations of approximately $9.4 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 64% and 65% of the Company's revenues for 1999 and the three
months ended March 31, 2000, respectively, were generated from operations
outside the United States. The Company operates both directly and through
distributors in North America, Latin America (principally Mexico), Western and
Central Europe and Russia and through distributors elsewhere in the world.
Foreign operations are subject to risks inherent in conducting business abroad,
including possible nationalization or expropriation, price and exchange
controls, limitations on foreign participation in local enterprises, health care
regulations 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 some of the
countries in which the Company operates, no effective hedging program is
available.



RISK OF OPERATIONS IN RUSSIA, CENTRAL EUROPE AND CHINA



     The Company plans to continue to invest in Russia to maintain the quality
of its existing asset base and improve profitability. Any additional potential
investments will be primarily funded by cash flow generated by operations in
Russia and subject to review on a project by project basis. Such review will
consider the current economic conditions in existence at the time as well as
customary financial review.



     The Russian economy has experienced significant volatility since the third
quarter of 1998. In response to worsening liquidity and declining currency
reserves, the Russian government has continued to seek international financial
assistance. The International Monetary Fund has continued to work with the
Russian Government to extend and improve its financial assistance program in an
effort to support the value of the ruble. In August 1998, the Russian government
and the Russian Central Bank were no longer able to support the ruble at its
then-current exchange rate of approximately 6.3 rubles to $1. Subsequently, the
ruble fell sharply to a rate of 20.7 rubles to $1 at December 31, 1998 and has
further declined to a rate of 27.5 rubles to $1 at December 31, 1999. As a
result of the decline in the ruble exchange rate, the Company recorded a foreign
currency translation loss of $53.8 million and $6.7 million related to its
Russian operations during 1998 and 1999, respectively.


                                       13
<PAGE>   20


     As of March 31, 2000, the Company had a net monetary asset position in
Russia of approximately $10.7 million which is subject to loss in the event of a
further decline in the value of the ruble. Due to the extremely large
fluctuation in the ruble exchange rate, the ultimate amount of the foreign
exchange loss the Company will incur cannot presently be determined and such
loss may have a negative impact on the Company's results of operations.



     In July 1998, the Company acquired VUAB, a manufacturing and research
facility located in a suburb of Prague in the Czech Republic, for approximately
$17.9 million. Since October 1997, the Company has invested approximately $53.6
million, and 48,000 shares of Common Stock valued at $1.7 million for an 89%
interest in Polfa Rzeszow, S.A. ("Rzeszow"), a pharmaceutical company located in
Poland, and has committed to invest an additional $2.8 million in 2000, which
will give the Company a 90% interest in Rzeszow. In January 1997, ICN China,
Inc. ("ICN China"), a wholly-owned subsidiary of the Company, commenced
operations of a pharmaceutical company under a joint venture with Jiangsu
Provincial Wuxi Pharmaceutical Corporation, a Chinese state-owned pharmaceutical
corporation. Under the agreement, ICN China agreed to invest an aggregate of
$24.0 million in cash, primarily for the construction of a new pharmaceutical
production plant and the purchase of related machinery and equipment, of which
$8.8 million has been invested to date. Although the Company believes that
investment in Russia, Central Europe, China and other emerging markets offers
access to growing world markets, the economic and political conditions in such
countries are uncertain. Foreign operations are subject to risks inherent in
conducting business abroad, including possible nationalization or expropriation,
price and exchange controls, devaluation of currencies, limitations on foreign
participation in local enterprises, health care regulations and other
restrictive governmental actions. 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. Although the Company has received regulatory approvals with
respect to oral ribavirin for treatment of chronic hepatitis C in combination
with Schering-Plough Corporation's (together with all of its subsidiaries,
"Schering-Plough") alpha interferon (the "Combination Therapy"), 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. It may be desirable that
the Company enter into other licensing arrangements, similar to its arrangement
with Schering-Plough regarding ribavirin, 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
entering into such licensing arrangements on terms favorable to the Company or
at all. See "-- Limited Patent Protection"; "-- Government Regulation";
"Business"; "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 ribavirin and no assurance can be given as to the breadth or degree
of protection which these patents will afford the Company. Also, the Company has
received an extension under the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman-Hatch Act") providing for the award of
exclusivity for a period of three years from the date of approval of New Drugs
Applications ("NDA") containing significant new clinical studies for products
whose patent protection would otherwise expire. The United States Food and Drug
Administration (the "FDA") Modernization Act of 1997


                                       14
<PAGE>   21


provides for the award of six months of additional exclusivity following the
submission to the FDA of data from appropriate studies in pediatric patients.
Studies that qualify under this provision are planned. However, there can be no
assurance that such development will be successful, that such approval will be
obtained or that such additional award of exclusivity will be granted. The
Company has patents in some foreign countries, including Japan, covering the
antiviral use of ribavirin, for which coverage and expiration varies and which
patents expire at various times through June 2005. The Company has no, or
limited, patent rights relating to the antiviral use of ribavirin in some
foreign countries where ribavirin is currently, or in the future may be,
approved for commercial sale, including countries in the European Union.
However, the Combination Therapy was granted a favorable review classification
through the Concertation Procedure adopted by the EMEA ("Concertation
Procedure") process for regulatory approval within the European Union. As a
result, upon approval to market the Combination Therapy, the data submitted to
obtain such approval cannot be referenced in support of another's application to
register a competing product for the approved indications for a period of no
less than six and not more than ten years. Any such application must be on the
basis of independently generated data of substantially equal quality, thus
providing a significant barrier to entry for any generic substitutes of the
Combination Therapy in the European Union. There can be no assurance that the
loss of the Company's patent rights with respect to ribavirin 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 some 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 some countries in which the
Company markets its products. See "Business -- Licenses, Patents and Trademarks
(Proprietary Rights)."


UNCERTAIN IMPACT OF ACQUISITION PLANS

     The Company intends to 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. There can
be no assurance that the Company will successfully complete or finance any
future acquisition or investment. Should the Company complete any material
acquisition, the Company's success or failure in integrating the operations of
the acquired company may have a material impact on the future growth or success
of the Company.

LEGAL PROCEEDINGS


     On August 11, 1999, the United States Securities and Exchange Commission
filed a complaint in the United States District Court for the Central District
of California against the Company, the Chairman (Milan Panic) and one current
and one former officer of the Company (the "SEC Complaint"). The SEC Complaint
alleges that the Company and the individual named defendants made untrue
statements of material fact or omitted to state material facts necessary in
order to make the statements made, in the light of the circumstances under which
they were made, not misleading and engaged in acts, practices, and courses of
business which operated as a fraud and deceit upon other persons in violation of
Section 10(b) of the Securities Exchanges Act of 1934 and Rule 10b-5 promulgated
thereunder. The action concerns the status and disposition of the Company's 1994
new drug application for Virazole(R) as a monotherapy treatment for hepatitis C
(the


                                       15
<PAGE>   22


"NDA"). The SEC Complaint seeks injunctive relief, unspecified civil penalties,
and an order barring Mr. Panic from acting as an officer or director of any
publicly-traded company.



     Beginning in 1996, the Company received subpoenas from a Grand Jury in the
United States District Court for the Central District of California requesting
the production of documents covering a broad range of matters over various time
periods. The Company understands that the Company, Mr. Panic, two current senior
executive officers, a former senior officer, a current employee, and a former
employee of the Company are targets of the investigation. The Company also
understands that a senior executive officer, a director, a former officer, a
current employee and a former employee are subjects of the investigation. The
United States Attorney's office has advised counsel for the Company that the
areas of its investigation include disclosures made and not made concerning the
NDA to the public and other third parties; stock sales for the benefit of Mr.
Panic following receipt on November 28, 1994 of a letter from the FDA informing
the Company that the NDA had been found not approvable; possible violations of
the economic embargo imposed by the United States upon the Federal Republic of
Yugoslavia, based upon alleged sales by the Company and Mr. Panic of stock
belonging to Company employees; and, with respect to Mr. Panic, personal
disposition of assets of entities associated with Yugoslavia, including possible
misstatements and/or omissions in federal tax filings. The Company has, and
continues to, cooperate in the Grand Jury investigation. A number of current and
former employees of the Company have been interviewed by the government in
connection with the investigation. The United States Attorney's office has
issued subpoenas requiring various current and former officers and employees of
the Company to testify before the Grand Jury. Certain current and former
officers and employees testified before the Grand Jury beginning in July 1998.



     On or about February 9, 1999, the Company commenced an action in the United
States District Court for the District of Columbia ("District Court") against
the Federal Republic of Yugoslavia ("FRY"), the Republic of Serbia ("ROS"), and
the State Health Fund of Serbia ("State Fund") seeking damages in the amount of
at least $500,000,000 and declaratory relief arising out of the FRY and ROS's
seizure of the Company's majority ownership interest in ICN Yugoslavia and the
failure of the ROS and State Fund to pay ICN Yugoslavia for goods sold and
delivered. On or about March 9, 1999, the State Fund commenced an arbitration
against the Company before the International Chamber of Commerce ("ICC") for
unquantified damages due to alleged breaches of the agreement pursuant to which
the Company acquired its majority ownership interest in ICN Yugoslavia, and for
unspecified injunctive relief. The Company, in turn, counterclaimed against the
State Fund, and commenced an arbitration against the FRY and the ROS in the ICC
arising out of the seizure of ICN Yugoslavia and the failure to pay for goods
sold and delivered, seeking damages and other relief. By Order dated March 29,
2000, the District Court stayed the action for 180 days (while retaining
jurisdiction), at which time the action will be administravely dismissed,
without prejudice, unless the stay is continued so that issues of jurisdiction
by and among the parties can be resolved at the ICC. The Company intends to
prosecute vigorously its claims against the FRY, the ROS, and the State Fund,
and to defend against the State Funds' claims against the Company, which the
Company believes to be meritless and filed solely as a response to the action
filed earlier by the Company in the District Court.



     The Company is a party to other pending lawsuits or subject to a number of
threatened lawsuits. While the ultimate outcome of pending and threatened
lawsuits and the Grand Jury investigation cannot be predicted with certainty,
and an unfavorable outcome could have a negative impact on the Company, at this
time in the opinion of management, the ultimate resolution of these matters will
not have a material effect on the Company's consolidated financial position,
results of operations or liquidity.



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
                                       16
<PAGE>   23


Chief Executive Officer. The loss of their services could have a negative impact
on the Company. The Company cannot predict what effect, if any, the Commission
and the Grand Jury investigations of the Company and/or Mr. Panic 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 be asked to serve in public office in
Yugoslavia in the future. There is a risk that in the future Mr. Panic's
political activities may result in a change in government policy that would be
detrimental to the Company's future business activities, if any, in Yugoslavia.


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
ribavirin. While to date no material adverse claim for personal injury resulting
from allegedly defective products, including ribavirin, has been successfully
maintained against the Company, a substantial claim, if successful, could have a
negative impact on the Company. See "Business -- Litigation, Government
Investigations and Other Matters."


     Each of the Company's subsidiaries maintains insurance covering normal
business operations, including fire, property and casualty protection.
Additionally, the Company carries a blanket insurance policy that provides
protection against loss not covered by local insurance policies. The Company
does not carry insurance that covers political risk, nationalization, or losses
resulting from anti-government violence.

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, or of existing
drugs or compounds for new applications, 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 (Proprietary Rights)."


     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 Russia and Mexico, which has impact 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.


                                       17
<PAGE>   24

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 presently 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 the patents covering some of its
currently marketed products expire. See "-- Limited Patent Protection" and
"Business -- Competition."


ORIGINAL ISSUE DISCOUNT


     The 1999 and 1998 Old Notes were issued at a discount from their principal
amount at maturity. Original issue discount will be included as interest income
in a U.S. noteholder's gross income for U.S. federal income tax purposes in
advance of receipt of the cash payments to which the income is attributable. For
a more detailed discussion of the federal income tax consequences to the holders
of the 1999 New Notes of the purchase, ownership and disposition of the 1999 New
Notes, see "U.S. Federal Income Tax Considerations."


     If a bankruptcy case is commenced by or against the Company after the
issuance of the 1999 New Notes, the claim of a holder of 1999 New Notes with
respect to the principal amount thereof may be limited to an amount equal to the
sum of (a) the initial offering price and (b) that portion of the original issue
discount constituting "unmatured interest" that accrued to the date of the
commencement of the bankruptcy case. For purposes of the U.S. Bankruptcy Code,
any original issue discount that was not amortized as of the time of any such
bankruptcy filing would constitute "unmatured interest" and may not be allowed
as a valid claim in the bankruptcy case.

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 Purchasers have
advised the Company that they currently intend to make a market in the Notes but
that they are not obligated to do so and, if such market making is commenced, it
may be discontinued at any time. Although the Notes are expected to be
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. Because the Notes are being sold pursuant to an exemption from
registration under the Securities Act and applicable state securities laws, they
may not be publicly offered, sold or otherwise transferred in any jurisdiction
where such registration may be required unless they are registered or are sold
in a transaction exempt from registration in such jurisdiction. 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 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 New
Notes" and "Book Entry; Delivery and Form."

                                       18
<PAGE>   25

                                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 has used the net proceeds of $318 million from the sale of the
1998 Old Notes and 1999 Old Notes for the cash portion of the purchase price of
the acquisition of businesses and products in Western Europe and North America
and to repay long-term and other indebtedness, as follows: $89.4 million to
Roche for the acquisition of products in November 1998; $28.3 million by
repurchasing 821 shares of Series D Convertible Preferred Stock issued in
connection with the acquisition of rights to certain products from SKB in
December 1999 and $26.8 million to pay for other acquisitions in Latin America,
Europe and Russia; $10.6 million to repay certain U.S. mortgages with variable
interest rates ranging from 6.1% to 8.9% and maturing in 2022; $15.3 million to
repay certain short-term notes payable with variable interest rates ranging from
3.9% to 5.8% and maturing at various dates in 1999; $16.0 million to repay other
long term debt due in U.S. dollars and various foreign currencies, with interest
rates ranging from 6.0% to 13.5% and maturing through 2004; and $41.7 million of
indebtedness of its Hungarian subsidiary with interest rates ranging from 4.2%
to 21%, maturing through 2002. Currently, the Company has no firm commitment or
other agreement, arrangement or understanding with respect to any such
acquisition. The remainder of the net proceeds from the Offering will be used
for general corporate purposes, including other potential acquisitions of
businesses, minority interests and capital expenditures. The Company continually
reviews acquisitions of complementary businesses and expects to pursue other
acquisitions even if those currently under review are not completed.


     Pending the uses outlined above, funds will be placed into short-term
investments such as governmental obligations, bank certificates of deposit,
banker's acceptances, repurchase agreements, short-term debt obligations, money
market funds and interest-bearing accounts.

                                       19
<PAGE>   26

                                 CAPITALIZATION


     The following table sets forth the capitalization of the Company at March
31, 2000, reflecting the sale of the Old Notes on August 20, 1998 and July 20,
1999. The exchange of the Old Notes into the New Notes offered hereby will have
no impact on the Company's capitalization. The table should be read in
conjunction with the Company's historical consolidated financial statements and
notes hereto, included elsewhere in this Prospectus.



<TABLE>
<CAPTION>
                                                                MARCH 31, 2000
                                                                    ACTUAL
                                                              ------------------
                                                                (IN THOUSANDS)
<S>                                                           <C>
Total debt:
  8 3/4% Senior Notes Due 2008(1)...........................      $  318,601
  9 1/4% Senior Notes Due 2005..............................         275,000
  Other debt................................................          12,431
                                                                  ----------
     Total debt.............................................      $  606,032
                                                                  ==========
Minority interest...........................................      $   22,560
Stockholders' equity:
  Common stock, $.01 par value; 200,000 shares authorized;
     78,950 shares outstanding..............................             789
  Additional capital........................................         950,080
  Retained deficit..........................................        (175,783)
  Accumulated other comprehensive income....................         (75,154)
                                                                  ----------
     Total stockholders' equity.............................         699,932
                                                                  ----------
     Total capitalization...................................      $1,328,524
                                                                  ==========
</TABLE>


---------------


(1) Represents the $200.0 million aggregate principal amount of 8 3/4% Senior
    Notes issued in August 1998, less unamortized debt discount of $2.9 million,
    and the $125.0 million aggregate principal amount of 8 3/4% Senior Notes due
    2008 issued on July 20, 1999, less unamortized discount of $3.7 million.




                                       20
<PAGE>   27

                            SELECTED FINANCIAL DATA


     The following table sets forth selected historical 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, 1999
and the unaudited three-month periods ended March 31, 2000 and 1999. The
Company's selected historical financial data for each of the years in the
five-year period ended December 31, 1999 were derived from the audited
consolidated financial statements of the Company. The Company's selected
financial data as of March 31, 2000 and for the three-month period ended March
31, 2000 and 1999 were derived from the unaudited consolidated condensed
financial statements of the Company included elsewhere 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 three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the full year. The trends in the Company's sales and net
income are affected by several business combinations completed in fiscal years
1995 through 1999. See "Business." The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's historical
consolidated financial statements, including the notes thereto, included
elsewhere in this Prospectus.



<TABLE>
<CAPTION>
                                                                                                         THREE MONTHS ENDED
                                                            YEAR ENDED DECEMBER 31,                           MARCH 31,
                                           ----------------------------------------------------------   ---------------------
                                             1995       1996        1997         1998         1999         1999        2000
                                           --------   --------   ----------   ----------   ----------   ----------   --------
                                                             (DOLLARS IN THOUSANDS)                          (UNAUDITED)
<S>                                        <C>        <C>        <C>          <C>          <C>          <C>          <C>
STATEMENTS OF OPERATIONS -- CONSOLIDATED:
Product sales............................  $507,905   $614,080   $  752,202   $  800,639   $  638,475   $  160,246   $159,340
Royalties................................        --         --           --       37,425      108,937       15,828     33,000
                                           --------   --------   ----------   ----------   ----------   ----------   --------
Total revenues...........................   507,905    614,080      752,202      838,064      747,412      176,074    192,340
Cost of product sales....................   206,049    291,807      351,978      353,600      256,146       66,396     60,766
Selling, general and administrative
  expenses...............................   188,964    190,929      249,206      291,776      252,207       55,200     67,435
Amortization of goodwill and
  intangibles............................     2,495      1,512        7,028       20,601       29,239        7,462      7,573
Research and development costs...........    17,231     15,719       18,692       20,835       10,963        2,242      4,001
Eastern European charges(1)..............        --         --           --      440,820           --           --         --
                                           --------   --------   ----------   ----------   ----------   ----------   --------
Income (loss) from operations(1).........    93,166    114,113      125,298     (289,568)     198,857       44,774     52,565
Translation and exchange (gain) loss,
  net....................................    (9,484)     2,282       12,790       80,501       11,823        7,259      1,591
Interest income..........................    (6,488)    (3,001)     (15,912)     (13,057)      (8,894)      (1,644)    (2,695)
Interest expense.........................    22,889     15,780       22,849       38,069       55,943       13,100     15,221
                                           --------   --------   ----------   ----------   ----------   ----------   --------
Income (loss) before provision (benefit)
  for income taxes and minority
  interest...............................    86,249     99,052      105,571     (395,081)     139,985       26,059     38,448
Provision (benefit) for income taxes.....     2,997     (6,815)     (27,736)       1,983       28,996        4,780     11,111
Minority interest........................    15,915     18,939       19,383      (44,990)      (7,637)      (1,340)       (62)
                                           --------   --------   ----------   ----------   ----------   ----------   --------
Net income (loss)(1).....................  $ 67,337   $ 86,928   $  113,924   $ (352,074)  $  118,626   $   22,619   $ 27,399
                                           ========   ========   ==========   ==========   ==========   ==========   ========
Per share information:
  Net income (loss) -- basic.............  $   1.51   $   1.75   $     1.93   $    (4.78)  $     1.52   $     0.29   $   0.35
                                           ========   ========   ==========   ==========   ==========   ==========   ========
  Net income (loss) -- diluted...........  $   1.44   $   1.51   $     1.69   $    (4.78)  $     1.45   $     0.28   $   0.34
                                           ========   ========   ==========   ==========   ==========   ==========   ========
  Cash dividends paid(2).................  $   0.19   $   0.20   $     0.21   $     0.24   $     0.28   $     0.06   $   0.07
                                           ========   ========   ==========   ==========   ==========   ==========   ========
</TABLE>



<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,                     MARCH 31,
                                           ----------------------------------------------------------   ----------
                                             1995       1996        1997         1998         1999         2000
                                           --------   --------   ----------   ----------   ----------   ----------
<S>                                        <C>        <C>        <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Working capital..........................  $190,802   $306,764   $  585,606   $  236,994   $  424,108   $  450,392
Total assets.............................   518,298    778,651    1,491,745    1,356,396    1,472,261    1,496,855
Total debt...............................   166,269    195,681      348,206      556,489      606,035      606,032
Stockholders' equity.....................   162,172    315,350      796,328      586,164      683,572      699,932
</TABLE>


                                       21
<PAGE>   28


<TABLE>
<CAPTION>
                                                                                                           THREE MONTHS
                                                              YEAR ENDED DECEMBER 31,                     ENDED MARCH 31,
                                               ------------------------------------------------------   -------------------
                                                 1995       1996       1997       1998        1999        1999       2000
                                               --------   --------   --------   ---------   ---------   --------   --------
                                                               (DOLLARS IN THOUSANDS)                       (UNAUDITED)
<S>                                            <C>        <C>        <C>        <C>         <C>         <C>        <C>
OTHER DATA -- CONSOLIDATED:
Gross profit -- product sales................  $301,856   $322,273   $400,224   $ 447,039   $ 382,329   $ 93,850   $ 98,574
Depreciation and amortization................    13,814     17,936     28,753      51,096      65,502     15,460     15,885
Capital expenditures.........................    49,685     26,216    100,397     110,281      44,083     12,085      5,881
Cash flows provided by (used in):
  Operating activities.......................    79,326    (25,548)     9,315       9,624      87,123      3,728     52,981
  Investing activities.......................   (47,025)   (41,962)  (100,096)   (295,046)    (50,360)   (13,913)   (10,485)
  Financing activities.......................   (50,518)    82,680    262,675     186,019      36,399     16,788     (4,790)

Actual Ratios
  Earnings to fixed charges(3)(4)(5).........      4.4x       5.9x       4.5x          --        3.5x       3.0x       3.5x

Pro Forma Ratios
  Earnings to fixed charges(3)(4)(5)(6)......                                                    3.3x       2.7x

OPERATING DATA -- ICN YUGOSLAVIA:(7)
Net sales....................................  $234,661   $267,166   $225,530   $ 141,740   $      --         --         --
Gross profit.................................   117,913    109,185    108,320      61,310          --         --         --
Income from (loss) operations(1).............    46,296     70,616     60,235    (140,419)         --         --         --
Interest expense.............................     3,610      1,478        107         770          --         --         --
Depreciation and amortization................     4,396      4,185      4,046       3,720          --         --         --
</TABLE>


---------------

NOTES TO SELECTED FINANCIAL DATA:


(1) As a result of political and economic events in Eastern Europe, including
    the Yugoslavian government's seizure of the Company's Yugoslavian operations
    effective November 26, 1998, the Company recorded Eastern European charges
    totaling $451.0 million in the year ended December 31, 1998. Of this amount,
    $440.8 million is included in operating expenses, representing the write-off
    of the Company's investment in Yugoslavia and related assets ($235.3
    million), provisions for losses on accounts and notes receivable (including
    accounts and notes receivable from the Yugoslavian government) ($203.5
    million), and the write-off of investments ($2.0 million). The losses
    related to Eastern Europe also include reductions in the value of
    inventories ($6.1 million) included in cost of product sales and a charge
    against interest ($4.1 million). As a result of the seizure of the Company's
    Yugoslavian operation, the Company deconsolidated the financial statements
    of ICN Yugoslavia and is currently accounting for its ongoing investments
    using the cost method. See "Management's Discussion and Analysis of
    Financial Condition and Results of Operations -- Foreign Operations."



(2) Dividends paid for 1996, 1998 and 1999 include the fourth quarter
    distributions declared and paid in the first quarter of the following year.



(3) Fixed charges consist of interest expense and capitalized interest.



(4) For purposes of determining the ratio of earnings to fixed charges, earnings
    consists of income before minority interests, provision (benefit) for income
    taxes, and interest expense.



(5) For the year ended December 31, 1998, the Company had a deficiency of
    earnings compared to its fixed charges of $398.6 million.



(6) The pro forma ratios reflect the offering of $125.0 million principal amount
    of 8 3/4% Senior Notes as if it had occurred on January 1, 1999 at an annual
    effective interest rate of 9.31% (coupon rate of 8.75%). Accordingly, the
    pro forma ratio for the year ended December 31, 1999, includes an adjustment
    of $6.4 million to interest expense, including the amortization of the debt
    discount and deferred loan issuance costs. The balances of the debt discount
    and deferred loan issuance cost, at the time of the issuance, were $6.4
    million and $3.9 million, respectively. The pro forma ratio also reflects
    the repayment of existing debt totalling $83.6 million as if it had occurred
    on January 1, 1999. Such debt bears interest at rates ranging from 3.9% to
    21.0% having a weighted-average of 7.15%. In


                                       22
<PAGE>   29


    the computation of the pro forma ratio, interest expense for the year ended
    December 31, 1999 has been reduced by $2.6 million. In addition, pro forma
    earnings per share for the year ended December 31, 1999 are as follows:



<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                                  1999
                                                              ------------
<S>                                                           <C>
Pro forma per share information:
  Net income -- basic.......................................     $1.49
                                                                 =====
  Net income -- diluted.....................................     $1.41
                                                                 =====
</TABLE>



     Pro forma earnings per share have been computed by reducing net income
     available to common stockholders by the pro forma amounts of interest
     expense, net of taxes, of $2.5 million for the year ended December 31,
     1999. The computation of the Company's historical earnings per share
     amounts for the year ended December 31, 1999 are set forth in the notes to
     the Company's consolidated financial statements included in this
     prospectus.



(7) The Company has provided disclosures of operating data for ICN Yugoslavia to
    show the significance of the portion of the Company's revenues and expenses
    which, prior to November 26, 1998, were subject to the risks associated with
    doing business in Yugoslavia.


                                       23
<PAGE>   30


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS



RESULTS OF OPERATIONS



THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999



     Certain financial information for the Company's business segments is set
forth below. This discussion should be read in conjunction with the consolidated
condensed financial statements of the Company included elsewhere in this
document. For additional financial information by business segment, See Note 5
of Notes to Consolidated Condensed Financial Statements for the three months
ended March 31, 2000 included elsewhere in this Registration Statement.



REVENUES:


(IN THOUSANDS)



<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
                                                                  (UNAUDITED)
<S>                                                           <C>        <C>
Pharmaceuticals
  North America.............................................  $ 62,801   $ 54,256
  Western and Central Europe(1).............................    46,757     46,273
  Latin America principally Mexico..........................    29,227     22,611
  Russia....................................................    26,570     23,008
  Asia, Africa, Australia...................................    11,399     13,940
                                                              --------   --------
          Total Pharmaceuticals.............................   176,754    160,088
Biomedicals.................................................    15,586     15,986
                                                              --------   --------
          Total revenues....................................  $192,340   $176,074
                                                              ========   ========
Product Sales...............................................  $159,340   $160,246
Royalty revenues............................................    33,000     15,828
                                                              --------   --------
          Total revenues....................................  $192,340   $176,074
                                                              ========   ========
Cost of product sales.......................................  $ 60,766   $ 66,396
Gross profit margin on product sales........................       62%        59%
</TABLE>


---------------

(1) The Western and Central Europe segment includes Czech Republic, Hungary and
    Poland, which were previously included in the Other Eastern Europe segment
    in 1999. All amounts for 1999 have been restated to conform with the current
    year presentation.



     Royalty Revenues: Royalty revenues, which are included in the North America
Pharmaceuticals segment revenues, represent amounts earned under the Company's
Exclusive License and Supply Agreement (the "License Agreement") with
Schering-Plough. Under the License Agreement, Schering-Plough licensed all oral
forms of ribavirin for the treatment of chronic hepatitis C ("HCV") in
combination with Schering-Plough's alpha interferon (the "Combination Therapy").
In 1998, Schering-Plough received approval from the United States Food and Drug
Administration ("FDA") to market Rebetron(TM) Combination Therapy. Rebetron(TM)
combines Rebetol(R) (ribavirin) capsules and Intron(R) A (interferon alfa-2b,
recombinant) injection, for the treatment of HCV in patients with compensated
liver disease. In May 1999, the European Union's ("EU") Commission for the
European Communities granted marketing authorization to Schering-Plough to
market Rebetol(R)(ribavirin) capsules for use in combination with interferon
alfa-2b injection (marketed as Intron(R) A in certain countries) for the
treatment of both relapsed and previously untreated (naive) HCV patients. The
Commission's approval resulted in a single Marketing Authorization with unified
labeling that is immediately valid in all 15 European Union-Member States.
Schering-Plough commenced marketing Rebetol(R) in Germany (May 1999), the United
Kingdom (July 1999), and in Italy (October 1999). The Company anticipates that
Schering-Plough will introduce Rebetol(R) in the other EU markets upon receiving
pricing approvals, where necessary, from individual EU countries.


                                       24
<PAGE>   31


     Royalty revenues for the three months ended March 31, 2000 were $33,000,000
compared to $15,828,000 for the same period of 1999, reflective of additional
sales of Rebetron(TM) by Schering-Plough resulting from the 1999 launch into
certain European markets.



     Regional Revenues: In the North America Pharmaceuticals segment, revenues
for the three months ended March 31, 2000 were $62,801,000, compared to
$54,256,000 for the same period of 1999. The $8,545,000 increase is reflective
of the $17,172,000 increase in royalty income offset by lower unit sales in many
of the various product lines. Additionally, product sales in the first quarter
of 1999 were higher than the same period in 2000 due to the fulfillment of
back-orders from 1998 and increased sales to wholesalers in anticipation of
April 1998 price increases.



     In the Western and Central Europe Pharmaceuticals segment, revenue for the
three months ended March 31, 2000 of $46,757,000 when compared to the same
period of 1999 increased only $484,000 or (1%). Excluding the effect of
translation, revenues would have increased 17%. Spain led sales growth, where
two new products were introduced -- a wound healing agent and an anti-ulcer
product.



     In the Latin America Pharmaceuticals segment, revenues for the three months
ended March 31, 2000 were $29,227,000, compared to $22,611,000 for the same
period of 1999. The increase of $6,616,000 (29%), is primarily related to the
expansion of its base business, including anti-infectives and central nervous
system treatments, and new product introductions.



     In the Russian Pharmaceuticals segment, revenues for the three months ended
March 31, 2000 were $26,570,000, compared to $23,008,000 for the same period of
1999. The increase was attributed to expansion of the retail pharmacy base, and
a new sales and marketing effort for certain over-the-counter products.



     In the Asia, Africa and Australia Pharmaceuticals segment, revenues for the
three months ended March 31, 2000 decreased $2,541,000 compared to the same
period in 1999, primarily reflecting a change in product mix and discontinuance
of certain low margin product sales.



     Gross Profit: Gross profit margin on product sales increased to 62% for the
three months ended March 31, 2000, compared to 59% for 1999. The improvement in
gross profit margin is primarily due to increased margin in the Russia and
Western and Central Europe Pharmaceuticals segments. Gross profit margins in the
Western and Central European Pharmaceuticals segment improved primarily from
price increases and improved product mix in Hungary. The overall gross margins
for the Company's Russia Pharmaceuticals segment were 40% for 2000, compared to
27% for the 1999 first quarter, which resulted from an increase in both sales
volume and sales price increases partially offset by a fluctuation in the ruble.



     Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $67,435,000 for the three months ended March 31,
2000, compared to $55,200,000 for the same period in 1999, an increase of
$12,235,000. The increase primarily reflects an increase in selling and
advertising expenses of $7,312,000 in all regions for the expanded marketing of
new products acquired in 1998 and 1999 plus an increase in corporate expenses,
including compensation and legal expenses.



     Research and Development: Research and development expenditures for the
three months ended March 31, 2000 were $4,001,000, compared to $2,242,000 for
the same period in 1999. The increase resulted from the expansion of research
and development primarily in the area of antiviral and anticancer drugs.



     Translation and Exchange Losses, Net: Translation and exchange losses, net
were $1,591,000 for the three months ended March 31, 2000 compared to $7,259,000
for the same period in 1999. In the first quarter of 2000, translation losses
principally consisted of losses of $2,355,000 related to transaction losses and
the net monetary asset position of the Company's Russian subsidiaries partially
offset by transaction gains in North America. In the first quarter of 1999,
translation losses


                                       25
<PAGE>   32


principally consisted of losses of $4,742,000 related to the net monetary asset
position of the Company's Russian subsidiaries and losses of $1,929,000 in
Hungary resulting from foreign-denominated debt.



     Interest Income and Expense: Interest expense during the three months ended
March 31, 2000 increased $2,121,000 compared to the same period in 1999,
primarily due to increased debt. Interest income increased to $2,695,000 in 2000
from $1,644,000 in 1999, due to the increase in cash and higher yields on
investments.



     Income Taxes: The Company's effective income tax rate was 29% for 2000
compared to 18% for 1999. The Company operates in many regions where the tax
rate is lower than the U.S. Federal statutory rate or where it benefits from tax
relief. The increase in the Company's provision for income taxes for the three
months ended March 31, 2000 over the same period of 1999 reflects higher taxable
income in the United States and Latin America, where tax rates are relatively
higher or no such tax relief is available.



YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 AND YEAR
ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997



     Certain financial information for the Company's business segments is set
forth below. This discussion should be read in conjunction with the consolidated
financial statements of the Company included elsewhere in this document. The
Company decided to manage its Central European businesses from the Western
European headquarters, in anticipation of the entry of Poland, Hungary and the
Czech Republic into the European Union. As a result, the Company integrated ICN
Hungary, ICN Czech Republic and ICN Poland into the Western and Central Europe
segment. Therefore, the financial results of these entities are included in the
Western and Central Europe segment for all segment presentations in this Form
10-K. For additional financial information by business segment, see Note 13 of
Notes to Consolidated Financial Statements for the year ended December 31, 1999.



<TABLE>
<CAPTION>
                                                      REVENUE
                                          --------------------------------
                                            1999        1998        1997
                                          --------    --------    --------
<S>                                       <C>         <C>         <C>
REVENUES:
  Pharmaceuticals
     North America......................  $254,694    $182,778    $117,355
     Western and Central Europe(1)......   185,417     154,346     118,010
     Latin America principally Mexico...   100,325      85,351      63,668
     Russia.............................    91,648     163,691     134,688
     Yugoslavia.........................        --     141,740     225,530
     Asia, Africa, Australia............    54,131      48,649      22,036
                                          --------    --------    --------
          Total Pharmaceuticals.........   686,215     776,555     681,287
  Biomedicals...........................    61,197      61,509      70,915
                                          --------    --------    --------
          Total revenues................  $747,412    $838,064    $752,202
                                          ========    ========    ========
  Product sales.........................  $638,475    $800,639    $752,202
  Royalty revenues......................   108,937      37,425          --
                                          --------    --------    --------
          Total revenues................  $747,412    $838,064    $752,202
                                          ========    ========    ========
Cost of product sales...................  $256,146    $353,600     351,978
Gross profit margin on product sales....        60%         56%         53%
</TABLE>


---------------

(1) In 1999, the Western and Central Europe segment includes Czech Republic,
    Hungary and Poland, which were previously included in the Other Eastern
    Europe segment. All amounts for 1998 and 1997 have been restated to conform
    with the current year presentation.


                                       26
<PAGE>   33


YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998



     Revenues: The decrease in revenues for the Company's Pharmaceutical
segments of $90,340,000 (or 12%) for 1999 reflects the impact of the loss of the
Yugoslavian operations ($141,740,000 in 1998) and the decrease in revenues of
$72,043,000 in Russia, which was adversely impacted by the Russian economic
situation. The decrease was partially offset by the increase in royalty revenues
of $71,512,000 and the increase in product sales from acquisitions in 1999 and
1998 of $80,528,000.



     In the North America Pharmaceuticals segment, revenues were $254,694,000
for 1999, compared to $182,778,000 for 1998, an increase of $71,916,000 (or
39%). Revenues for 1999 reflect a $71,460,000 increase in royalty revenues from
sales of Rebetol(R) (ribavirin) by Schering-Plough Corporation
("Schering-Plough") and the increase in sales of $12,993,000, resulting from the
product acquisition from F. Hoffman-La Roche Ltd. ("Roche") in October 1998. In
addition, product sales of Kinerase(R), which the Company introduced in March
1999, generated sales of $10,062,000. The increase was partially offset by a
decrease of $11,327,000 in sales of the products obtained from Roche in 1997, as
a result of the Company's effort to manage inventory at the distributors. In
addition, the decrease reflects a decline in units and revenues primarily from
Virazole(R) and the Company's Bleach product line.



     Royalty revenues represent amounts earned under the Company's Exclusive
License and Supply Agreement (the "License Agreement") with Schering-Plough.
Under the License Agreement, Schering-Plough licensed all oral forms of
ribavirin for the treatment of chronic hepatitis C ("HCV") in combination with
Schering-Plough's alpha interferon (the "Combination Therapy"). In 1998,
Schering-Plough received approval from the United States Food and Drug
Administration ("FDA") to market Rebetron(TM) Combination Therapy. Rebetron(TM)
combines Rebetol(R) (ribavirin) Capsules and Intron(R)A (interferon alfa-2b,
recombinant) Injection, for the treatment of HCV in patients with compensated
liver disease. In May 1999, the European Union's ("EU") Commission of the
European Communities granted marketing authorization to Schering-Plough to
market Rebetol(R) (ribavirin) Capsules for use in combination with interferon
alfa-2b injection (marketed as Intron(R)A in some countries) for the treatment
of both relapsed and previously untreated (naive) HCV patients. The Commission's
approval resulted in a single Marketing Authorization with unified labeling that
is immediately valid in all 15 European Union-Member States. Schering-Plough
commenced marketing Rebetol(R) in Germany (May 1999), the United Kingdom (July
1999), and in Italy (October 1999). The Company anticipates that Schering-Plough
will introduce Rebetol(R) in the other EU markets upon receiving pricing
approvals, where necessary, from individual EU countries.



     Royalty revenues for 1999 were $108,937,000 compared to $37,425,000 for
1998. The 1999 royalty amount reflects increasing United States commercial sales
of Rebetron(TM) by Schering-Plough subsequent to receipt of initial FDA approval
in June 1998, inception of commercial sales in the European Union and an
increase in compassionate use sales, primarily in Western Europe.



     Royalty revenues for 1998 also include a one-time payment of $16,500,000
which the Company received from Schering-Plough for settlement of past royalties
due on physician initiated clinical trials and free product distributed by
Schering-Plough ($8,467,000), as reimbursement for expenses incurred by the
Company in preparation for the launch of ribavirin capsules in the European
Union ($3,033,000) and forgiveness of a $5,000,000 obligation to
Schering-Plough. In addition, the Company forfeited the right to co-market oral
forms of ribavirin for the treatment of HCV in the European Union in exchange
for an increase in worldwide royalty rates.



     The Company recorded the entire amount of the one-time payment as revenue
as well as the previously unamortized portion of the 1995 license revenue paid
to the Company by Schering-Plough of $3,689,000. At the time of the initial sale
of the rights and technology to Schering-Plough in 1995, the Company maintained
the rights to co-market in the European Union, was obligated under a supply and
manufacturing agreement and participated on scientific advisory committees

                                       27
<PAGE>   34


during the clinical trial process being conducted by Schering-Plough. In 1998
when the Company gave up the rights to co-market in the European Union in
exchange for increased royalty rates, the Company no longer had any continuing
obligations with respect to the transfer of the rights and technology to
Schering-Plough.



     In the Western and Central Europe Pharmaceuticals segment, revenues for
1999 were $185,417,000 compared to $154,346,000 for 1998. The increase of
$31,071,000 (or 20%) is primarily due to the Company's acquisition of the rights
to certain products from Roche in October 1998, which generated additional sales
of $18,625,000. In addition, $8,368,000 of the sales increase resulted from the
inclusion of the full year results of ICN Czech Republic, which was acquired in
June 1998.



     In the Latin America Pharmaceuticals segment, revenues were $100,325,000
for 1999 as compared to $85,351,000 for 1998, an increase of $14,974,000 (or
18%). The increase is primarily due to the product acquisitions in 1998 as well
as continued growth in the base business. The acquisitions included products
acquired from Roche in October 1998 and a portfolio of 32 dermatology products
acquired from Laboratorio Pablo Cassara ("Cassara") effective March 1, 1998. The
acquired products generated additional sales of $8,167,000 over the 1998 period.



     In the Russia Pharmaceuticals segment, revenues for 1999 were $91,648,000
compared with $163,691,000 for 1998, a decrease of $72,043,000 (or 44%). The
Company's Russian operations continue to be impacted by the Russian economic
situation, which the Company believes has affected the liquidity and purchasing
power of many of its Russian customers. In addition, the 77% decline in the
value of the Russian ruble in relation to the United States dollar since June
1998 has reduced the dollar amount of the Company's Russian revenues. The
Company has partially offset the effect of the exchange rate changes through
price increases and improvement in its product mix.



     In the Asia, Africa and Australia Pharmaceuticals segment, revenues for
1999 were $54,131,000 compared to $48,649,000 in 1998, an increase of $5,482,000
(or 11%). The increase is primarily related to sales of products acquired from
Roche and SmithKline Beecham plc. ("SKB") in 1998, which generated additional
sales of $10,125,000 in 1999. This increase was partially offset by order
backlog resulting from temporary delays in shipments of certain products from
contracted manufacturers and by lower revenues at Wuxi ICN Pharmaceuticals in
China.



     In the Company's Biomedicals segment, revenues for 1999 were $61,197,000
compared to $61,509,000 in 1998, a decrease of $312,000. This decrease is
primarily related to lower sales volume in the Company's diagnostic and
radiochemical product lines, partially offset by increased revenues from
radiation monitoring services.



     Gross Profit: Gross profit margin on product sales increased to 60% for
1999 compared to 56% for 1998. The improvement in gross profit margin is
primarily due to increased sales of the products acquired from Roche in 1998,
which generally yield higher gross profit margins than were previously achieved
by the Company's base business. The Company's gross profit margin for 1999 was
also improved by the loss of the Company's Yugoslavian operations, which
achieved a 43% gross profit margin for 1998. Gross profit margins in the North
America Pharmaceuticals segment were 85% for 1999 compared to 82% in 1998,
reflecting the effect of the acquired products. In the Western and Central
Europe Pharmaceuticals segment, the gross profit margins were 49% for 1999
compared to 53% for 1998. The decrease in margin over 1998 was the result of the
decrease in gross profit margins in Hungary and Poland. The Company's operations
in Hungary and Poland have reduced export sales to the Russian market,
temporarily lowering operating efficiencies as the Company shifts its efforts
toward European Union markets. The decrease in Western and Central Europe was
partially offset by the effect of the acquired Roche products, which generally
yield higher gross profit margins. The overall gross margins for the Company's
Russia Pharmaceuticals segment were 36% for 1999 compared to 42% for 1998. In
1999, gross profit margins in the Company's Russian operations continue to be
affected by the decline in sales volume resulting from the devaluation of the
ruble. While the Company has historically been able to set its prices for
Russian markets without

                                       28
<PAGE>   35


government approval, the ruble devaluation has reduced the purchasing power of
Russian consumers, effectively restricting price increases to a level that does
not fully offset the impact of the devaluation. In an effort to diminish the
impact of the decline in gross profit margin, the Company has also improved its
product mix for the Russian market to focus on higher-margin products.



     Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $252,207,000 for 1999, compared to $291,776,000 for
1998, a decrease of $39,569,000. The decrease primarily reflects the impact of
the loss of the Company's Yugoslavian operations, which incurred expenses of
$24,844,000 during 1998. In the Company's Russian operations, selling, general
and administrative expenses decreased by $27,519,000 (excluding the effect of
acquisitions), principally due to the 77% decline in the value of the ruble and
the Company's cost-control efforts. The decrease in selling, general and
administrative expenses also reflects an $18,270,000 decline in corporate
expenses related to a reduction of legal expenses and some non-recurring
expenses recorded in 1998. These amounts were partially offset by additional
costs resulting from acquisitions of business and product rights, which totaled
$19,182,000. The Company's selling, general and administrative expenses in 1999
also include approximately $11,981,000 of additional costs associated with the
Hungarian business.



     Amortization of goodwill and intangibles: Amortization of goodwill and
intangibles expenses were $29,239,000 for 1999, compared to $20,601,000 for
1998, an increase of $8,638,000. The increase principally reflects the increase
in the amortization of intangibles related to the products acquired from Roche
in 1998.



     Research and Development: Research and development expenditures for 1999
were $10,963,000, compared to $20,835,000 for the same period in 1998. The
decrease reflects lower spending at the Company's facilities in the United
States and Hungary, and the impact of the loss of the Company's Yugoslavian
operations. In 1998, research and development at ICN Yugoslavia totaled
$3,141,000. Additionally, the Company slowed its spending as it evaluated its
overall research strategy.



     Translation and Exchange Losses, Net: Translation and exchange losses, net,
were $11,823,000 for the year ended December 31, 1999 compared to $80,501,000
for the same period in 1998. In 1999, translation losses principally consisted
of losses of $6,738,000 related to the net monetary asset position of the
Company's Russian subsidiaries and losses of $2,650,000 in Hungary and Poland
resulting from foreign-denominated debt, which was repaid in the second half of
1999. For the year ended December 31, 1998, the Company's translation and
exchange losses principally reflect the August 1998 devaluation of the Russian
ruble and ICN Yugoslavia's net monetary asset position.



     Interest Income and Expense: For 1999, interest expense increased
$17,874,000 compared to the same period in 1998, primarily due to the additional
interest expense resulting from the Company's 8 3/4% Senior Notes due 2008,
issued in August 1998 and July 1999. Interest expense on the Senior Notes was
partially offset by lower interest expense on obligations of the Company's
subsidiaries which were repaid using a portion of the proceeds from the Senior
Notes. The net increase in interest expense also reflects a decrease in the
amount of interest cost capitalized related to construction projects. During
1998, the Company capitalized interest of $3,540,000; no interest cost was
capitalized in 1999. Interest income decreased to $8,894,000 in 1999 from
$13,057,000 in 1998. In 1998, interest income included $4,022,000 of interest
earned at ICN Yugoslavia on its cash balances and accounts receivable.



     Income Taxes: The Company's effective income tax rate for 1999 was 21%
compared to 1% for 1998. The provision for income taxes increased as a result of
the effect of higher 1999 taxable income in the United States, and the effect of
the losses in Hungary and China for which no tax benefit was recorded. These
increases in the effective tax rate were partially offset by higher 1999 taxable
income in Puerto Rico and other jurisdictions taxed at rates lower than the U.S.
Federal statutory rate of 35%.

                                       29
<PAGE>   36


     The provision for income taxes for 1999 includes a deferred tax benefit of
$25,286,000 resulting from the recognition of deferred tax assets through the
reduction of the related valuation allowance. During 1998, the Company acquired
certain product rights from Roche and SKB and in 1998, its partner,
Schering-Plough, received FDA approval to market Rebetron(TM), for which the
Company receives royalties. These new products and royalties are expected to
generate future taxable income that will result in the Company realizing its net
operating loss carryforwards. Additionally, the Company has announced its
intention to review its strategic options with regards to its Biomedicals
businesses. These options include the potential sale of all or a portion of the
Biomedicals businesses which is expected to result in a net capital gain. The
Company will be able to utilize its capital loss carryforwards to offset the
gain generated on disposal. Ultimate realization of the deferred tax assets is
dependent upon the Company generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized.



     In Russia, the Company continues to benefit from special tax relief that
benefits pharmaceutical companies. Under this relief approximately 75% of the
income generated in Russia related to the manufacture and sale of prescription
medicines is exempt from taxation. This reduces the statutory rate to
approximately 8%. The continuing tax benefits in Russia are subject to potential
changes in tax law that may be enacted in the future. Should these benefits be
repealed, income generated in Russia would require the Company to provide taxes
at the current statutory rate of 35%, which could have a material impact on the
consolidated results of operation and cashflows of the Company.



     ICN Hungary generated tax loss carryforwards in 1999 and in 1998. In 1998,
the Company's Russian subsidiaries also generated deferred income tax assets,
primarily related to bad debt reserves. Management believes that it is more
likely than not that these future tax benefits will not be realized prior to
expiration as a result of the seizure of ICN Yugoslavia and the economic crisis
affecting Eastern Europe. Accordingly, the Company recorded a valuation
allowance against these loss carryforwards and deferred income tax assets,
resulting in no tax benefit being recorded in 1999 and 1998.



YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997



     Revenues: The increase in revenues for the Company's Pharmaceuticals
segments of $95,268,000 (or 14%) for 1998 reflects growth in product sales
driven by the Company's successful acquisition program and increased royalty
revenues, partially offset by lower sales in the Yugoslavia Pharmaceuticals
segment. Despite the Russian economic crisis, revenues in the Russia
Pharmaceuticals segment increased $29,003,000 (or 22%) primarily due to
additional revenues from the Company's 1998 and 1997 acquisitions in Russia. The
increase in revenues of $36,336,000 in the Western and Central Europe
Pharmaceuticals segment were primarily due to additional revenues from
acquisitions in Poland in 1997 and Czech Republic in 1998 and the acquisition of
products from Roche. Revenues in the Yugoslavia Pharmaceuticals segment, which
were adversely affected by the suspension of sales to the Yugoslavian government
in April 1998, decreased by $83,790,000 (or 37%) compared to 1997. The
acquisition of products from Roche and increased royalty revenues were the major
contributors to revenue increases in North America and Western and Central
Europe. Latin America Pharmaceuticals revenues reflect continued growth in the
Company's base business as well as sales of the products acquired from Roche and
Laboratorio Pablo Cassara. The acquisition of products from SKB and Roche
contributed to the revenue increase in the Asia, Africa, and Australia
Pharmaceuticals segment.



     In the North America Pharmaceuticals segment, revenues were $182,778,000
for 1998, compared to $117,355,000 for 1997. The $65,423,000 (or 56%) increase
in revenues for the year was primarily the result of the Company's acquisition
of the rights to certain products from Roche in 1997 and 1998. In 1997, the
Company acquired the worldwide rights (except India) to nine products --
Alloferin(R), Ancobon(R)/Ancotil(R), Efudix(R)/Efudex(R), Glutril(R),
Librium(R), Limbitrol(R), Mestinon(R), Prostigmin(R) and Protamin(R) -- and the
worldwide rights to Levo-Dromoran(R) and Tensilon(R). Effective

                                       30
<PAGE>   37


October 1, 1998, the Company obtained the worldwide rights to
Dalmane(R)/Dalmadorm(R), Fluorouracil(R), Librax(R), and Mogadon(R). Sales of
the acquired products generated additional revenues of $61,827,000 in the North
America Pharmaceuticals segment for 1998. In addition, the 1998 amounts include
$37,425,000 of royalty revenues from sales of ribavirin by Schering-Plough under
the License Agreement. These amounts were partially offset by lower sales in
several of the Company's existing product lines, including an $8,982,000 decline
in Virazole(R) sales and $7,071,000 and $4,834,000, respectively of lower sales
of certain dermatological and hormone replacement products, principally due to
increased competition from generic products.



     In the Western and Central Europe Pharmaceuticals segment, revenues for
1998 were $154,346,000 compared to $118,010,000 in 1997. The increase in
revenues of $36,336,000 (or 31%) is primarily due to the Company's acquisition
of the product rights from Roche in the third and fourth quarters of 1997, which
generated additional sales of $19,582,000 in 1998 as well as the inclusion in
1998 of a full year's operations of Polfa Rzeszow, S.A. in Poland ($18,170,000)
and the 1998 acquisition of ICN Czech Republic ($10,392,000). The effect of
these acquisitions was partially offset by a decline in revenues of $8,384,000
at Alkaloida in Hungary resulting from lower export sales due to the Russian
economic crisis.



     In the Latin America Pharmaceuticals segment, revenues were $85,351,000 for
1998, compared to $63,668,000 for 1997. The increase of $21,683,000 (or 34%) is
primarily due to price increases and higher unit volume, partially offset by
unfavorable currency exchange fluctuations. The increase also reflects 1998
sales of $13,636,000 generated by products that the Company acquired from
Cassara and Roche during 1997 and 1998. Excluding the effect of the acquired
products, revenues for Latin America for 1998 increased 13% from their 1997
level.



     In the Russia Pharmaceuticals segment, revenues for 1998 were $163,691,000,
compared with $134,688,000 for 1997, an increase of $29,003,000 (or 22%). The
inclusion in 1998 of a full year's results for the Company's 1997 acquisitions
of AO Tomsk and Marbiopharm (acquired in the fourth quarter of 1997) provided
additional revenues of $44,804,000. The effect of these acquisitions was
partially offset by lower volumes in the Company's existing Russian operations
and the effect of unfavorable currency exchange fluctuations due to the economic
crisis in Russia during 1998.



     The Yugoslavia Pharmaceuticals segment was adversely affected by the
economic events in the region during 1998 and the effect of the November 26,
1998 seizure of the Company's Yugoslavia operations by the Yugoslavian
government. Prior to the seizure, the Yugoslavia Pharmaceuticals segment
generated revenues of $141,740,000 for 1998, compared to $225,530,000 in 1997.
The decrease of $83,790,000 (or 37%) reflects lower domestic sales resulting
from the effects of the April 1998 devaluation of the dinar and the continued
suspension of sales to the Yugoslavian government. The decrease also reflects
lower export sales, principally to customers in Russia, due to the economic
crisis in Russia during the year.



     In the Asia, Africa and Australia Pharmaceuticals segment, revenues for
1998 were $48,649,000 compared to $22,036,000 for 1997, an increase of
$26,613,000 (or 121%). The increase is primarily due to the 1998 acquisition of
the rights to 39 prescription and OTC pharmaceutical products from SKB, which
generated sales of $22,553,000, and sales of the products acquired from Roche,
which generated additional sales of $10,241,000 in this segment in 1998. The
effect of these acquisitions was partially offset by lower sales of certain
hormone replacement products and lower revenues at Wuxi ICN Pharmaceuticals in
China.



     In the Company's Biomedicals segment, revenues for 1998 were $61,509,000
compared to $70,915,000 for 1997, a decrease of $9,406,000 (or 13%). The
decrease is primarily due to lower unit sales volume in certain diagnostics
product lines. The decrease is also affected by the 1997 revenue amounts
including dosimetry product shipments made to fulfill the higher than normal
order backlog that existed at the beginning of 1997.


                                       31
<PAGE>   38


     Gross Profit: Gross profit margin on product sales increased to 56% for
1998, compared to 53% for 1997. The improvement in gross profit margin is
primarily due to increased sales of the products acquired from Roche and SKB in
1997 and 1998, which generally yield higher gross profit margins than were
previously achieved by the Company's base business. Gross profit margins in the
North America Pharmaceuticals segment increased to 82% from 81% in the prior
year, reflecting the effect of the acquired products. The Company's gross profit
margin for 1998 was also affected by gross margin declines in the Yugoslavia
Pharmaceuticals segment. Subsequent to the April 1998 devaluation of the
Yugoslavian dinar, gross profit margins at ICN Yugoslavia suffered as sales were
translated at higher exchange rates, while no significant price increases were
received. Gross profit margins at ICN Yugoslavia were further impacted as
inventories manufactured prior to the devaluation were charged to cost of
product sales at the higher historical exchange rate. The overall gross margins
for the Company's Russia Pharmaceuticals segment were 42% for 1998, compared to
39% for 1997. Improvements in operating efficiency at most of the Company's
Russian factories offset the adverse impact of the weakening of the ruble. While
the Company is generally able to set its prices for Russian markets without
government approval, the severe liquidity crisis in Russia and the reduced
purchasing power of Russian consumers after the devaluation of the ruble
restricted price increases to a level that does not fully offset the impact of
the devaluation. Gross profit margins at ICN Russia were further impacted as
inventories manufactured prior to the devaluation were charged to cost of
product sales at the higher historical exchange rate. The gross profit margin in
ICN Hungary also improved to 45% from 32% in 1997 due to the improved operating
efficiency at its factory.



     Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $291,776,000 (or 35% of revenues) for 1998 compared
to $249,206,000 (or 33% of revenues) for 1997. The Company's 1997 and 1998
acquisition of two pharmaceutical companies in Russia, one company in Poland,
one company in Czech Republic and the acquisition of product rights from Roche
and SKB generated additional expenses of $36,604,000 in 1998. In addition, the
ongoing development of the sales, marketing, and administrative functions at the
Company's Eastern European headquarters in Moscow, Russia resulted in additional
expenses of $13,095,000 in 1998. Other increases in selling, general and
administrative expenses reflect increased expenditures, primarily at the
Company's United States corporate offices, to support the Company's recent
acquisitions and increased sales volume in the base business. These changes were
partially offset by lower expenses in the Yugoslavia Pharmaceuticals and Russia
Pharmaceuticals segments, reflecting the effect of exchange rate changes during
the year.



     Amortization of goodwill and intangibles: Amortization of goodwill and
intangibles expenses were $20,601,000 for 1998, compared to $7,028,000 for 1997,
an increase of $13,573,000. The increase was primarily due to the increase in
the amortization of intangibles related to the products acquired from Roche in
1998 and 1997.



     Research and Development Costs: Research and development costs were
$20,835,000 for 1998, compared to $18,692,000 for 1997. The increase reflects
the Company's continued investment in the development of products, primarily at
its facilities in the United States.



     Translation and Exchange Losses, Net: Translation and exchange losses, net,
were $80,501,000 for the year ended December 31, 1998. The Company incurred
translation losses of $53,848,000 related to its Russian operations, principally
due to the third quarter 1998 devaluation of the ruble. ICN Yugoslavia recorded
translation losses of $23,865,000 in 1998, including the effect of the April
1998 devaluation of the dinar. Additionally, the Company recorded foreign
currency transaction losses of $2,966,000 in Hungary, principally related to
long-term debt denominated in currencies other than the forint, the Hungarian
subsidiary's functional currency.



     Interest Income and Expense: For 1998, interest expense increased
$15,220,000 compared to the same period in 1997, primarily due to interest
expense on the Company's $200,000,000 8 3/4% Senior Notes issued in August 1998
and the inclusion in 1998 of a full year's interest on the


                                       32
<PAGE>   39


Company's 9 1/4% Senior Notes issued in August 1997. The additional interest
expense on the Senior Notes was partially offset by interest savings resulting
from the conversion of long-term debt to common stock and capitalization of
interest costs related to plant construction in Russia and Yugoslavia. Interest
income for the year ended December 31, 1998 decreased to $13,057,000 in 1998
from $15,912,000 in 1997 due to lower interest income earned on notes receivable
from the Yugoslavian government, which was partially offset by increased
earnings from the investment of a significant portion of the proceeds of the
Senior Notes.



     Income Taxes: The Company's effective income tax rate (benefit) was 1% for
1998 compared to (26%) for 1997. The Company operates in many regions where the
tax rate is low or it benefits from a tax holiday. In 1998, the provision for
income taxes reflects the effect of income in Russia, Yugoslavia and other
jurisdictions taxed at rates lower than the U.S. Federal statutory rate of 35%.
Offsetting these benefits was an increase in the valuation allowance associated
with the write-off of the Company's Yugoslavian subsidiary. In addition, the
Company received no tax benefit for the foreign currency translation losses
included in the Company's 1998 net loss.



     In 1998, the provision for income taxes reflects a deferred tax benefit of
$8,223,000 resulting from the recognition of deferred tax assets and the
reduction of the related valuation allowance. During 1997 and 1998, the Company
acquired products from Roche and SKB. Also in 1998, Schering-Plough's sales of
Rebetron(R) Combination Therapy for HCV commenced following receipt of FDA
approval to market the drug and the Company began to receive royalty revenues
under the License Agreement. These new products and royalties are expected to
generate future taxable income that resulted in a deferred tax benefit in 1998
and 1997.



     The Company received the benefit of favorable tax laws that resulted in
income taxes at a rate lower than the current 25% Yugoslavian statutory rate.
Under Yugoslavian law, taxable earnings attributed to foreign investments are
exempt from taxation for a five-year period. Accordingly, 75% of ICN
Yugoslavia's taxable income, the Company's ownership in ICN Yugoslavia, was
exempt from taxation for the five years ended December 31, 1996. The Company
also received tax credits in Yugoslavia for some capital investments, including
investments in short-term government bonds and plant and equipment, which can
only be used in the year in which the investment is made. Effective January 1,
1997, additional changes in the Yugoslavian tax law resulted in benefits to the
Company in the form of a reduction in taxes otherwise payable as a result of its
foreign investment in ICN Yugoslavia. The effect of these items was to reduce
the 1997 effective tax rate at ICN Yugoslavia to 2%. In 1998, the effective tax
rate of ICN Yugoslavia was approximately 1%.



     In Russia, the Company continues to benefit from special tax relief that
benefits pharmaceutical companies. Under this relief, approximately 75% of the
income generated in Russia related to the manufacture and sale of prescription
medicines is exempt from taxation. This reduced the effective rate to
approximately 1% in 1998 and 1997. In Hungary, the Company benefited from a tax
holiday, which expired on December 31, 1998.



LIQUIDITY AND CAPITAL RESOURCES



     During the three months ended March 31, 2000, cash provided by operating
activities totaled $52,981,000, compared to $3,728,000 in 1999. Operating cash
flows reflect the Company's net income of $27,399,000, net non-cash charges
(including depreciation, minority interest, and translation and exchange gains
and losses) of $19,424,000, and working capital decreases totaling approximately
$6,158,000. The working capital decrease principally consists of a decrease of
$6,931,000 in accounts receivable and an increase of $7,095,000 in income taxes
payable offset by an increase of $6,189,000 in inventories and $4,039,000 in
prepaid expenses.



     Cash used in investing activities was $10,485,000 for the three months
ended March 31, 2000 compared to $13,913,000 for the same period of 1999. In
2000, the Company made capital expenditures of $5,881,000, principally
representing production equipment in Western and Central Europe and replacement
assets in other regions. In addition, the Company made various product

                                       33
<PAGE>   40


acquisitions in 2000 amounting to $4,712,000. In 1999, net cash used in
investing activities of $13,913,000 principally consisted of payments for
capital expenditures of $12,085,000, which were partially offset by proceeds
from the sale of assets of $129,000, and acquisitions totaling $1,948,000.



     Cash used in financing activities totaled $4,790,000 for the three months
ended March 31, 2000, including cash dividends paid on common stock of
$5,580,000, offset by proceeds from the exercise of employee stock options of
$929,000. During the first quarter of 1999, cash provided by financing
activities totaled $16,788,000, including proceeds of long-term borrowings
totaling $26,155,000. In addition, as provided for under the terms of a Stock
Purchase Agreement entered into with Schering-Plough in 1995, the Company sold
to Schering-Plough 1,141,498 shares of its common stock for $27,000,000.
Proceeds from the exercise of employee stock options provided an additional
$1,332,000. These amounts were partially offset by principal payments on
long-term debt of $27,473,000, cash dividends paid on common stock of
$4,637,000, and a net reduction of short-term borrowings of $39,000. Also during
the quarter ended March 31, 1999, the Company repurchased 223,967 shares of its
common stock for $5,550,000, completing the initial $10,000,000 portion of the
Stock Repurchase Program authorized by the Company's Board of Directors in 1998.
At March 31, 2000, certain of the Company's lines of credit and long term
borrowings include covenants restricting payment of dividends, issuance of new
indebtedness and repurchase of the Company's common stock.



     During 1999, cash provided by operating activities totaled $87,123,000
compared to $9,624,000 in 1998. Operating cash flows reflect the Company's net
income of $118,626,000 and net non-cash charges (including depreciation,
minority interest, and foreign exchange gains and losses) of $76,662,000,
partially offset by working capital increases totaling approximately
$108,165,000. The working capital increases principally consist of a $66,927,000
increase in accounts receivable, mainly resulting from increased royalties
receivable under the Company's license agreement with Schering-Plough and the
increase in receivable balances in the Western and Central Europe and Asia,
Africa and Australia regions related to the timing of the collections. In
addition, the Company's trade payables decreased by $24,601,000 resulting from
the timing of payments to certain vendors. The working capital changes also
include an increase in inventories of $13,236,000 mainly related to the
Company's distribution of Roche and SKB products in 1999.



     The Company evaluates the carrying value of its inventories at least
quarterly, taking into account such factors as historical and anticipated future
sales compared with quantities on hand, the price the Company expects to obtain
for its products in their respective markets compared with historical cost, and
the remaining shelf life of goods on hand. The Company also evaluates the
collectibility of its receivables at least quarterly. The Company's methodology
for establishing the allowance for bad debts varies with the regions in which it
operates. With the exception of Russia and Yugoslavia, the allowance for bad
debts is based upon specific identification of customer accounts and the
Company's best estimate of the likelihood of potential loss, taking into account
such factors as the financial condition and payment history of major customers.
In Russia and Yugoslavia, the allowance for bad debts is based upon a
combination of specific identification of customer account balances and an
overall provision based upon anticipated developments and historical experience.
In Russia, factors such as the economic crisis in August of 1998 and the
subsequent stabilization in the middle of 1999 were utilized in the analysis. In
Yugoslavia, the impact on all customer balances of the events surrounding the
default by the Republic Health Funds on accounts and notes receivable due the
Company was considered. Based upon this analysis, the Company recorded bad debt
expense related to its Russian and Yugoslavian operations of $8,129,000,
$26,242,000 and $718,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. As of December 31, 1999 and 1998 the allowance for doubtful
accounts for the Company's Russian subsidiaries was $9,142,000 and $17,477,000,
respectively. There were no accounts receivable from Yugoslavia at December 31,
1999 and 1998 as a result of the seizure of ICN Yugoslavia and subsequent write
off of the Company's investment in ICN Yugoslavia. As of


                                       34
<PAGE>   41


December 31, 1999, the Company believes that adequate provision has been made
for inventory obsolescence and for anticipated losses on uncollectible accounts
receivable.



     Cash used in investing activities was $50,360,000 for 1999 compared to
$295,046,000 for 1998. In 1999, the Company incurred capital expenditures of
$44,083,000, principally representing the continuation of its plant expansion
efforts and investment in information systems. The Company also used cash of
$23,588,000 (net of cash acquired of $288,000) for acquisitions, including
acquiring a chain of 88 pharmacies in Russia, the purchase of a pharmaceutical
distributor in Hungary and acquired product rights in Western European markets.
These amounts were partially offset by the decrease in restricted cash in the
amount of $15,144,000 which was required to collateralize the Company's
obligation under letters of credit. After the Company settled its obligation in
the fourth quarter of 1999, the restriction was removed. In 1998, net cash used
in investing activities of $295,046,000 principally consisted of payments for
acquisitions totaling $171,815,000 (net of cash acquired of $1,111,000), capital
expenditures of $110,281,000, and a $15,009,000 increase in restricted cash.
Cash used in investing activities in 1998 also reflects the effect of the
Yugoslavian government's seizure of the Company's Yugoslavian operations, which
resulted in the loss of ICN Yugoslavia's cash balances of $22,101,000. These
amounts were partially offset by proceeds from the sale of marketable securities
of $22,958,000.



     Cash provided by financing activities totaled $36,399,000 during 1999.
Proceeds from long-term borrowings totaled $145,490,000, including net proceeds
of $118,485,000 from a private placement of $125,000,000 principal amount of its
8 3/4% Senior Notes due 2008, which the Company completed in July 1999. The
Company used cash (including a portion of the proceeds of the 8 3/4% Senior
Notes) for principal payments of $87,632,000 on long-term debt and for payments
of $31,695,000 on notes payable. Other sources of cash also included $42,000,000
from the sale to Schering-Plough of 2,041,498 shares of its common stock (as
provided for under the terms of a Stock Purchase Agreement entered into with
Schering-Plough in 1995) and proceeds from the exercise of employee stock
options of $12,894,000. These amounts were partially offset by the payment of
dividends on common stock of $21,017,000, the repurchase of 614,167 shares of
common stock for $15,304,000, under the Stock Repurchase Program authorized by
the Company's Board of Directors in 1998 and the repurchase of the Company's
Series D Preferred Stock in settlement of the remaining obligation to SKB.
During 1998, cash provided by financing activities of $186,019,000 principally
consisted of proceeds from long-term borrowings totaling $225,082,000. Other
sources of funds included $6,783,000 proceeds from exercise of stock options and
$4,299,000 proceeds from issuance of common stock. These amounts were partially
offset by the principal payments on long-term debt of $27,381,000 and dividend
payments of $17,069,000. Some of the Company's long-term borrowings include
covenants restricting payment of dividends, issuance of new indebtedness and
repurchase of the Company's common stock and requiring the maintenance of
financial ratios.



     The current economic condition in Russia continues to impact the Company's
operating cash flows in Russia, as some of the Company's Russian customers
continue to experience liquidity shortages. The Company may need to invest
additional working capital in Russia to sustain its operations, to provide
increasing levels of working capital necessary to support renewed growth, and to
fund the purchase or upgrading of facilities. The Company also has several
preliminary acquisition prospects that may require funds through the year 2000.
However, there is no assurance that any such acquisitions will be consummated.



     During 1999, the Company entered into option transactions which allow the
Company to establish a price range in which the Company has the option to
repurchase its stock at a later date, without any immediate outlay of its cash
resources. The Company entered into these option positions when the Company
believed its stock to be undervalued, and anticipated that its stock price would
appreciate. Under this program, the Company sold put options, which entitle the
holder to sell the Company's stock to the Company at a specified price. At the
same time, in a cashless transaction, the Company purchased call options, which
entitle the Company to purchase its stock at a specified price from the same
party. The put and call positions have essentially established a price range
within which the

                                       35
<PAGE>   42


Company can repurchase its stock. If the stock price rises above the call option
strike price, the repurchase of stock will be at a favorable price compared to
the market price. Conversely, if the stock price falls below the put option
strike price, the repurchase of stock is more costly than the market price. The
put options and the corresponding call options each expire from August 2000
through December 2000 and are exercisable only at the expiration dates. The
Company may, at its option, make either a physical settlement, a cash
settlement, or a net share settlement of its positions under the put and call
options. The Company has a maximum potential obligation under the put options to
buy back 2,380,953 shares of its common stock for an aggregate price of
approximately $67,500,000. The call options entitle the Company to buy 1,064,085
shares of its common stock for approximately $33,519,000. The net settlement
obligation of the Company, based on the closing market price of the stock at
December 31, 1999, was approximately $7,200,000 or 285,714 shares. The Company
continually reevaluates the potential impact of these option positions and
believes its capital resources are sufficient to meet the potential obligations
of these option positions.



     Management believes that the Company's existing cash and cash equivalents
and funds generated from operations will be sufficient to meet its operating
requirements in the near term and to fund anticipated acquisitions and capital
expenditures. The Company may also seek additional debt financing or issue
additional equity securities to finance future acquisitions.



     The Company is currently self-insured with respect to product liability
claims. 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 negative impact on the
Company's liquidity and financial performance.



FOREIGN OPERATIONS



     Approximately 65% and 67% of the Company's revenues for the three months
ended March 31, 2000 and 1999, respectively, were generated from operations
outside the United States. All of the Company's foreign operations are subject
to 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 some instances, materially
affect the Company's results of operations. The effect of these risks remains
difficult to predict. The Company does not currently provide any hedges on its
foreign currency exposure and, in some countries in which the Company operates,
no effective hedging programs are available.



  RUSSIA



     Russia continues to experience economic difficulties following the
financial crisis of August 1998, when the ruble was 6.3 to $1 and subsequently
devalued to 27.5 rubles to $1 by the end of 1999. Consequently, the ruble
continues to devalue, there is continued volatility in the debt and equity
market, hyperinflation persists, confidence in the banking sector has yet to be
restored and there continues to be general lack of liquidity in the economy. In
addition, laws and regulations affecting businesses operating within Russia
continue to evolve. Russia's return to economic stability is dependent to a
large extent on the effectiveness of the measures taken by the government,
decisions of international lending organizations, and other actions, including
regulatory and political developments, which are beyond the Company's control.



     Since December 31, 1999, the ruble fell from a rate of 27.5 rubles to $1 to
a rate of 28.5 rubles to $1 at March 31, 2000. As a result of these declines in
the ruble exchange rate, the Company recorded translation and exchange losses of
$2,355,000 related to Russian operations during the first quarter of 2000. As of
March 31, 2000, ICN Russia had a net monetary asset position of approximately
$10,704,000, which is subject to foreign exchange loss as further declines in
the value of the ruble in relation to the dollar occur. Due to the fluctuation
in the ruble exchange rate, the ultimate amount of any future translation and
exchange loss the Company may incur cannot presently be determined and such loss
may have a negative impact on the Company's results of

                                       36
<PAGE>   43


operations. The Company's management continues to work to reduce its net
monetary exposure by reducing account receivable balances and lengthening its
payments to suppliers. However, there can be no assurance that such efforts will
be successful.



     The Company's Russian subsidiaries periodically engage in barter
transactions related to the sale of its products in exchange for raw materials,
other finished goods and costs or services incurred in the conduct of its
operations. For each of the periods ended December 31, 1999, 1998 and 1997, the
Company's Russian subsidiaries recorded approximately $8,000,000 in revenue
related to barter transactions.



     The Company's collections on accounts receivable in Russia have been
adversely affected by the Russian economic situation. Prior to the August 1998
devaluation of the ruble, the Company had favorable experience with the
collection of receivables from its customers in the region. Subsequently, the
Company has taken additional steps to ensure the creditworthiness of its
customers and the collectibility of accounts receivable by tightening its credit
policies in the region. These steps include a shortening of credit periods,
suspension of sales to customers with past-due balances and discounts for cash
sales.



     The Company believes that the economic and political environment in Russia
has affected the pharmaceutical industry in the region. Many Russian companies,
including many of the Company's customers, continue to experience liquidity
problems as monetary policy has limited the money supply, and Russian companies
often lack access to an effective banking system. As a result, many Russian
companies have limited ability to pay their debts, which has led to a number of
business failures in the region. In addition, the devaluation has reduced the
purchasing power of Russian companies and consumers, thus increasing pressure on
the Company and other producers to limit price increases in hard currency terms.



  YUGOSLAVIA



     On February 6, 1999, the government of the Federal Republic of Yugoslavia,
acting through the Federal Ministry of Health and/or the Ministry of Health of
Serbia, seized control of the Company's 75% owned subsidiary, ICN Yugoslavia.
This action, based on a decision by the Ministry for Economic and Property
Transformation that was reached on November 26, 1998, effectively reduced the
Company's equity ownership of ICN Yugoslavia from 75% to 35%. The Ministry of
Economic and Property Transformation decision was based on a unilaterally
imposed recalculation of the Company's original capital contribution to ICN
Yugoslavia. Subsequent to the seizure, the Commercial Court of Belgrade issued
an order stating that a change in control had occurred. These actions were
taken, contrary to Yugoslavian law, without any notification to or
representation by the Company. Since the change of control, representatives of
the Company and ICN Yugoslavia's management have been denied access to the
premises and any representation as to the management of ICN Yugoslavia.



     Prior to the seizure, ICN Yugoslavia's operations were adversely affected
by the April 1998 devaluation of the dinar, which resulted in foreign exchange
losses of $23,865,000 for the year. ICN Yugoslavia's domestic sales were
adversely affected by the Company's previously announced suspension of sales to
the Yugoslavian government. In addition, ICN Yugoslavia's export sales for the
second half of 1998 were adversely affected by the Russian economic crisis. In
the second and third quarters of 1998, the Yugoslavian government defaulted on
its obligations to the Company on $176,204,000 of accounts and notes receivable.
As a result of the government's default and the suspension of sales to the
government, the Company recorded a $173,440,000 charge against earnings at ICN
Yugoslavia in the second quarter of 1998. The charge is included in Eastern
European charges ($165,646,000), cost of product sales ($3,667,000) and interest
income ($4,127,000) in the consolidated statements of income. The charge
consists of $151,204,000 reserve for losses on notes receivable (including
accrued interest), reserves of $7,757,000 for losses on accounts receivable from
government-sponsored entities, and a $14,479,000 write-down of the value of
related investments and assets.


                                       37
<PAGE>   44


     The Company has commenced litigation in the United States District Court of
the District of Columbia against the government of Yugoslavia and related
agencies to recover damages and obtain injunctive relief. In addition, the
government of Yugoslavia, through a related agency, filed an arbitration
proceeding against the Company before the International Chamber of Commerce for
damages related to the Company's acquisition of majority control of ICN
Yugoslavia. The resolution of these matters may affect the status of some
compounds, which were contributed to ICN Yugoslavia by the Company, pursuant to
the agreement that led to the formation of ICN Yugoslavia.



ACQUIRED PRODUCTS



     The majority of products acquired by the Company in 1997 and 1998 were
mature products with no effective patents, either because of expirations or the
absence of legal protections provided by the local governments in the respective
markets. Under the Company's ownership, price increases and additional
advertising and promotions were planned for selected products, as the Company
believes that they were not marketed to their greatest potential. The Company
believes that some of these products in specific markets have an adequate growth
potential, and intends to develop a product strategy for each product.



     The Company believes that these products will continue to generate
significant sales even without patent protection because the trademarks under
which they are marketed are well-established and enjoy substantial customer
brand-loyalty. Moreover, the relatively small sales volumes and market sizes for
some of these products pose significant barriers to entry of generic
competition.



     The Company estimated the remaining life of these products based on
anticipated future profits assuming a constant profit margin for the remaining
product cycle. It should be noted, however, any sales growth or increase in
profitability attained by additional marketing efforts is expected to be
relatively short-lived. After a temporary boost, these products will revert to
their gradually declining trend in accordance with the product cycle model. The
acquired products' historical operating results demonstrated their ability to
earn substantial excess profits. Excess profits are directly related to their
competitive advantage primarily attributable to the product quality and
reputation. The useful life was defined as the number of years for the
forecasted annual product sales to reach 50% of the cumulative historical amount
through 1997. During the forecasted period, only gradual declines are expected
due to the absence of immediate threats from competition of generic or/and
alternative products. Based upon the Company's analysis, the useful lives of
products acquired during 1997 and 1998 were estimated to be 18 years.



INFLATION AND CHANGING PRICES



     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
price increases in Russia and Mexico, which has created lower sales in U.S.
dollars and reductions in gross profit. Future sales and gross profit will be
reduced if the Company is unable to obtain price increases commensurate with the
levels of inflation.



     The Russian government has recently instituted a process for establishing
prices for pharmaceutical products, which may lead to price controls in the
Russian market in the future. Currently, this process requires the Company to
register the prices for some of its products included on the government's list
of "products important for health." The next procedure for registration includes
the negotiation and approval of such prices between the Company and the relevant
state bodies. The Company is currently working with all relevant state bodies to
approve its prices and the Company is not presently able to determine the
effect, if any, that this process may have on its results of operations.
However, such developments could have a negative impact on the Company's results
of operations and cash flows in Russia.

                                       38
<PAGE>   45


THE YEAR 2000 ISSUE



     Many computer systems and equipment or instruments with embedded
microprocessors were designed to recognize only the last two digits of a
calendar year. As previously reported, the Company undertook an extensive
project to remediate or replace its date-sensitive systems and microprocessors
that might have encountered operational problems due to their inability to
distinguish the years after 1999 from years preceding 1999.



     Since January 1, 2000 the Company's computer systems and other potentially
date sensitive types of equipment have operated properly and there has been no
adverse impact on operations. In addition, there was no material impact from
Year 2000 related issues at any of the Company's customers, suppliers, or other
outside service providers.



     The Company did not experience any significant impact on product sales or
revenues as a result of Year 2000 concerns. As of December 31, 1999, the Company
has spent approximately $8,300,000 on the overall Year 2000 remediation and
equipment upgrade project. The project is now complete and no future costs are
planned. All systems have functioned properly since January 2000 and the
Company's management believes that future operations will be unaffected by the
Year 2000 issue.



     The Company believes that the most reasonably likely worst case scenario
would be a year 2000 induced failure among one of its key suppliers, vendors, or
customers, which could result in a slowdown or temporary disruption of
manufacturing operations at one or more of the Company's facilities and/or a
temporary inability to process and fulfill customer orders.



EURO CONVERSION



     On January 1, 1999, 11 of the 15 member countries of the European Union
introduced a new currency called the "Euro". The conversion rates between the
Euro and the participating nations' existing legacy currencies were fixed
irrevocably as of January 1, 1999. Prior to full implementation of the new
currency on January 1, 2002, there will be a transition period during which
parties may, at their discretion, use either the legacy currencies or the Euro
for financial transactions.



     The Company expects its affected subsidiaries to continue to operate
primarily in their respective legacy currencies for at least one more year. The
majority of the Company's affected subsidiaries currently can accommodate
transactions for customers or suppliers operating in either the legacy currency
or the Euro. Action plans are currently being implemented which are expected to
result in full compliance with all laws and regulations relating to the Euro
conversion. Such plans include the adaptation of information technology and
other systems to accommodate Euro-denominated transactions as well as the
requirements of the transition period. The Company is also addressing the impact
of the Euro on its currency exchange-rate risk, taxation, contracts, competition
and pricing. While it is not possible to accurately predict the impact the Euro
will have on the Company's business or on the economy in general, management
currently does not anticipate that the Euro conversion will have a material
adverse impact on the Company's market risk with respect to foreign exchange,
its results of operations, or its financial condition.



NEW ACCOUNTING PRONOUNCEMENTS



     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and becomes
effective for the Company for the first quarter of 2001. The Company does not
currently engage in any program of hedging and consequently the Company does not
expect the adoption of SFAS No. 133 to have a material effect on the Company's
consolidated financial position, cash flows, or results of operations.



     In December 1999, the Securities and Exchange Commission (the "SEC")
released Staff Accounting Bulletin ("SAB") No. 101, which provides guidance on
the recognition, presentation and


                                       39
<PAGE>   46


disclosure of revenue in financial statements filed with the SEC. The Company is
required to be in conformity with the provisions of SAB 101 no later than fourth
quarter 2000 and the Company does not expect a material change in its financial
condition or results of operations as a result of SAB 101.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



     The Company's business and financial results are affected by fluctuations
in world financial markets. The Company evaluates its exposure to such risks on
an ongoing basis, and reviews its risk management policy to manage these risks
to an acceptable level, based on management's judgment of the appropriate
trade-off between risk, opportunity and costs. The Company does not hold any
significant amount of market risk sensitive instruments whose value is subject
to market price and currency risk.



     In the normal course of business, the Company also faces risks that are
either non-financial or non-quantifiable. Such risks principally include country
risk, credit risk, and legal risk and are not discussed or quantified in the
following analysis.



     INTEREST RATE RISK: The Company does not hold financial instruments for
trading or speculative purposes. The financial assets of the Company are not
subject to significant interest rate risk due to their short duration. At March
31, 2000 and December 31, 1999, the Company does not have any significant
financial instruments denominated in foreign currencies that would subject it to
both interest and currency risk. The principal financial liabilities of the
Company that are subject to interest rate risk are its fixed-rate long-term debt
(principally its 8 3/4% Senior Notes due 2008 and its 9 1/4% Senior Notes due
2005) totaling $600,000,000. The Company does not use any derivatives or similar
instruments to manage its interest rate risk. A 90 basis-point increase in
interest rates (approximately 10% of the Company's weighted-average interest
rate on fixed-rate debt) affecting the Company's financial instruments would
have an immaterial effect on the Company's 2000 pretax earnings. However, such a
change would reduce the fair value of the Company's fixed-rate debt instruments
(principally its 8 3/4% and 9 1/4% Senior Notes) by approximately $25,400,000 as
of March 31, 2000.



     During 1999, the Company entered into certain option transactions which
allow the Company to establish a price range in which the Company has the option
to repurchase its stock at a later date, without any immediate outlay of its
cash resources. Under this program, the Company sold put options, which entitle
the holder to sell the Company's stock to the Company at a specified price. At
the same time, in a cashless transaction, the Company purchased call options,
which entitle the Company to purchase its stock at a specified price from the
same party. The put and call options have essentially established a price range
within which the Company can repurchase its stock. If the stock price rises
above the call option strike price, the repurchase of stock will be at a
favorable price compared to the market price. Conversely, if the stock price
falls below the put option strike price, the repurchase of stock is more costly
than the market price. The put options and the corresponding call options each
expire from August 2000 through December 2000 and are exercisable only at the
expiration dates. The Company may, at its option, make either a physical
settlement, a cash settlement, or a net share settlement of its positions under
the put and call options. The Company has a maximum potential obligation under
the put options to buy back 2,380,953 shares of its common stock for an
aggregate price of approximately $67,500,000. The call options entitle the
Company to buy 1,064,085 shares of its common stock for approximately
$33,519,000. The net settlement obligation of the Company, based on the closing
market price of the stock at December 31, 1999, was approximately $7,200,000 or
285,714 shares. The Company continually reevaluates the potential impact of
these option positions and believes its capital resources are sufficient to meet
the potential obligations of these option positions.


                                       40
<PAGE>   47

                               THE EXCHANGE OFFER

GENERAL

  Registration Rights

     The Company and the Initial Purchasers 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 date of closing of each of the 1998 Offering and the 1999 Offering
(each, an "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 Purchasers) 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 representations to the
Company, 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

                                       41
<PAGE>   48


to be exchanged for Exchange Notes in the Exchange Offer or if any holder of
Notes is not eligible to 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 its 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 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
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 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.

     Prior to the date hereof, the Company's Exchange Offer Registration
Statement relating to an exchange offer for the 1998 Old Notes had not been
declared effective under the Securities Act. Under the provisions of the
Registration Rights Agreement relating to such 1998 Old Notes, the Company
continued to pay additional interest on such 1998 Old Notes until the date
hereof.

     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

                                       42
<PAGE>   49

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.


     The summary herein 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, $325.0 million 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                , 2000
(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 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 applicable taxes, in connection with the Exchange Offer. See "Fees and
Expenses."


EXPIRATION DATE; EXTENSIONS; AMENDMENTS


     The term "Expiration Date" shall mean                     , 2000, 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.

                                       43
<PAGE>   50

     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 20, 1998 or
July 20, 1999 (as the case may be). 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 20, 1998 or July 20, 1999 (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 May 15 and
November 15 of each year accruing from the last Interest Payment Date or, in the
case of the first payment, August 20, 1998 or July 20, 1999 (as the case may be)
at a rate of 8 3/4% 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 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

                                       44
<PAGE>   51

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
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.

                                       45
<PAGE>   52

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 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

                                       46
<PAGE>   53

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.

EXCHANGE AGENT

     The 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:

          By Mail:                        United States Trust Company of New
                                          York
                                          P.O. Box 483
                                          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
          on Expiration Date              770 Broadway, 13th floor
          and by Overnight Courier:       New York, NY 10003
                                          Attention: Corporate Trust Services

          By Facsimile:                                  (212) 780-0592
          Confirm by Telephone:                          (800) 548-6565

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.

                                       47
<PAGE>   54

     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.

                                       48
<PAGE>   55


                                    BUSINESS



INTRODUCTION



     ICN Pharmaceuticals, Inc. (the "Company") is a global, research-based
pharmaceutical company that develops, manufactures, distributes and sells
pharmaceutical, research and diagnostic products. In 1999, the Company had
revenues of $747.4 million and net income of $118.6 million. Based on the
closing price of the Company's common stock on the New York Stock Exchange on
March 23, 2000, the Company has an equity market capitalization of approximately
$2.1 billion.



     The Company distributes and sells a broad range of prescription (or
"ethical") and over-the-counter ("OTC") pharmaceutical and nutritional products
in over 90 countries. These pharmaceutical products treat viral and bacterial
infections, diseases of the skin, neuromuscular disorders, cancer,
cardiovascular disease, diabetes and psychiatric disorders.



     The Company pursues a strategy of international expansion which includes:
(i) the acquisition of high margin products that complement existing product
lines and can be introduced into additional markets to meet the specific needs
of those markets; (ii) the creation of a pipeline of new products through
internal research and development, as well as strategic partnerships and
licensing arrangements; and (iii) the consolidation of the Company's leadership
position in Central and Eastern Europe, including Russia. In executing this
strategy, the Company believes that it is uniquely positioned to continue to
exploit its basic competitive advantages: (i) large enough economies of scale in
its global distribution network not enjoyed by smaller pharmaceutical companies
that provide opportunities to develop and register multi-regional products; and
(ii) small enough economies of scale in much of its manufacturing and production
facilities and its local and regional sales and marketing groups that provide
for higher profitability on the Company's smaller, niche products that cannot be
achieved by the larger pharmaceutical companies.



     The Company operates in two principal business areas: the pharmaceutical
business which comprises approximately 92% of the Company's total revenue, and
the biomedical business which makes up the remainder. The Company's
pharmaceutical business operates as five regional businesses: North America,
Latin America, Western and Central Europe (including Poland, Hungary and Czech
Republic), Eastern Europe, and Asia, Africa and Australia (AAA). The Company's
biomedical business operates in three primary areas: research chemicals,
dosimetry and diagnostic equipment. The regional businesses are each comprised
of a number of local operating subsidiaries most of which are owned directly or
indirectly through the Company's principal operating company in the United
States.



     While most of the Company's businesses operate as part of an integrated
strategy, each region utilizes knowledge of the local markets to enhance the
overall performance of the Company. For example, the Company operates six
pharmaceutical companies throughout Eastern Europe and, as measured by sales,
the Company believes it is one of the largest pharmaceutical companies in
Eastern Europe. Long term, the Company believes that as the standard of living
(disposable income as a percentage of GNP) rises, the rate of spending on health
care will increase. The Company also believes it will benefit from the future
growth of the Russian market over the next decade.



ACQUISITIONS



     The Company, as a fundamental aspect of its growth strategy, actively
pursues acquisitions throughout its regions of operations. Currently, the
Company has operations in twelve of the top fifteen pharmaceutical markets, as
measured by sales. Over the past three years, the Company has acquired a variety
of products, some of which are counted as the Company's largest products, and a
number of companies around the world. The following is a summary of the
Company's acquisitions.


                                       49
<PAGE>   56


     Effective September 1, 1999, the Company acquired a chain of 88 retail
outlets in Moscow and St. Petersburg, Russia, for $7.6 million. The purchase
complements the Company's plan to vertically integrate the Russian market and
provides the Company with the ability to effectively implement one element of
its distribution strategy.



     Effective January 1, 1999, the Company acquired 97% of Fuzio-Pharma Rt., a
Hungarian distributor of pharmaceutical products with both wholesale
distribution and retail pharmacy operations, for approximately $2.2 million.



     Effective October 1, 1998, the Company completed the acquisition of the
worldwide rights (except India) to four products from F. Hoffmann-La Roche Ltd.
("Roche"). The products include Dalmane(R)/Dalmadorm(R), a sleep disorder drug;
Fluorouracil(R), an oncology product; Librax(R), a treatment for
gastrointestinal disorders; and Mogadon(R), a sleep disorder drug also used to
treat epilepsy. The aggregate purchase price for the products was $178.8
million, paid in a combination of $89.4 million cash and 2,883,871 shares of the
Company's common stock, valued at $89.4 million. Under the terms of the
Company's agreement with Roche, the Company has guaranteed to Roche a per share
price initially at $31.00, increasing at a rate of 6% per annum through December
31, 2000. If Roche sells any of the shares prior to December 31, 2000, the
Company is entitled to one-half of any proceeds realized by Roche in excess of
the guaranteed price. If the market price of the Company's common stock is below
the guaranteed price at the end of the guarantee period, the Company will be
required to satisfy the aggregate guarantee amount by payment to Roche in cash
or, in certain circumstances, in additional shares of the Company's common
stock. As of December 31, 1999, the Company's guarantee has been reduced to
500,000 shares from the 2,883,871 shares originally issued to Roche. See Note 11
of Notes to Consolidated Financial Statements.



     In October 1998, the Company entered into agreements with Senetek plc under
which it obtained rights to market products, including worldwide rights to
market Kinetin(R) (marketed by the Company as Kinerase(R)), a skin cream to
inhibit signs of aging, through physicians and pharmacies. In 1998, the Company
launched the product and is marketing it through its existing operations.



     In July 1998, the Company acquired Vyzkumny Ustav Antibiotic a
Biotransformacii ("VUAB"), a manufacturing and research facility located in a
suburb of Prague, Czech Republic for $17.9 million in cash. VUAB's two main
product lines are finished forms of human drugs, including injectable
antibiotics and infusion solutions, and pharmaceutical raw materials, including
ephedrine, a powdered or crystalline alkaloid used in the treatment of allergies
and asthma, and nystatin, an antibiotic used in the treatment of fungal
infections.



     In March 1998, the Company acquired the global rights to a portfolio of 32
dermatology products from Laboratorio Pablo Cassara, an Argentine-based
pharmaceutical manufacturer, for $22.5 million cash. The Company markets these
products through its subsidiary, ICN Argentina.



     In February 1998, the Company acquired from SmithKline Beecham plc ("SKB")
the Asian, African and Australian rights to 39 prescription and OTC
pharmaceutical products. The Company received the product rights in exchange for
$45.5 million, of which $22.5 million was paid in cash and the balance in 821
shares of the Company's Series D Convertible Preferred Stock. Each share of the
Series D Convertible Preferred Stock was initially convertible into 750 shares
of the Company's common stock (together, the "SKB Shares"), subject to
antidilution adjustments. The Company agreed to pay SKB an additional amount in
cash (or, under certain circumstances, in shares of common stock) to the extent
proceeds received by SKB from the sale of the SKB Shares during the guarantee
period ending in December 1999 and the then market value of the unsold SKB
Shares did not provide SKB with an average value of $46.00 per common share
(including any dividend paid on the SKB Shares). In December 1999, the Company
satisfied its obligation to SKB by repurchasing the 821 shares of Series D
Convertible Preferred Stock for $28.3 million in cash.



     In 1997, the Company acquired the rights to 11 products from Roche for
$183.2 million in common stock. The products include Librium(R) (tranquilizer),
Efudix(R) /Efudex(R) (topical anti-skin cancer), Glutril(R) (anti-diabetic),
Alloferin(R) (anesthetic), Ancobon(R)/Ancotil(R) (antifungal), Limbitrol(R)
(anti-depressant), Protamin(R) (heparin overdose), Levo-Dromoran(R) (pain
management) and


                                       50
<PAGE>   57


Mestinon(R)/Prostigmin(R)/Tensilon(R)(myasthenia gravis). A state-of-the-art
manufacturing facility in Humacao, Puerto Rico was also purchased from Roche in
a separate transaction for $55 million in cash.



ROYALTY AGREEMENT AND REVENUES



     In 1995, the Company entered into an Exclusive License and Supply Agreement
("License Agreement") with Schering-Plough Corporation ("Schering-Plough")
whereby Schering-Plough licensed all oral forms of ribavirin for the treatment
of chronic hepatitis C ("HCV") in combination with Schering-Plough's alpha
interferon (the "Combination Therapy"). The License Agreement provided the
Company an initial non-refundable payment and future royalty payments to the
Company from sales of ribavirin by Schering-Plough, including minimum royalty
rates. As part of the initial License Agreement, the Company retained the right
to co-market ribavirin capsules in the European Union under its trademark
Virazole(R). Schering-Plough currently has exclusive worldwide marketing rights
for oral forms of ribavirin for hepatitis C and is responsible for all clinical
development and regulatory activities. In 1998, the Company sold to
Schering-Plough its rights to co-market oral ribavirin for the treatment of
hepatitis C in the European Union in exchange for increased royalty rates on
sales of ribavirin worldwide. As part of the original agreement, Schering-
Plough was required to purchase $42 million of the Company's common stock. In
1999, after regulatory milestones were achieved, Schering-Plough purchased
2,041,498 shares of the Company's common stock fulfilling its obligation.



     In June 1998, Schering-Plough received approval from the United States Food
and Drug Administration ("FDA") to market Combination Therapy under the brand
name Rebetron(TM) for the treatment of chronic hepatitis C in patients with
compensated liver disease who have relapsed following alpha interferon therapy
and began selling Combination Therapy in the United States. On June 16, 1998,
Schering-Plough filed a supplemental New Drug Application ("NDA") with the FDA
for Combination Therapy for the treatment of chronic hepatitis C in patients
with compensated liver disease previously untreated with alpha interferon
therapy (referred to as treatment-naive patients) and in December 1998, this
supplemental NDA was approved by the FDA.



     In May 1999, the Company was informed that the European Union's ("EU")
Commission of the European Communities had granted marketing authorization to
Schering-Plough to market Rebetol(R) (ribavirin) capsules for use in combination
with interferon alfa-2b injection (marketed as Intron(R)A in some countries) for
the treatment of both relapsed and previously untreated (naive) HCV patients.
The Commission's approval resulted in a single Marketing Authorization with
unified labeling that is immediately valid in all 15 European Union-Member
States. Schering-Plough commenced marketing Rebetol(R) in Germany (in May 1999),
in the United Kingdom (in July 1999), and in Italy (in October 1999). The
Company anticipates that Schering-Plough will introduce Rebetol(R) in the other
EU markets upon receiving pricing approvals, where necessary, from individual EU
countries.



     Royalty revenues for 1999 were $108.9 million compared to $37.4 million for
1998. The 1999 royalty amount reflects increasing United States commercial sales
of Rebetron(TM) by Schering-Plough subsequent to receipt of initial FDA approval
in June 1998, inception of commercial sales in the EU, and an increase in
compassionate use sales, primarily in Western Europe. The 1998 amounts include a
one-time payment of $16.5 million received from Schering-Plough for past
royalties and as reimbursement of expenses incurred by the Company in
preparation for the launch of ribavirin capsules in the EU.



     The Company believes that the approval of Combination Therapy for the
treatment of chronic hepatitis C is important to the Company because of the
potential size of the chronic hepatitis C market in the United States, Western
Europe, Japan and other markets. According to the Centers for Disease Control
and Prevention ("CDCP"), approximately four million Americans are chronically
infected with the hepatitis C virus. Of these, 20%-50% are expected to develop
liver cirrhosis, of which 20%-30% are expected to go on to develop liver cancer
or liver failure requiring liver


                                       51
<PAGE>   58


transplant. An equal or greater degree of disease prevalence is projected in
Western Europe and Japan.



     Besides the use of ribavirin in Combination Therapy, the Company markets
ribavirin under its own trademark Virazole(R) for commercial sale in over 40
countries for one or more of a variety of viral infections, including
respiratory syncytial virus ("RSV"). In the United States and Europe,
Virazole(R) is approved for use in hospitalized infants and children with severe
lower respiratory infections due to RSV.



     In addition to its pharmaceutical operations, the Company also develops,
manufactures and sells, through its wholly-owned subsidiary, ICN Biomedicals
("Biomedicals"), 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.
Biomedicals accounted for approximately 8% of the Company's total 1999 revenues.



EASTERN EUROPEAN DEVELOPMENTS



     The Company's operations in Eastern Europe were adversely affected by
recent economic and political developments in the region, including the
Yugoslavian government's seizure of the Company's Yugoslavian operations.



  YUGOSLAVIA



     On February 6, 1999, the government of the Federal Republic of Yugoslavia,
acting through the Federal Ministry of Health and/or the Ministry of Health of
Serbia, seized control of the Company's 75% owned subsidiary, ICN Yugoslavia.
This action, based on a decision by the Ministry for Economic and Property
Transformation that was reached on November 26, 1998, effectively reduced the
Company's equity ownership of ICN Yugoslavia from 75% to 35%. The Ministry of
Economic and Property Transformation decision was based on a unilaterally
imposed recalculation of the Company's original capital contribution to ICN
Yugoslavia. Subsequent to the seizure, the Commercial Court of Belgrade issued
an order stating that a change in control had occurred. These actions were
taken, contrary to Yugoslavian law, without any notification to or
representation by the Company. Since the change of control, representatives of
the Company and ICN Yugoslavia's management have been denied access to the
premises and any representation as to the management of ICN Yugoslavia. As a
result, the Company is no longer able to influence the operating and financial
affairs of ICN Yugoslavia and deconsolidated the financial statements of ICN
Yugoslavia as of November 26, 1998. Accordingly, the Company recorded a charge
of $235.3 million in the fourth quarter of 1998. This charge reduces the
carrying value of the Company's investment in ICN Yugoslavia to its fair value,
currently estimated to be zero.



     Prior to the seizure, ICN Yugoslavia's operations were adversely affected
by the April 1998 devaluation of the dinar, which resulted in foreign exchange
losses of $23.9 million for the year. ICN Yugoslavia's domestic sales were
adversely affected by the Company's suspension of sales to the Yugoslavian
government. In addition, ICN Yugoslavia's export sales for the second half of
1998 were adversely affected by the Russian economic crisis. In the second and
third quarters of 1998, the Yugoslavian government defaulted on its obligations
to the Company on $176.2 million of accounts and notes receivable. As a result
of the government's default, the Company recorded a $173.4 million charge
against earnings at ICN Yugoslavia in the second quarter of 1998. The charge is
included in Eastern European charges ($165.6 million), cost of product sales
($3.7 million) and interest income ($4.1 million) in the consolidated statements
of income. The charge consists of a $151.2 million reserve for losses on notes
receivable (including accrued interest), reserves of $7.8 million for losses on
accounts receivable from government-sponsored entities, and a $14.4 million
write-down of the value of related investments and assets.


                                       52
<PAGE>   59


     The Company has commenced litigation in the United States District Court of
the District of Columbia against the government of Yugoslavia and related
agencies to recover damages and obtain injunctive relief. In addition, the
government of Yugoslavia, through a related agency, filed an arbitration
proceeding against the Company before the International Chamber of Commerce for
damages related to the Company's acquisition of majority control of ICN
Yugoslavia. The resolution of these matters may affect the status of some
compounds, which were contributed to ICN Yugoslavia by the Company, in
accordance with the agreement, which led to the formation of ICN Yugoslavia. See
Item 1 "Business -- Research and Development."



PRODUCTS



     During 1999, the ten pharmaceutical products generating the greatest sales
volume for the Company represented approximately 34% of worldwide pharmaceutical
sales. The following table summarizes the Company's top ten pharmaceutical
products based on sales in 1999:



<TABLE>
<CAPTION>
                                                                                           1999         % OF
                                                                     THERAPEUTIC          PRODUCT      PRODUCT
      PRODUCT                       GENERIC NAME                 CATEGORY/INDICATION       SALES        SALES
      -------                       ------------                 -------------------   -------------   -------
                                                                                       (IN MILLIONS)
<S>                   <C>                                        <C>                   <C>             <C>
Efudex(R)/Efudix(R)   fluorouracil                               Citostatic/Actinic       $ 39.2           7%
                                                                 Keratosis
Mestinon(R)           pyridostigmine bromide                     Anticholinesterase/        38.3           7
                                                                 myasthenia gravis
Librax(R)             chlordiazepoxide HCl clidinium bromide     Antispasmotic              27.7           5
Bedoyecta(R)          Vitamin B complex                          Vitamin supplement         19.7           3
Dalmane(R)/           flurazepam                                 Sedative/sleep
Dalmadorm(R)          dihydrochloride                            disorders                  14.3           2
Fluorouracil          fluorouracil                               Oncology                   12.9           2
  injectible
Oxsoralen(R)/         methoxsalen                                Antipsoriatic              12.0           2
  Oxsoralen
Ultra(R)
Librium(R)            chlordiazepoxide HCl                       Tranquilizer               11.5           2
Limbitrol(R)          chlordiazepoxide HCl amitriptyline HCl     Antidepressant             10.5           2
Kinerase(R)           N(6) -- furfuryladenine 0.1%               Dermatological             10.1           2
                                                                                          ------         ---
Sub-total                                                                                  196.2          34
All others                                                                                 381.1          66
                                                                                          ------         ---
          Total pharmaceutical product sales, excluding royalty revenue                   $577.3         100%
                                                                                          ======         ===
</TABLE>



  ANTIVIRALS



     The Company 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. Reference
to the sale of Virazole(R) includes sales made under the trademarks Vilona(R)
and Virazide(R). Ribavirin accounted for approximately 1%, 1% and 3% of the
Company's net product sales for the years ended December 31, 1999, 1998 and
1997, respectively. Ribavirin 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
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, a
system that permits direct delivery of ribavirin to the site of the infection.
Similar approvals for ribavirin for use in the treatment of RSV have been
granted by governmental authorities in 22 other countries.

                                       53
<PAGE>   60


  ANTIBACTERIALS



     The Company sells antibacterial products which accounted for approximately
10%, 10% and 14% of the Company's net product sales for the years ended December
31, 1999, 1998 and 1997, respectively.



     The major products in this group include Ancobon(R)/Ancotil(R), Anapenil(R)
and Yectamicina(R). Ancobon(R)/Ancotil(R) is a systemic anti-fungal product that
is used in the treatment of serious infections. Anapenil(R) is an antibiotic
product that is used in the treatment of susceptible infections. Yectamicina(R)
is a bactericidal aminoglycoside antibiotic that is used in the treatment of
respiratory, urinary, gastrointestinal tract infections, sepsis, meningitis and
bone infections due to Gram-negative and Gram-positive bacteria.



  OTHER ETHICALS



     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. Other ethicals accounted for approximately 68%, 59% and 52%
of net product sales for the years ended December 31, 1999, 1998 and 1997,
respectively.



     Dermatological products represent the Company's largest selling product
line among its other ethical pharmaceutical products. Dermatological products
include Efudex(R)/Efudix(R), Oxsoralen-Ultra(R), Kinerase(R), Solaquin(R), and
Eldoquine(R), which are principally used for actinic keratosis, psoriasis,
reducing wrinkles and other signs of aging and pigmentation disorders,
hypopigmentation (the skin losing its color) and hyperpigmentation (the skin
darker than normal). The Company's largest selling ethical product is
Efudex(R)/Efudix(R), a topical anti-skin cancer product. Other products in this
category include Mestinon(R), Librax(R), Bedoyecta(R), Dalmane(R)/Dalmadorm(R),
Fluorouracil injectible, Librium(R), Limbitrol(R) and Kinerase(R).



  OTC PRODUCTS



     OTC products encompass a broad range of ancillary products, which are sold
through the Company's existing distribution channels. OTC products accounted for
approximately 11%, 22% and 22% of the Company's net product sales for the years
ended December 31, 1999, 1998 and 1997, respectively.



  BIOMEDICAL PRODUCTS



     Research chemicals, diagnostic and other biomedical products accounted for
approximately 10%, 8% and 9% of the Company's net product sales for the years
ended December 31, 1999, 1998 and 1997, respectively.



     Research Chemicals: The Company serves life science researchers throughout
the world primarily through a catalog sales operation. 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, 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.

                                       54
<PAGE>   61


     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 are based upon the
expertise accumulated in over 35 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 global and regional basis. In
connection with this, 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. In addition, the Company
develops innovative products targeted to address the specific needs of the
Company's local markets. The Company currently has approximately 370 employees
devoted to research and development activities.



  NEAR AND MEDIUM-TERM RESEARCH AND DEVELOPMENT



     The Company's near-term development pipeline includes the registration of a
number of products in regional markets, including, but not limited to, Latin
America and Central and Eastern Europe. This ongoing activity introduces both
high quality generic and licensed proprietary products into under-served
markets.



     The Company's medium-term research and development pipeline involves the
preclinical and clinical evaluation of some nucleoside compounds which have
broad market attractiveness and which have shown promise for successful
commercialization. These compounds include:



     Virazole(R) (ribavirin): In addition to the use of ribavirin for chronic
hepatitis C, clinical studies have been performed with ribavirin 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 ribavirin are herpes
zoster, genital herpes, chicken pox, hemorrhagic fever with renal syndrome,
measles, influenza and HIV. The Company is initiating focused clinical studies
evaluating the use of ribavirin 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 Phase II/III
evaluation of Tiazole(TM) for use in the treatment of the late stages of chronic
myelogenous leukemia with Blastic crisis. The Company is also evaluating
Tiazole(TM) for the treatment of ovarian cancer.



     Adenazole(TM) (8-CI cAMP, ocladesine): This nucleoside analog has been
shown to control cell growth and proliferation in some cancers by selective
interaction with intracellular regulatory molecules. Independent investigators
in Italy and Scotland have conducted preliminary trials in humans that indicate
utility of this compound. Based on these encouraging results, the Company has
undertaken a formal development program designed to lead to registration in the
United States for the treatment of colon cancer. Based on an initial meeting
with the FDA in October 1998, the Company has filed an Investigational New Drug
Application ("IND") with the FDA in the second half of 1999, with clinical
evaluations beginning in 2000.


                                       55
<PAGE>   62


     The rights to the compounds Tiazole(TM) and Adenazole(TM) were among the
assets which the Company contributed to ICN Yugoslavia, upon the formation of
that joint venture in 1991. The resolution of the ongoing matter with the
Yugoslavian government may affect the status of these compounds.



     Levovirin(TM): The pre-clinical studies have indicated that this nucleoside
analog has the immunomodulatory regulatory activity of ribavirin (in enhancing
the patients' immune response against viral infection), but without the direct
antiviral effect and the toxicity of ribavirin. The immunomodulatory activity of
ribavirin is believed to play an important role in its activity against
hepatitis C virus infection in conjunction with interferon-alfa. Hence, it is
possible that Levovirin(TM) may also have the same therapeutic efficacy as
ribavirin but without the associated side-effects such as hemolysis which leads
to dose reduction or discontinuation in approximately 15% of the patients. The
Company expects to file an IND in the second half of 2000 and initiate a Phase I
study prior to the end of 2000.



     Viramidine(TM): The pre-clinical studies have indicated that this
nucleoside analog has the same pattern of immunomodulatory and antiviral
activity as ribavirin but was found to have less side-effects compared to
ribavirin in preliminary studies. The Company is conducting a number of
preclinical studies, including virologic studies, mechanism of action studies,
drug metabolism studies and ancillary pharmacology studies to evaluate the
potential of this nucleoside analog. If the efficacy and toxicity profile are
confirmed, this nucleoside analog may be another candidate for further
development as an antiviral therapy.



  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 and
diseases of the skin.



     The Company is engaged in two research areas that 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 ribavirin by the Company and to other nucleoside therapeutics,
in particular, antiviral and anticancer drugs, by other companies. The second
area is the use of "antisense" oligonucleoside technology. This approach seeks
to block the undesirable expression of genetic material in a highly selective
way through the construction of short sequences of nucleosides, which uniquely
bind and inactivate the disease-causing genetic material. Both of these
approaches take advantage of the Company's knowledge base in nucleic acids.



     There can be no assurance of the results of any of the Company's research
and development efforts or the ultimate commercial success of any of the
products in development.



MARKETING AND CUSTOMERS



     The Company markets its pharmaceutical products in some of the most
developed pharmaceutical markets, as well as many developing markets. 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 successfully market a wide array of
pharmaceutical products within diverse regional markets, as well as some drugs
on a worldwide basis.



     The Company has a marketing and sales staff of approximately 2,800 persons
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.


                                       56
<PAGE>   63


     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 Canada, the
Company has its own sales force and promotes and sells directly to physicians,
hospitals, wholesalers and large drug store chains. In Latin America,
principally Mexico and Argentina, 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 and Central European
markets, particularly the United Kingdom and Germany, sales forces have recently
been established and distribution methods are expanding to meet market demand as
Company affiliates are formed. ICN Hungary, ICN Poland and ICN Czech Republic
are continuing to build their marketing, sales, and distribution capabilities as
these countries transition into the European Union common market.



     In Russia, the Company's sales and marketing organization is in various
stages of development. Most of the domestic product line is sold through a
network of distributors and their agents and accounts for approximately 90% of
in-market sales. Products imported from other subsidiaries such as branded
generics or proprietary drugs are promoted directly to physicians through the
Company's own sales force. In addition, the Company utilizes its own network of
distributors and wholesalers, as well as third party distributors and
wholesalers, to market to pharmacies and hospitals. Additionally, in September
1999, the Company acquired a chain of 88 retail pharmacies in Moscow and St.
Petersburg, Russia from an affiliate of Groupe Multipharma SC. The acquisition
of these retail pharmacies provides the Company with the ability to effectively
implement one element of its distribution strategy.



     The research chemical and diagnostic product lines are sold worldwide
primarily through the Company's mail order catalogs. 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.



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 may also face increased competition from manufacturers of
generic pharmaceutical products when patents covering some of its currently
marketed products expire.



MANUFACTURING



     The Company manufactures its pharmaceutical products at 19 facilities. At
the Humacao, Puerto Rico plant, the Company has a toll manufacturing agreement
with Roche to manufacture its products for its U.S. and European market. The
Company also uses the Humacao plant to produce and distribute the Company's
pharmaceutical products. The Company believes it has sufficient manufacturing
facilities to meet its needs for the foreseeable future. All of the
manufacturing facilities that require certification from the FDA or foreign
agencies have obtained such approval.


                                       57
<PAGE>   64


     In order to meet the demand for some of its markets, the Company
subcontracts the manufacturing of some of its products, including products under
the rights acquired from other pharmaceutical companies. Generally, acquired
products continue to be produced for a specific period of time by the selling
company. During that time, the Company integrates the products into its own
manufacturing facilities or initiates toll manufacturing agreements with third
parties. As a result of the acquisition of products from Roche, the Company is
in the process of transferring technology that will allow the Company to assume
the production of the acquired products. However, there can be no assurance that
the Company will be successful in its efforts to manufacture such products or
that such products will continue to be available from outside suppliers.



     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 immunobiologicals); and
Eschwege, Germany (chromatography products).



EMPLOYEES



     As of December 31, 1999, the Company employed 14,266 persons. These
employees included 9,003 in production, 2,824 persons in sales and marketing,
370 in research and development, and 2,069 in general and administrative
matters. The majority of the Company's employees in Mexico, Spain, Poland and
Hungary are covered by collective bargaining or similar agreements.
Substantially all of the employees of ICN Russia, ICN Czech Republic and ICN
Hungary are covered by national labor laws which establish the rights of
employees, including the amount of wages and benefits paid and, in some cases,
severance and similar benefits. The Company currently considers its relations
with its employees to be satisfactory and has not experienced any work
stoppages, slowdown or other serious labor problems which have materially
impeded its business operations.



LICENSES, PATENTS AND TRADEMARKS (PROPRIETARY RIGHTS)



     The Company may be dependent on the protection afforded by its patents
relating to ribavirin and no assurance can be given as to the breadth or degree
of protection which these patents will afford the Company. Also, the Drug Price
Competition and Patent Term Restoration Act of 1984 (the Waxman-Hatch Act)
provides for the award of exclusivity for a period of three years from the date
of approval of NDAs containing significant new clinical studies for products
whose patent protection would otherwise expire. A request for such an award has
been made subsequent to the approval of Combination Therapy for the treatment of
relapsed patients. The FDA Modernization Act of 1997 provides for the award of
six months of additional exclusivity following the submission to the FDA of data
from appropriate studies in pediatric patients. Studies that qualify under this
provision are planned. The Company has patents in some foreign countries,
including Japan, covering the antiviral use of ribavirin, for which coverage and
expiration varies and which patents expire at various times through June 2005.
The Company has no, or limited, patent rights relating to the antiviral use of
ribavirin in some foreign countries where ribavirin is currently, or in the
future may be, approved for commercial sale, including countries in the European
Union. However, Combination Therapy was granted a favorable review
classification through the Concertation Procedure for regulatory approval within
the European Union. As a result, the data submitted to obtain such approval
cannot be referenced in support of another's application to register a competing
product for the approved indications for a period of no less than six and not
more than ten years. Any such application must be on the basis of independently
generated data of substantially equal quality, thus providing a significant
barrier to entry for any generic substitutes of Combination Therapy in the
European Union.



     Marketing approvals in some 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 that it may
develop or acquire in the future. However, there can be no assurance that any

                                       58
<PAGE>   65


patents applied for will be granted, or that, if granted, they will have
commercial value; nor can there be any assurance as to their 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 some
countries in which the Company markets its products.



     Many of the names of the Company's products are registered trademarks in
the United States, 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 that may become useful to the Company's business. The 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 an 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 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 inspects manufacturing facilities.



     The Company is subject to price control restrictions on its pharmaceutical
products in a majority of countries in which it operates. The Company has been
affected in the past by pricing adjustments in Spain and by the lag in allowed
price increases in Russia and Mexico, which has created lower sales in United
States 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: See Note 12 of Notes to Consolidated Financial Statements for a
description of the Company's Litigation.



     Product Liability Insurance: The Company is currently self-insured with
respect to product liability claims. The Company could be exposed to possible
claims for personal injury resulting from allegedly defective products. While to
date, no material adverse claim for personal injury resulting

                                       59
<PAGE>   66


from allegedly defective products has been successfully maintained against the
Company, a substantial claim, if successful, could have a negative impact on the
results of operations and cash flows.



FOREIGN OPERATIONS



     The Company operates directly and through distributors in North America,
Latin America (principally Mexico), Western and Central Europe and Eastern
Europe and through distributors elsewhere in the world. For financial
information about domestic and foreign operations, see Note 13 of Notes to
Consolidated Financial Statements.



     Approximately 64%, 76%, and 82% of the Company's revenues for the years
ended December 31, 1999, 1998, and 1997 were generated from operations outside
the U.S. Foreign operations are subject to 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 action. 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 provide a hedge
on its foreign currency exposure and, in some countries in which the Company
operates, no effective hedging program is available.



     Russia continues to experience economic difficulties following the
financial crisis of August 1998. Consequently, the ruble continues to devalue,
there is continued volatility in the debt and equity market, hyperinflation
persists, confidence in the banking sector has yet to be restored and there
continues to be general lack of liquidity in the economy. In addition, laws and
regulations affecting businesses operating within Russia continue to evolve.
Russia's return to economic stability is dependent to a large extent on the
effectiveness of the measures taken by the government, decisions of
international lending organizations, and other actions, including regulatory and
political developments, which are beyond the Company's control.



     Since August 1998, the ruble fell sharply from a rate of 6.3 rubles to $1
to a rate of 20.7 rubles to $1 at December 31, 1998 and has further declined to
a rate of 27.5 rubles to $1 at December 31, 1999. As a result of these declines
in the ruble exchange rate, the Company recorded translation and exchange losses
of $6.7 million and $53.8 million related to its Russian operations during 1999
and 1998, respectively.



     The Company believes that the economic and political environment in Russia
has affected the pharmaceutical industry in the region. Many Russian companies,
including many of the Company's customers, continue to experience liquidity
problems as monetary policies have limited the money supply, and Russian
companies often lack access to an effective banking system. As a result, many
Russian companies have limited ability to pay their debts, which has lead to a
number of business failures in the region. In addition, the devaluation has
reduced the purchasing power of Russian companies and consumers, thus increasing
pressure on the Company and other producers to limit price increases in hard
currency terms. These factors have affected, and may continue to adversely
affect, sales and gross margins in the Company's Russian operations. As a result
of the Russian economic situation, the Company recorded a charge in 1998 of
$42.3 million among several of its operating segments, which is included in
Eastern European charges ($39.9 million) and cost of product sales ($2.4
million) in the consolidated statements of income. The charge consists of
reserves of $37.9 million for losses on accounts receivable, the write-off of
investments of $2.0 million, and a reduction in the value of inventories of $2.4
million.


                                       60
<PAGE>   67


PROPERTIES



     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>
NORTH AMERICA
Costa Mesa, California       Corporate headquarters and              Owned    178,000
                             administrative offices
Orangeburg, New York         Manufacturing facility                  Owned    100,000
Aurora, Ohio                 Offices, manufacturing and             Leased     75,850
                             repackaging facility
Humacao, Puerto Rico         Offices and manufacturing facility      Owned    397,000
Montreal, Canada             Offices and manufacturing facility      Owned     93,519
LATIN AMERICA
Mexico City, Mexico          Offices and manufacturing facility      Owned    189,581
WESTERN AND CENTRAL EUROPE
Eschwege, Germany            Offices and manufacturing facility      Owned     28,632
Zoetermeer, The Netherlands  Offices and manufacturing facility      Owned     23,430
Barcelona, Spain             Offices and manufacturing facility      Owned     93,991
Basingstoke, United Kingdom  Administrative and sales offices       Leased     10,700
Prague, Czech Republic       Offices and manufacturing facility      Owned    262,032
Budapest, Hungary            Offices and warehouse                   Owned     22,099
Tiszavasvari, Hungary        Offices and manufacturing facility      Owned    559,465
Rzeszow, Poland              Offices and manufacturing facility      Owned    472,133
EASTERN EUROPE
Chelyabinsk, Russia          Offices and manufacturing facility      Owned    329,405
Kursk, Russia                Offices and manufacturing facility      Owned     65,515
Moscow, Russia               Eastern European headquarters           Owned    102,400
St. Petersburg, Russia       Offices and manufacturing facility      Owned    350,033
Tomsk, Russia                Offices and manufacturing facility      Owned    301,680
Yoshkar-Ola, Russia          Offices and manufacturing facility      Owned    737,802
ASIA, AFRICA, AUSTRALIA
Wuxi, China                  Offices and manufacturing facility      Owned    327,072
</TABLE>



     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.




                                       61
<PAGE>   68

                                   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...............................  70     Chairman of the Board and Chief Executive
                                                   Officer
Norman Barker, Jr.........................  77     Director
David H. Batchelder.......................  50     Director
Birch E. Bayh.............................  72     Director
Alan F. Charles...........................  62     Director
Roger Guillemin, M.D., Ph.D. .............  76     Director
Adam Jerney...............................  58     Director, President and Chief Operating
                                                   Officer
Weldon B. Jolley, Ph.D. ..................  73     Director
Andrei Kozyrev, Ph.D. ....................  49     Director
Jean-Francois Kurz........................  66     Director
Thomas H. Lenagh..........................  81     Director
Stephen D. Moses..........................  65     Director
Michael Smith, Ph.D. .....................  68     Director
Roberts A. Smith, Ph.D. ..................  71     Director
Richard W. Starr..........................  79     Director
John E. Giordani..........................  57     Executive Vice President
Bill A. MacDonald.........................  52     Executive Vice President -- Strategic
                                                   Planning
David C. Watt.............................  47     Executive Vice President -- General
                                                   Counsel and Corporate Secretary
Richard A. Meier..........................  40     Executive Vice President and Chief
                                                   Financial Officer
Jack L. Sholl.............................  58     Senior Vice President -- Human Resources
Johnson Y.N. Lau..........................  40     Senior Vice President, Research and
                                                   Development
</TABLE>


     Milan Panic, the founder of ICN, has been Chairman of the Board and Chief
Executive Officer 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.
Mr. Panic served as Chairman of the Board and Chief Executive Officer of SPI,
Viratek and Biomedicals from their respective inceptions (except for such leaves
of absence) prior to the Merger, and he may be deemed to be a "control person"
of the Company.


     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 a director of Bank Plus, Inc. and TWC Convertible Securities, Inc.



     Mr. Batchelder is a Principal and Managing Member of Relational Investors,
LLC, of which he was a founder in 1996. He has served as the Chairman and Chief
Executive Officer of Batchelder & Partners, Inc., a financial advisory and
investment-banking firm based in San Diego, California, since 1988. Mr.
Batchelder is a director of Apria Healthcare Group, Morrison Knudsen
Corporation, and Nuevo Energy Company.


                                       62
<PAGE>   69


     Birch E. Bayh, has served as a director of ICN since 1992. Senator Bayh is
a senior partner in the Washington, D.C. law firm of Oppenheimer, Wolff,
Donnelly and Bayh, L.L.P. He was previously head of the Washington, D.C. office
of Bayh, Connaughton & Stewart, L.L.P. (1991-1997) and Rivkin, Radler, Bayh,
Hart & Kremer (1985-1991), and a partner of the Indianapolis, Indiana and
Washington, D.C. law firm of Bayh, Tabbert & Capehart (1981-1985). From 1963 to
1981, Mr. Bayh served as United States Senator from the State of Indiana. Mr.
Bayh is a director of 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 management. Mr. Charles is a director of the Rand
Institute of Civil Justice.



     Roger Guillemin, M.D., Ph.D., has served as a director of the Company since
1989. Dr. Guillemin has been a Distinguished Scientist at the Whittier Institute
in La Jolla, California from March 1989 to 1995 and was 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. Mr. Guillemin is a director of Theratechnologies, Inc. and CEREP S.A.


     Adam Jerney has served as a director of the Company since 1992. Mr. Jerney
is currently President and Chief Operating Officer 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 4, 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. He became President of the Company in 1997.
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.

     Andrei Kozyrev, Ph.D., has served as a director of ICN since 1998. Dr.
Kozyrev currently serves as a member of the Russian Parliament. Dr. Kozyrev
served as the Minister of Foreign Affairs of the first democratic government of
the Russian Federation from 1990 until 1992. After dissolution of the Soviet
Union, Dr. Kozyrev was appointed Foreign Minister and served until January 1996.
Dr. Kozyrev earned his Ph.D. in History. He is also an author, having published
several works on the Russian economy and international affairs.

     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.

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<PAGE>   70

     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.


     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. Mr. Moses serves on the Board of
Directors of The Central Asian-American Enterprise Fund and is Chair of its
investment committee. He is a member of the Board of Directors of Steadfast
Ventures, Inc. He also serves on the Board of Trustees of Franklin and Marshall
College and the Board of Counselors of The UCLA Foundation.



     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 and University Professor
at the University. 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. Mr. Smith is a director
of Pasteur-Merieux-Counaught, North America.



     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 Medical 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.

     John E. Giordani joined ICN in 1987 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. 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.

     Bill A. MacDonald joined ICN in March 1982. Prior to the Merger, he was
President of Biomedicals since March 1993. From 1980 to 1982, he served as 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. In
February 1994, Mr. Watt was elected Executive Vice President, General Counsel
and Secretary 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 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.

                                       64
<PAGE>   71


     Richard A. Meier joined ICN in May 1998 as Senior Vice
President -- Treasurer and Corporate Finance. He was promoted to Executive Vice
President to Chief Financial Officer in January 2000. From October 1996 to May
1998, he served in various capacities with the investment banking firm of
Schroder & Co. Inc. From 1994 to 1996, he was employed by Smith Barney, Inc.
Prior to that, he served in various banking capacities at other firms.


     Jack L. Sholl joined ICN in August 1987 as Vice President, Public
Relations. He was promoted to Senior Vice President of SPI in January 1991 and
was elected Senior Vice President -- Corporate 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.


     Johnson Y.N. Lau, M.D., Ph.D., joined ICN in March 2000 as Senior Vice
President, Research and Development. Before joining ICN, he was a Senior
Director in Antiviral Research at the Schering-Plough Research Institute. He
served as a faculty member at the University of Florida from 1992 to 1996. From
1989 to 1991, he served as a faculty member at the Institute of Liver Studies,
King's College Hospital School of Medicine and Dentistry, University of London.


                          DESCRIPTION OF THE NEW NOTES

GENERAL

     The New Notes will be issued under an Indenture (the "Indenture"), dated as
of August 20, 1998, by and between the Company and U.S. 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 Notes and the Indenture, including the definitions of terms
contained therein and including those terms made part of the Indenture by
reference to the Trust Indenture Act. A copy of the proposed form of Indenture
may be obtained from the Company. The definitions of 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 $350.0 million ($200.0 million of which were
issued in the 1998 Offering and $125.0 million of which were issued in the 1999
Offering). The Notes will mature on November 15, 2008. Interest on the Notes
will accrue at the rate of 8 3/4% per annum and will be payable semi-annually in
arrears on May 15 and November 15 in each year, commencing on November 15, 1998,
to holders of record on the immediately preceding May 1 and November 1,
respectively. The Notes issued in the 1999 Offering were offered at a discount
from their principal amount at maturity. As a result, for federal income tax
purposes, holders of the 1999 New Notes may be required to include amounts as
income prior to the receipt of cash attributable thereto. See "Federal Income
Tax Consequences -- Original Issue Discount." 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

                                       65
<PAGE>   72

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 some circumstances for any tax or
other governmental charge that may be imposed in connection therewith.


REDEMPTION

     Mandatory Redemption.  The Notes are not subject to any mandatory sinking
fund redemption prior to maturity.

     Optional Redemption.  At any time or from time to time on or prior to
November 15, 2001, the Company may, at its option, redeem up to $70 million of
the aggregate principal amount of the Notes with the net proceeds of one or more
Public Equity Offerings, at a redemption price equal to 108.75% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
redemption; provided, however, that such redemption is effected within 90 days
after the consummation of any such Public Equity Offering.

     "Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of the Company pursuant to an
effective registration statement filed under the Securities Act.

     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,
including the Company's 9 1/4% Senior Notes 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 of
the Company's subsidiaries. As of December 31, 1999, the Company had
approximately $3.1 million of secured indebtedness outstanding and its
subsidiaries had aggregate indebtedness and other obligations of approximately
$9.4 million outstanding. See "Risk Factors -- Ranking of the Notes; Subsidiary
Operations."


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<PAGE>   73

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 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

                                       67
<PAGE>   74

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.

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 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 issued in
     the Offering 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;

                                       68
<PAGE>   75

          (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 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 $35.0
     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

                                       69
<PAGE>   76

          (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

             (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 will 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);

          (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 SmithKline Beecham plc or any other Person as
     consideration for or in exchange for products used in the Company's
     business in an amount not to exceed $40.0 million in the aggregate;

          (v) other payments not otherwise permitted by the foregoing clauses
     (i) through (iv) in an aggregate amount not to exceed $20.0 million.

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<PAGE>   77

     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 Equivalents; provided, however,
that (A) 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) and (B) the 75% cash or Cash Equivalents
requirement will not apply to any sale of all or substantially all of the assets
or Capital Stock of ICN Biomedicals, Inc.

     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
                                       71
<PAGE>   78

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, 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

                                       72
<PAGE>   79

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 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;

                                       73
<PAGE>   80

          (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.

     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

                                       74
<PAGE>   81

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
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 "-- Certain
Covenants -- 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 Indebted-
                                       75
<PAGE>   82

     ness 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) 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 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 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.

                                       76
<PAGE>   83

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 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, some 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.


     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, United
States 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

                                       77
<PAGE>   84

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).

     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
                                       78
<PAGE>   85

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

     U.S. 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 some 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.


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 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 "-- Certain Covenants -- Limitation on
Restricted Payments" and

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<PAGE>   86

(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 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 United States 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

                                       80
<PAGE>   87

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.

     "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 "-- Certain Covenants -- 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.

                                       81
<PAGE>   88

     "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 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
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<PAGE>   89

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, 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

                                       83
<PAGE>   90

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 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
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<PAGE>   91

Investments not to exceed $50.0 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 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,

                                       85
<PAGE>   92

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 "-- Certain
Covenants -- 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 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.

                                       86
<PAGE>   93

                         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 The Depository Trust Company ("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 restrictions on transfer
set forth therein and will bear a restrictive legend.


     Notes (i) originally purchased by "foreign purchasers" 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. The Company expects that 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 depository. 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.

     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

                                       87
<PAGE>   94

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.


     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 Purchasers), banks, trust
companies and clearing corporations and 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 a restrictive legend.

                                       88
<PAGE>   95


                      U.S. FEDERAL INCOME TAX CONSEQUENCES

GENERAL

     In the opinion of Proskauer Rose LLP, counsel to ICN, the following are 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. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the validity of the statements and
conclusions set forth below. Any such changes or interpretations may be
retroactive and could adversely affect a holder of the New Notes. This
discussion assumes that the New Notes are or will be held as capital assets (as
defined in Section 1221 of the Code) by the holders thereof. Except as otherwise
described herein, this discussion applies only to a holder who is:

          (1) a citizen or resident of the United States for U.S. federal income
     tax purposes,

          (2) a corporation created or organized in or under the laws of the
     United States or of any political subdivision thereof,

          (3) an estate the income of which is subject to U.S. federal income
     taxation regardless of its source, or

          (4) a trust that is subject to the primary supervision of a court
     within the U.S. and the control of one or more U.S. persons as described in
     Section 7701(a)(30) of the Code (a "U.S. Holder").


     The following discussion does not purport to deal with all aspects of U.S.
federal income taxation that might be relevant to particular holders in light of
their personal investment circumstances or status (including non-U.S. holders
who realize income or gain in respect of the Notes which is effectively
connected with their conduct of a U.S. trade or business), nor does it discuss
the U.S. federal income tax consequences to holders subject to special treatment
under the U.S. federal income tax laws, such as financial institutions,
insurance companies, dealers in securities, persons who hold their Notes through
partnerships or other pass-through entities, tax-exempt organizations, or
persons that hold Notes as part of a straddle or a hedging or conversion
transaction. Moreover, the effect of any applicable state, local or foreign tax
laws is not discussed.


     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.

     THE FOLLOWING DISCUSSION IS FOR YOUR GENERAL INFORMATION ONLY. YOU ARE
STRONGLY URGED TO CONSULT WITH YOUR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF
YOUR PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING THE
TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES.

     Exchange Offer. The exchange pursuant to the Exchange Offer of (i) the 1998
Old Notes for 1998 New Notes and (ii) the 1999 Old Notes for 1999 New Notes will
not be treated as taxable exchanges for U.S. federal income tax purposes and the
1998 and 1999 New Notes will be treated as a continuation of the 1998 and 1999
Old Notes, respectively, 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.

                                       89
<PAGE>   96

PAYMENTS OF STATED INTEREST

     Interest paid on a New Note will generally be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is received in accordance
with the U.S. Holder's method of accounting for U.S. federal income tax
purposes.

ORIGINAL ISSUE DISCOUNT

  1999 New Notes

     The 1999 New Notes bear original issue discount ("OID"), and each U.S.
Holder is required to include in income, in each year (regardless of whether
such U.S. Holder is a cash or accrual basis taxpayer), in advance of the receipt
of cash payments on such Notes, that portion of the OID, computed on a constant
yield-to-maturity basis, attributable to each day during such year on which the
U.S. Holder held the 1999 New Notes.


     The 1998 New Notes were issued with de minimis OID. The amount of OID on a
Note is de minimis if the amount of OID is less than 0.25% of a Note's stated
redemption price at maturity multiplied by the number of complete years to
maturity (in the case of an installment obligation a Note's weighted average
maturity is used instead of the number of complete years to maturity). If the
amount of OID with respect to a Note is less than the de minimis amount, the
amount of OID is treated as zero, and all stated interest (including stated
interest that would otherwise be characterized as OID) is treated as "qualified
stated interest." Qualified stated interest generally means stated interest at
the lowest rate provided for over the term of the debt instrument that is
unconditionally payable at least annually at a fixed rate (or subject to
specific conditions, based on one or more indices).


  The Amount of Original Issue Discount

     The amount of OID with respect to each 1999 New Note is equal to the excess
of (1) its "stated redemption price at maturity" over (2) its "issue price."
Under the OID Regulations, the "issue price" of the New Notes is the initial
offering price to the public (not including any bond house, broker or similar
person or organization acting in the capacity of an underwriter, placement agent
or wholesaler) at which a substantial amount of the Notes are sold, and the
"stated redemption price at maturity" of each New Note is the sum of all cash
payments (whether denominated as principal or interest) provided by the New
Note. The aggregate amount of OID will be $31.01 per $1,000 principal amount of
1999 New Notes.

  Taxation of Original Issue Discount

     A U.S. Holder of a debt instrument issued with OID is required to include
in gross income (generally as ordinary interest income) for U.S. federal income
tax purposes an amount equal to the sum of the "daily portions" of such OID for
all days during the taxable year on which the holder holds the debt instrument.
The daily portions of OID required to be included in a holder's gross income in
a taxable year is determined upon a constant yield-to-maturity basis by
allocating to each day during the taxable year on which the holder holds the
debt instrument a pro rata portion of the OID on such debt instrument which is
attributable to the "accrual period" (generally the period between interest
payment or compounding dates) in which such day is included. The amount of the
OID attributable to each "accrual period" is the product of (1) the "adjusted
issue price" at the beginning of such accrual period and (2) the "yield to
maturity" of the debt instrument (stated in a manner appropriately taking into
account the length of the accrual period). The "adjusted issue price" of a Note
at the beginning of an accrual period generally will be equal to the issue price
of the Note plus the aggregate amount of OID that accrued in all prior accrual
periods, less any cash payments that have been made on the Note. Payments on the
Notes are not separately included in a U.S. Holder's income as interest, but
rather are treated first as payments of previously accrued and unpaid OID and
then as payments of principal.

                                       90
<PAGE>   97


     We will furnish annually to the IRS and to record holders of the 1999 New
Notes (other than with respect to exempt holders) information relating to the
stated interest and the OID accruing during the calendar year. Such information
will be based on the amount of OID that would have accrued to a holder who
acquired the 1999 New Note on original issue.


     Sales, Exchange or Redemption of Notes. Unless a nonrecognition provision
applies, upon the sale, exchange (except pursuant to the Exchange Offer as
provided above), redemption (including pursuant to an offer by the Company 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 the amount of OID, if any, previously included in such U.S.
Holder's income and 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 or acquisition premium (defined below) and
payments of principal and any interest, other than stated interest, received.
Generally, and subject to the discussion under "Market Discount" below, any 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 20 percent. The
deductibility of capital losses is subject to limitations.

     Acquisition at a Premium. If a subsequent U.S. Holder acquires a Note for
an amount (exclusive of accrued and unpaid stated 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. Similarly, if a subsequent U.S.
Holder acquires a Note for an amount (exclusive of accrued and unpaid stated
interest through the acquisition date) in excess of the Note's adjusted issue
price ("Acquisition Premium"), the U.S. Holder may amortize the Acquisition
Premium using a constant yield method to reduce the amount of OID required to be
included in income.

     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.

                                       91
<PAGE>   98

NON-U.S. HOLDERS

     Payments of principal, if any, and interest (including OID) by the Company
or its agent (in its capacity as such) to any holder who is a beneficial owner
of a Note and who holds the Note as a capital asset but who is not a U.S. Holder
are not subject to U.S. federal income or withholding tax provided, in the case
of interest (including OID) that:

          (1) such holder does not actually or constructively own 10% or more of
     the total combined voting power of all classes of our stock entitled to
     vote and, is not a controlled foreign corporation for U.S. federal income
     tax purposes that is related to the Company through stock ownership, and

          (2) such holder either (A) certifies to the Company or its agent,
     under penalties of perjury, that it is not a U.S. Holder and provides its
     name and address, or (B) is a securities clearing organization, bank or
     other financial institution that holds customers' securities in the
     ordinary course of its trade or business (a "financial institution") and
     certifies to the Company or its agent, under penalties of perjury, that the
     certification described in clause (A) hereof has been received from the
     beneficial owner by it or by another financial institution acting for the
     beneficial owner and furnishes the Company with a copy thereof.

A holder of a note who is not a U.S. Holder, and who does not meet the
requirements of (1) or (2) above, would generally be subject to U.S. federal
withholding tax at a flat rate of 30% (or a lower applicable treaty rate) on
payments of interest (including OID) on the Notes.

     Treasury Regulations recently issued by the IRS, which will be effective
January 1, 2001, make modifications to the certification procedures applicable
to non-U.S. Holders. In general, these regulations unify certification
procedures and forms and clarify and modify reliance standards. A non-U.S.
Holder should consult its own advisor regarding the effect of the new Treasury
Regulations.


     Any capital gain realized upon the sale, exchange, redemption or other
disposition of a Note by a holder who is not a U.S. Holder and who holds the
note as a capital asset is not subject to U.S. federal income or withholding
taxes unless, in the case of an individual, such holder is present in the United
States for 183 days or more in the taxable year of the sale, exchange,
redemption or other disposition and other conditions are met.


BACKUP WITHHOLDING AND INFORMATION REPORTING FOR U.S. AND NON-U.S. HOLDERS


     Noncorporate U.S. Holders may be subject to backup withholding at a rate of
31% on payments of principal and interest (including OID) on, and the proceeds
of a disposition of, a Note. Backup withholding will apply only if the U.S.
Holder (1) fails to furnish its taxpayer identification number ("TIN") which, in
the case of an individual, would be his or her Social Security number, (2)
furnishes an incorrect TIN, (3) is notified by the IRS that it has failed to
properly report payments of interest and dividends or (4) under circumstances,
fails to certify, under penalty of perjury, that it has furnished a correct TIN
and has not been notified by the IRS that it is subject to backup withholding.
U.S. Holders should consult their tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption if applicable.


     Treasury Regulations provide that backup withholding will not apply to
payments on the Notes by us to a non-U.S. Holder if the holder certifies as to
its non-U.S. status under penalties of perjury or otherwise establishes an
exemption provided that neither the Company nor its paying agent has actual
knowledge that the holder is a U.S. person or that the conditions of any other
exception are not, in fact, satisfied.

     The payment of the proceeds from the disposition of Notes to or through the
U.S. office of any broker, U.S. or foreign, will be subject to possible backup
withholding unless the owner certifies as to its non-U.S. Holder status under
penalty of perjury or otherwise establishes an exemption, provided that the
broker does not have actual knowledge that the holder is a U.S. person or that
the
                                       92
<PAGE>   99


conditions of any other exemption are not, in fact, satisfied. Backup
withholding will not apply to payments made through foreign offices of a broker
that is not a U.S. person or a U.S. related person (absent actual knowledge that
the payee is a U.S. person). For purposes of this paragraph, a "U.S. related
person" is (1) a "controlled foreign corporation" for U.S. federal income tax
purposes, (2) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its taxable year
preceding the payment (or for such part of the period that the broker has been
in existence) is derived from activities that are effectively connected with the
conduct of a U.S. trade or business, or (3) with respect to payments made after
December 31, 1999, a foreign partnership that, at any time during its taxable
year, is 50% or more (by income or capital interest) owned by U.S. persons or is
engaged in the conduct of a U.S. trade or business. Treasury Regulations provide
presumptions under which a non-U.S. Holder will be subject to backup withholding
unless the non-U.S. Holder provides a certification as to its non-U.S. Holder
status.


     The amount of any backup withholding from a payment to a U.S. Holder or a
non-U.S. Holder will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.

     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.

                                       93
<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 ACCOUNTANTS



     The financial statements as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 included in this
Prospectus have been so included in reliance on the report, which includes an
emphasis-of-a-matter paragraph related to the Company's change in method of
accounting for its investment in ICN Yugoslavia, a previously consolidated
subsidiary, of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting. With respect to
the unaudited consolidated financial information of the Company for the
three-month periods ended March 31, 2000 and 1999 included in and incorporated
by reference in this Prospectus, PricewaterhouseCoopers LLP reported that they
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report dated May 4, 2000
incorporated by reference herein, states that they did not audit and they do not
express an opinion on that unaudited consolidated financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited consolidated
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by PricewaterhouseCoopers LLP
within the meaning of Sections 7 and 11 of the Act.


                                       94
<PAGE>   101

                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
FINANCIAL STATEMENTS                                            PAGE NO.
--------------------                                            --------
<S>                                                             <C>
As of March 31, 2000 and December 31, 1999, and for the
  three months ended March 31, 2000 and 1999 (unaudited):
  Unaudited Consolidated Balance Sheets.....................    F-2
  Unaudited Consolidated Statements of Income...............    F-3
  Unaudited Consolidated Statements of Comprehensive
     Income.................................................    F-4
  Unaudited Consolidated Statements of Cash Flows...........    F-5
  Management's Statement Regarding Unaudited Financial
     Statements.............................................    F-6
  Notes to Consolidated Financial Statements................    F-7
As of December 31, 1999 and 1998, and for the years ended
  December 31, 1999, 1998 and 1997:
  Report of Independent Accountants.........................    F-13
  Consolidated Balance Sheets...............................    F-14
  Consolidated Statements of Income.........................    F-15
  Consolidated Statements of Stockholders' Equity...........    F-16
  Consolidated Statements of Cash Flows.....................    F-17
  Notes to Consolidated Financial Statements................    F-18
</TABLE>


                                       F-1
<PAGE>   102


                           ICN PHARMACEUTICALS, INC.



                     CONSOLIDATED CONDENSED BALANCE SHEETS


                      MARCH 31, 2000 AND DECEMBER 31, 1999


                (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)



                                     ASSETS



<TABLE>
<CAPTION>
                                                              MARCH 31,     DECEMBER 31,
                                                                 2000           1999
                                                              ----------    ------------
<S>                                                           <C>           <C>
Current Assets:
  Cash and cash equivalents.................................  $  215,238     $  177,577
  Restricted cash...........................................         343            414
  Accounts receivable, net..................................     221,180        231,902
  Inventories, net..........................................     139,358        136,762
  Prepaid expenses and other current assets.................      22,021         18,075
                                                              ----------     ----------
          Total current assets..............................     598,140        564,730
Property, plant and equipment, net..........................     326,682        332,360
Deferred income taxes, net..................................      81,825         81,095
Other assets................................................      35,915         37,625
Goodwill and intangibles, net...............................     454,293        456,451
                                                              ----------     ----------
                                                              $1,496,855     $1,472,261
                                                              ==========     ==========

                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Trade payables............................................  $   56,475     $   65,195
  Accrued liabilities.......................................      75,244         66,185
  Notes payable.............................................       8,690          8,762
  Current portion of long-term debt.........................         294            312
  Income taxes payable......................................       7,045            168
                                                              ----------     ----------
          Total current liabilities.........................     147,748        140,622
Long-term debt, less current portion........................     597,048        596,961
Deferred income and other liabilities.......................      29,567         28,628
Minority interest...........................................      22,560         22,478
Commitments and contingencies
Stockholders' Equity:
  Common stock, $.01 par value; 200,000 shares authorized;
     78,992 (March 31, 2000) and 78,950 (December 31, 1999)
     shares outstanding (after deducting shares in treasury
     of 814 and 814, respectively)..........................         789            789
  Additional capital........................................     950,080        949,181
  Retained deficit..........................................    (175,783)      (197,602)
  Accumulated other comprehensive loss......................     (75,154)       (68,796)
                                                              ----------     ----------
          Total stockholders' equity........................     699,932        683,572
                                                              ----------     ----------
                                                              $1,496,855     $1,472,261
                                                              ==========     ==========
</TABLE>



  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       F-2
<PAGE>   103


                           ICN PHARMACEUTICALS, INC.



                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME


               FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999


                (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Revenues:
  Product sales.............................................  $159,340   $160,246
  Royalties.................................................    33,000     15,828
                                                              --------   --------
          Total revenues....................................   192,340    176,074
                                                              --------   --------
Costs and expenses:
  Cost of product sales.....................................    60,766     66,396
  Selling, general and administrative expenses..............    67,435     55,200
  Amortization of goodwill and intangibles..................     7,573      7,462
  Research and development costs............................     4,001      2,242
                                                              --------   --------
          Total expenses....................................   139,775    131,300
                                                              --------   --------
Income from operations......................................    52,565     44,774
Translation and exchange losses, net........................     1,591      7,259
Interest income.............................................    (2,695)    (1,644)
Interest expense............................................    15,221     13,100
                                                              --------   --------
Income before provision for income taxes and minority
  interest..................................................    38,448     26,059
Provision for income taxes..................................    11,111      4,780
Minority interest...........................................       (62)    (1,340)
                                                              --------   --------
          Net income........................................  $ 27,399   $ 22,619
                                                              ========   ========
Basic earnings per share....................................  $   0.35   $   0.29
                                                              ========   ========
Shares used in per share computation........................    78,975     76,853
                                                              ========   ========
Diluted earnings per share..................................  $   0.34   $   0.28
                                                              ========   ========
Shares used in per share computation........................    81,622     81,865
                                                              ========   ========
</TABLE>



  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       F-3
<PAGE>   104


                           ICN PHARMACEUTICALS, INC.



           CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME


               FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999


                           (UNAUDITED, IN THOUSANDS)



<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                  MARCH 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Net income..................................................  $27,399    $22,619
Other comprehensive income:
  Foreign currency translation adjustments..................   (6,358)   (14,150)
                                                              -------    -------
Comprehensive income........................................  $21,041    $ 8,469
                                                              =======    =======
</TABLE>



  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       F-4
<PAGE>   105


                           ICN PHARMACEUTICALS, INC.



                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


               FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999


                           (UNAUDITED, IN THOUSANDS)



<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................  $ 27,399    $ 22,619
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation and amortization..........................    15,885      15,460
     Provision for losses on accounts receivable............       584        (616)
     Provision for inventory obsolescence...................     1,449       1,211
     Translation and exchange losses, net...................     1,591       7,259
     Deferred income........................................        --      (4,516)
     Loss (gain) on sale of assets..........................       169          (3)
     Other non-cash losses..................................       583         988
     Deferred income taxes..................................      (775)     (3,526)
     Minority interest......................................       (62)     (1,340)
  Change in assets and liabilities, net of effects of
     acquisitions:
     Accounts receivable....................................     6,931     (10,935)
     Inventories............................................    (6,189)      4,337
     Prepaid expenses and other assets......................    (4,039)     (1,145)
     Trade payables and accrued liabilities.................       784     (27,147)
     Income taxes payable...................................     7,095      (2,101)
     Other liabilities......................................     1,576       3,183
                                                              --------    --------
          Net cash provided by operating activities.........    52,981       3,728
                                                              --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures......................................    (5,881)    (12,085)
  Proceeds from sale of assets..............................        37         129
  Decrease (increase) in restricted cash....................        71          (9)
  Acquisition of license rights, product lines and
     businesses.............................................    (4,712)     (1,948)
                                                              --------    --------
          Net cash used in investing activities.............   (10,485)    (13,913)
                                                              --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt..................        --      26,155
  Proceeds from issuance of notes payable...................     2,729       7,688
  Payments on long-term debt................................       (79)    (27,473)
  Payments on notes payable.................................    (2,789)     (7,727)
  Proceeds from exercise of stock options...................       929       1,332
  Proceeds from issuance of common stock....................        --      27,000
  Purchase of treasury stock................................        --      (5,550)
  Dividends paid............................................    (5,580)     (4,637)
                                                              --------    --------
          Net cash (used in) provided by financing
            activities......................................    (4,790)     16,788
                                                              --------    --------
Effect of exchange rate changes on cash and cash
  equivalents...............................................       (45)       (677)
                                                              --------    --------
Net increase in cash and cash equivalents...................    37,661       5,926
Cash and cash equivalents at beginning of period............   177,577     104,921
                                                              --------    --------
Cash and cash equivalents at end of period..................  $215,238    $110,847
                                                              ========    ========
</TABLE>


  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.
                                       F-5
<PAGE>   106


        MANAGEMENT'S STATEMENT REGARDING UNAUDITED FINANCIAL STATEMENTS



     The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared on the basis of
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. The results of
operations presented herein are not necessarily indicative of the results to be
expected for a full year. Although the Company believes that all adjustments
(consisting only of normal, recurring adjustments) necessary for a fair
presentation of the interim periods presented are included and that the
disclosures are adequate to make the information presented not misleading, these
consolidated condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in this
Prospectus.


                                       F-6
<PAGE>   107


                           ICN PHARMACEUTICALS, INC.


              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


                                 MARCH 31, 2000


                                  (UNAUDITED)



 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



     Principles of Consolidation: The accompanying consolidated condensed
financial statements include the accounts of ICN Pharmaceuticals, Inc. and
Subsidiaries (the "Company") and all of its majority-owned subsidiaries.
Investments in 20% through 50% owned affiliated companies are included under the
equity method where the Company exercises significant influence over operating
and financial affairs. Investments in less than 20% owned companies are recorded
at the lower of cost or fair value. All significant intercompany account
balances and transactions have been eliminated.



     Effective November 26, 1998, the Company's equity ownership in ICN
Yugoslavia was effectively reduced from 75% to 35% based upon a decision by the
Yugoslavia Ministry of Economic and Property Transformation. Additionally,
representatives of the Company and ICN Yugoslavia's management have been denied
access to the premises and any representation as to the management of ICN
Yugoslavia. As a result, the company is no longer able to influence the
operating and financial affairs of ICN Yugoslavia. Accordingly, the Company has
deconsolidated the financial statements of ICN Yugoslavia as of November 26,
1998, and reduced the carrying value of its investment to fair value, currently
estimated to be zero. The Company will account for its ongoing investment in ICN
Yugoslavia under the cost method. The Company did not recognize any revenues or
expenses related to its investment in ICN Yugoslavia in the quarters ended March
31, 1999 and 2000.



     Comprehensive Income: The balance of accumulated other comprehensive income
at March 31, 2000 and December 31, 1999 consists of accumulated foreign currency
translation adjustments. Other comprehensive income has not been recorded net of
any tax provision or benefit as the Company does not expect to realize any
significant tax benefit or expense from this item.



     Pre Share Information: In January 2000, the Company's Board of Directors
declared a fourth quarter 1999 cash dividend of $0.07 per share, which was paid
in February 2000. In April 2000, the Company's Board of Directors declared a
first quarter cash dividend of $0.0725 per share, payable on May 10, 2000, to
stockholders of record on April 25, 2000.



     Reclassifications: Certain prior year amounts have been reclassified to
conform with the current period presentation, with no effect on previously
reported net income or stockholders' equity.


                                       F-7
<PAGE>   108

                           ICN PHARMACEUTICALS, INC.


        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


                                 MARCH 31, 2000


                                  (UNAUDITED)



 2. EARNINGS PER SHARE



     The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):



<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                  MARCH 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Income:
  Net income................................................  $27,399    $22,619
                                                              -------    -------
  Numerator for basic earnings per share --
     income available to common stockholders................   27,399     22,619
  Effect of dilutive securities:
     Other dilutive securities..............................       (2)        --
                                                              -------    -------
  Numerator for diluted earnings per share --
     income available to common stockholders
     after assumed conversions..............................  $27,397    $22,619
                                                              =======    =======
Shares:
  Denominator for basic earnings per share --
     weighted-average shares outstanding....................   78,975     76,853
  Effect of dilutive securities:
     Employee stock options.................................    2,386      2,711
     Series D Preferred Stock...............................       --        616
     Other dilutive securities..............................      261      1,685
                                                              -------    -------
  Dilutive potential common shares..........................    2,647      5,012
                                                              -------    -------
  Denominator for diluted earnings per share --
     adjusted weighted-average shares and
     assumed conversions....................................   81,622     81,865
                                                              =======    =======
Basic earnings per share....................................  $  0.35    $  0.29
                                                              =======    =======
Diluted earnings per share..................................  $  0.34    $  0.28
                                                              =======    =======
</TABLE>



     Other dilutive securities includes the effect of shares which would be
contingently issuable in satisfaction of a guarantee made in connection with the
issuance of shares for the acquisition of the rights to certain products from F.
Hoffmann-La Roche Ltd. ("Roche") during 1998. Under the terms of the agreement,
in the event that the market value of the Company's common stock at the
guarantee date does not meet the specified guarantee price, the Company will be
obligated to satisfy the guarantee amount in cash or, in certain circumstances,
in additional shares of its common stock. Based upon the market price of the
Company's common stock at March 31, 2000, the guarantee value of the shares
subject to such guarantee exceeded its market value by approximately $3,726,000.



     Additionally, other dilutive securities includes the dilutive effect of
certain put options. During 1999, the Company sold certain put options to an
independent third party; the proceeds were used to purchase call options from
the same party in a private placement transaction not requiring any net cash
outlay at the time. The put options and the corresponding call options each
expire from August 2000 through December 2000 and are exercisable only at the
expiration dates. The Company may, at its option, make a physical settlement, a
cash settlement, or a net share settlement of its positions under the put
options and the call options. The Company has a maximum potential obligation
under the put options to purchase 2,380,953 shares of its common stock for an
aggregate price of


                                       F-8
<PAGE>   109

                           ICN PHARMACEUTICALS, INC.


        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


                                 MARCH 31, 2000


                                  (UNAUDITED)



approximately $67,500,000. The call options entitle the Company to buy 1,064,085
shares of its common stock for approximately $33,519,000. The net shares
issuable in settlement of the put options are considered outstanding for the
purpose of computing diluted earnings per share, based upon the market price of
the Company's common stock on March 31, 2000. The net settlement obligation of
the Company was approximately $2,619,000 or 96,112 shares at March 31, 2000.



 3. DETAIL OF CERTAIN ACCOUNTS



<TABLE>
<CAPTION>
                                                             MARCH 31,    DECEMBER 31,
                                                               2000           1999
                                                             ---------    ------------
                                                                  (IN THOUSANDS)
<S>                                                          <C>          <C>
ACCOUNTS RECEIVABLE, NET:
  Trade accounts receivable................................  $195,343       $206,766
  Royalties receivable.....................................    33,494         34,725
  Other receivables........................................    17,293         16,958
                                                             --------       --------
                                                              246,130        258,449
  Allowance for doubtful accounts..........................   (24,950)       (26,547)
                                                             --------       --------
                                                             $221,180       $231,902
                                                             ========       ========
INVENTORIES, NET:
  Raw materials and supplies...............................  $ 38,600       $ 32,683
  Work-in-process..........................................     6,017         12,610
  Finished goods...........................................   103,912         99,429
                                                             --------       --------
                                                              148,529        144,722
Allowance for inventory obsolescence.......................    (9,171)        (7,960)
                                                             --------       --------
                                                             $139,358       $136,762
                                                             ========       ========
PROPERTY, PLANT AND EQUIPMENT, NET:
  Property, plant and equipment, at cost...................  $409,172       $409,482
  Accumulated depreciation and amortization................   (82,490)       (77,122)
                                                             --------       --------
                                                             $326,682       $332,360
                                                             ========       ========
</TABLE>



 4. COMMITMENTS AND CONTINGENCIES



     On August 11, 1999, the United States Securities and Exchange Commission
filed a complaint in the United States District Court for the Central District
of California against the Company, the Chairman (Milan Panic) and one current
and one former officer of the Company (the "SEC Complaint"). The SEC Complaint
alleges that the Company and the individual named defendants made untrue
statements of material fact or omitted to state material facts necessary in
order to make the statements made, in the light of the circumstances under which
they were made, not misleading and engaged in acts, practices, and courses of
business which operated as a fraud and deceit upon other persons in violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. The action concerns the status and disposition of the Company's 1994
new drug application for Virazole(R) as a monotherapy treatment for hepatitis C
(the "NDA"). The SEC Complaint seeks injunctive relief, unspecified civil
penalties, and an order barring Mr. Panic from acting as an officer or director
of any publicly-traded company.



     Beginning in 1996, the Company received subpoenas from a Grand Jury in the
United States District Court for the Central District of California requesting
the production of documents covering a


                                       F-9
<PAGE>   110

                           ICN PHARMACEUTICALS, INC.


        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


                                 MARCH 31, 2000


                                  (UNAUDITED)



broad range of matters over various time periods. The Company understands that
the Company, Mr. Panic, two current senior executive officers, a former senior
officer, a current employee, and a former employee of the Company are targets of
the investigation. The Company also understands that a senior executive officer,
a director, a former officer, a current employee and a former employee are
subjects of the investigation. The United States Attorney's office has advised
counsel for the Company that the areas of its investigation include disclosures
made and not made concerning the NDA to the public and other third parties;
stock sales for the benefit of Mr. Panic following receipt on November 28, 1994
of a letter from the FDA informing the Company that the NDA had been found not
approvable; possible violations of the economic embargo imposed by the United
States upon the Federal Republic of Yugoslavia, based upon alleged sales by the
Company and Mr. Panic of stock belonging to Company employees; and, with respect
to Mr. Panic, personal disposition of assets of entities associated with
Yugoslavia, including possible misstatements and/or omissions in federal tax
filings. The Company has, and continues to, cooperate in the Grand Jury
investigation. A number of current and former employees of the Company have been
interviewed by the government in connection with the investigation. The United
States Attorney's office has issued subpoenas requiring various current and
former officers and employees of the Company to testify before the Grand Jury.
Certain current and former officers and employees testified before the Grand
Jury beginning in July 1998.



     On or about February 9, 1999, the Company commenced an action in the United
States District Court for the District of Columbia ("District Court") against
the Federal Republic of Yugoslavia ("FRY"), the Republic of Serbia ("ROS"), and
the State Health Fund of Serbia ("State Fund") seeking damages in the amount of
at least $500,000,000 and declaratory relief arising out of the FRY and ROS's
seizure of the Company's majority ownership interest in ICN Yugoslavia and the
failure of the ROS and State Fund to pay ICN Yugoslavia for goods sold and
delivered. On or about March 9, 1999, the State Fund commenced an arbitration
against the Company before the International Chamber of Commerce ("ICC") for
unquantified damages due to alleged breaches of the agreement pursuant to which
the Company acquired its majority ownership interest in ICN Yugoslavia, and for
unspecified injunctive relief. The Company, in turn, counterclaimed against the
State Fund, and commenced an arbitration against the FRY and the ROS in the ICC
arising out of the seizure of ICN Yugoslavia and the failure to pay for goods
sold and delivered, seeking damages and other relief. By Order dated March 29,
2000, the District Court stayed the action for 180 days (while retaining
jurisdiction), at which time the action will be administratively dismissed,
without prejudice, unless the stay is continued so that issues of jurisdiction
by and among the parties can be resolved at the ICC. The Company intends to
prosecute vigorously its claims against the FRY, the ROS, and the State Fund,
and to defend against the State Funds' claims against the Company, which the
Company believes to be meritless and filed solely as a response to the action
filed earlier by the Company in the District Court.



     The Company is a party to other pending lawsuits or subject to a number of
threatened lawsuits. While the ultimate outcome of pending and threatened
lawsuits and the Grand Jury investigation cannot be predicted with certainty,
and an unfavorable outcome could have a negative impact on the Company, at this
time in the opinion of management, the ultimate resolution of these matters will
not have a material effect on the Company's consolidated financial position,
results of operations or liquidity.


                                      F-10
<PAGE>   111

                           ICN PHARMACEUTICALS, INC.


        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


                                 MARCH 31, 2000


                                  (UNAUDITED)



 5. BUSINESS SEGMENTS



     During 1999, the Company decided to manage its Central European businesses
from the Western European headquarters in anticipation of the entry of Poland,
Hungary and the Czech Republic into the European Union. As a result, the Company
integrated ICN Hungary, ICN Czech Republic and ICN Poland which, were previously
reported under the other Eastern Europe segment into the Western and Central
Europe segment. All amounts for 1999 have been restated to conform with the
current year presentation. The Company's Latin American Segment principally
comprises Mexico.



     The following table sets forth the amounts of segment revenues and
operating income (loss) of the Company for the three months ended March 31, 2000
and 1999 (in thousands):



<TABLE>
<CAPTION>
                                              REVENUES           OPERATING INCOME
                                         THREE MONTHS ENDED     THREE MONTHS ENDED
                                             MARCH 31,              MARCH 31,
                                        --------------------    ------------------
                                          2000        1999       2000       1999
                                        --------    --------    -------    -------
<S>                                     <C>         <C>         <C>        <C>
Pharmaceuticals
  North America.......................  $ 62,801    $ 54,256    $47,519    $37,521
  Western and Central Europe..........    46,757      46,273      6,255      5,351
  Latin America.......................    29,227      22,611      8,907      7,838
  Russia..............................    26,570      23,008      1,525     (2,449)
  Asia, Africa, Australia.............    11,399      13,940      1,253      4,163
                                        --------    --------    -------    -------
          Total Pharmaceuticals.......   176,754     160,088     65,459     52,424
Biomedicals...........................    15,586      15,986      2,279      2,088
                                        --------    --------    -------    -------
Consolidated revenues and segment
  operating income....................  $192,340    $176,074     67,738     54,512
                                        ========    ========
Corporate expenses....................                           15,173      9,738
Interest income.......................                           (2,695)    (1,644)
Interest expense......................                           15,221     13,100
Translation and exchange losses,
  net.................................                            1,591      7,259
                                                                -------    -------
Income before provision for income
  taxes and minority interest.........                          $38,448    $26,059
                                                                =======    =======
</TABLE>


                                      F-11
<PAGE>   112

                           ICN PHARMACEUTICALS, INC.


        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


                                 MARCH 31, 2000


                                  (UNAUDITED)



     The following table sets forth the segment total assets of the Company as
of March 31, 2000 and December 31, 1999 (in thousands):



<TABLE>
<CAPTION>
                                                                     ASSETS
                                                           --------------------------
                                                           MARCH 31,     DECEMBER 31,
                                                              2000           1999
                                                           ----------    ------------
<S>                                                        <C>           <C>
Pharmaceuticals
  North America..........................................  $  514,879     $  516,231
  Western and Central Europe.............................     213,515        218,577
  Latin America..........................................     108,251        100,118
  Russia.................................................     174,307        174,838
  Asia, Africa, Australia................................     100,438         98,402
                                                           ----------     ----------
          Total Pharmaceuticals..........................   1,111,390      1,108,166
Biomedicals..............................................      65,350         67,692
Corporate................................................     320,115        296,403
                                                           ----------     ----------
                                                           $1,496,855     $1,472,261
                                                           ==========     ==========
</TABLE>



 6. SUPPLEMENTAL CASH FLOW INFORMATION



     Cash paid for income taxes for the three months ended March 31, 2000 and
1999 was $4,787,000 and $3,380,000, respectively. Cash paid for interest for the
three months ended March 31, 2000 and 1999 was $13,020,000 and $14,301,000
respectively.


                                      F-12
<PAGE>   113


                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and


Stockholders of ICN Pharmaceuticals, Inc.:



     In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of ICN Pharmaceuticals, Inc. (a Delaware corporation) and Subsidiaries
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.



     As discussed in Notes 2 and 14, effective November 26, 1998, the Company
changed the method of accounting for ICN Yugoslavia, a previously consolidated
subsidiary, and reduced the carrying value of the investment to its fair value.



                                          /s/ PricewaterhouseCoopers LLP



                                          PricewaterhouseCoopers LLP



Newport Beach, California


March 2, 2000


                                      F-13
<PAGE>   114


                           ICN PHARMACEUTICALS, INC.



                          CONSOLIDATED BALANCE SHEETS


                           DECEMBER 31, 1999 AND 1998


                     (IN THOUSANDS, EXCEPT PER SHARE DATA)



                                     ASSETS



<TABLE>
<CAPTION>
                                                                 1999          1998
                                                              ----------    ----------
<S>                                                           <C>           <C>
Current Assets:
  Cash and cash equivalents.................................  $  177,577    $  104,921
  Restricted cash...........................................         414        15,558
  Accounts receivable, net..................................     231,902       180,001
  Inventories, net..........................................     136,762       126,545
  Prepaid expenses and other current assets.................      18,075        13,723
                                                              ----------    ----------
          Total current assets..............................     564,730       440,748
Property, plant and equipment, net..........................     332,360       327,756
Deferred income taxes, net..................................      81,095        77,933
Other assets................................................      37,625        45,706
Goodwill and intangibles, net...............................     456,451       464,253
                                                              ----------    ----------
                                                              $1,472,261    $1,356,396
                                                              ==========    ==========

                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Trade payables............................................  $   65,195    $   92,287
  Accrued liabilities.......................................      66,185        60,644
  Notes payable.............................................       8,762        17,584
  Current portion of long-term debt.........................         312        28,097
  Income taxes payable......................................         168         5,142
                                                              ----------    ----------
          Total current liabilities.........................     140,622       203,754
Long-term debt, less current portion........................     596,961       510,808
Deferred license and royalty income.........................         162         6,061
Other liabilities...........................................      28,466        22,160
Minority interest...........................................      22,478        27,449
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value; 10,000 shares authorized;
  and -0-and 1 shares Series D issued and outstanding at
  December 31, 1999, and 1998, respectively.................          --             1
Common stock, $0.01 par value; 200,000 shares authorized;
  78,950 (1999) and 76,411 (1998) shares issued and
  outstanding (after deducting shares in treasury of 814 and
  200, respectively)........................................         789           764
Additional capital..........................................     949,181       928,956
Retained deficit............................................    (197,602)     (295,211)
Accumulated other comprehensive income......................     (68,796)      (48,346)
                                                              ----------    ----------
          Total stockholders' equity........................     683,572       586,164
                                                              ----------    ----------
                                                              $1,472,261    $1,356,396
                                                              ==========    ==========
</TABLE>



 The accompanying notes are an integral part of these consolidated statements.

                                      F-14
<PAGE>   115


                           ICN PHARMACEUTICALS, INC.



                       CONSOLIDATED STATEMENTS OF INCOME


              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


                     (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                           1999         1998         1997
                                                         --------    ----------    --------
<S>                                                      <C>         <C>           <C>
Revenues:
  Product sales........................................  $638,475    $  800,639    $752,202
  Royalties............................................   108,937        37,425          --
                                                         --------    ----------    --------
          Total revenues...............................   747,412       838,064     752,202
                                                         --------    ----------    --------
Costs and expenses:
     Cost of product sales.............................   256,146       353,600     351,978
     Selling, general and administrative...............   252,207       291,776     249,206
     Amortization of goodwill and intangibles..........    29,239        20,601       7,028
     Research and development..........................    10,963        20,835      18,692
     Eastern European charges..........................        --       440,820          --
                                                         --------    ----------    --------
          Total expenses...............................   548,555     1,127,632     626,904
                                                         --------    ----------    --------
          Income (loss) from operations................   198,857      (289,568)    125,298
Translation and exchange losses, net...................    11,823        80,501      12,790
Interest income........................................    (8,894)      (13,057)    (15,912)
Interest expense.......................................    55,943        38,069      22,849
                                                         --------    ----------    --------
  Income (loss) before income taxes and minority
     interest..........................................   139,985      (395,081)    105,571
Provision (benefit) for income taxes...................    28,996         1,983     (27,736)
Minority interest......................................    (7,637)      (44,990)     19,383
                                                         --------    ----------    --------
  Net income (loss)....................................  $118,626    $ (352,074)   $113,924
                                                         ========    ==========    ========
  Basic earnings (loss) per share......................  $   1.52    $    (4.78)   $   1.93
                                                         ========    ==========    ========
  Shares used in per share computation.................    77,833        73,637      55,965
                                                         ========    ==========    ========
  Diluted earnings (loss) per share....................  $   1.45    $    (4.78)   $   1.69
                                                         ========    ==========    ========
  Shares used in per share computation.................    82,089        73,637      69,650
                                                         ========    ==========    ========
</TABLE>



 The accompanying notes are an integral part of these consolidated statements.

                                      F-15
<PAGE>   116


                           ICN PHARMACEUTICALS, INC.



                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


                     (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                                                         ACCUMULATED
                                           PREFERRED STOCK    COMMON STOCK                  RETAINED        OTHER
                                           ---------------   ---------------   ADDITIONAL   EARNINGS    COMPREHENSIVE
                                           SHARES   AMOUNT   SHARES   AMOUNT    CAPITAL     (DEFICIT)      INCOME         TOTAL
                                           ------   ------   ------   ------   ----------   ---------   -------------   ---------
<S>                                        <C>      <C>      <C>      <C>      <C>          <C>         <C>             <C>
BALANCE AT DECEMBER 31, 1996.............    50      $ 1     48,536    $485     $368,026    $ (25,915)    $(27,247)     $ 315,350
Comprehensive income:
 Net income..............................    --       --         --      --           --      113,924           --        113,924
 Foreign currency translation
   adjustments...........................    --       --         --      --           --           --      (14,137)       (14,137)
                                                                                                                        ---------
       Total comprehensive income........                                                                                  99,787
Exercise of stock options................    --       --      1,863      19       20,479           --           --         20,498
Expiration of put option.................    --       --      1,598      16       24,614         (533)          --         24,097
Issuance of stock:
 In connection with acquisitions.........     2       --      2,454      24      180,685           --           --        180,709
 Conversion of debt......................    --       --     10,052     101      161,258           --           --        161,359
 In settlement of litigation.............    --       --        812       8        9,992           --           --         10,000
Conversion of preferred shares...........   (50)      --      5,797      58          (58)          --           --             --
Cash dividends...........................    --       --         --      --           --      (15,472)          --        (15,472)
Stock dividends on preferred stock.......    --       --        320       3        1,872       (1,875)          --             --
                                            ---      ---     ------    ----     --------    ---------     --------      ---------
BALANCE AT DECEMBER 31, 1997.............     2        1     71,432     714      766,868       70,129      (41,384)       796,328
Comprehensive income:
 Net loss................................    --       --         --      --           --     (352,074)          --       (352,074)
 Foreign currency translation
   adjustments...........................    --       --         --      --           --           --       (6,962)        (6,962)
                                                                                                                        ---------
       Total comprehensive income........                                                                                (359,036)
Exercise of stock options................    --       --        634       6        6,777           --           --          6,783
Stock compensation.......................    --       --        319       3        5,304           --           --          5,307
Issuance of preferred stock..............     1       --         --      --       23,000           --           --         23,000
Issuance of common stock:
 In connection with acquisitions.........    --       --      2,884      29       93,530           --           --         93,559
 Conversion of debt......................    --       --        802       8       25,329           --           --         25,337
Issuance of treasury stock...............    --       --        482       5       12,528           --           --         12,533
Purchase of treasury stock...............    --       --       (200)     (2)      (4,448)          --           --         (4,450)
Conversion of preferred shares...........    (2)      --         57       1           (1)          --           --             --
Cash dividends...........................    --       --         --      --           --      (13,197)          --        (13,197)
Stock dividends on preferred stock.......    --       --          1      --           69          (69)          --             --
                                            ---      ---     ------    ----     --------    ---------     --------      ---------
BALANCE AT DECEMBER 31, 1998.............     1        1     76,411     764      928,956     (295,211)     (48,346)       586,164
Comprehensive income:
 Net income..............................    --       --         --      --           --      118,626           --        118,626
 Foreign currency translation
   adjustments...........................    --       --         --      --           --           --      (20,450)       (20,450)
                                                                                                                        ---------
       Total comprehensive income........                                                                                  98,176
Exercise of stock options................    --       --      1,148      11       12,883           --           --         12,894
Tax benefit of stock options exercised...    --       --         --      --        5,173           --           --          5,173
Stock compensation.......................    --       --        (53)     --        2,043           --           --          2,043
Settlement related to acquisition
 contingency.............................    (1)      (1)        --      --      (28,312)          --           --        (28,313)
Issuance of common stock:
 In connection with license agreement....    --       --      2,041      20       41,980           --           --         42,000
 In connection with acquisitions.........    --       --         17      --        1,756           --           --          1,756
Purchase of treasury stock...............    --       --       (614)     (6)     (15,298)          --           --        (15,304)
Cash dividends...........................    --       --         --      --           --      (21,017)          --        (21,017)
                                            ---      ---     ------    ----     --------    ---------     --------      ---------
BALANCE AT DECEMBER 31, 1999.............    --      $--     78,950    $789     $949,181    $(197,602)    $(68,796)     $ 683,572
                                            ===      ===     ======    ====     ========    =========     ========      =========
</TABLE>



 The accompanying notes are an integral part of these consolidated statements.

                                      F-16
<PAGE>   117


                           ICN PHARMACEUTICALS, INC.



                     CONSOLIDATED STATEMENTS OF CASH FLOWS


              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                1999        1998         1997
                                                              --------    ---------    ---------
<S>                                                           <C>         <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).........................................  $118,626    $(352,074)   $ 113,924
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
  Depreciation and amortization.............................    65,502       51,096       28,753
  Eastern European charges..................................        --      451,019           --
  Provision for losses on accounts receivable...............     2,291        7,559        4,021
  Provision for inventory obsolescence......................     5,880          602        3,342
  Translation and exchange losses, net......................    11,823       80,501       12,790
  Deferred income...........................................    (4,983)      (6,112)      (5,072)
  Loss (gain) on sale of assets.............................       882          100       (1,184)
  Deferred income taxes.....................................    (1,112)      (8,223)     (35,376)
  Other non-cash losses (gains).............................     4,016        3,314       (2,047)
  Minority interest.........................................    (7,637)     (44,990)      19,383
  Change in assets and liabilities, net of effects of
     acquisitions:
     Accounts and notes receivable..........................   (66,927)    (160,345)    (154,433)
     Inventories............................................   (13,236)     (29,075)      (6,227)
     Prepaid expenses and other assets......................    (6,497)     (22,290)       3,936
     Trade payables and accrued liabilities.................   (24,601)      38,912       30,665
     Income taxes payable...................................       (60)       2,555        1,679
     Other liabilities......................................     3,156       (2,925)      (4,839)
                                                              --------    ---------    ---------
          Net cash provided by operating activities.........    87,123        9,624        9,315
                                                              --------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of marketable securities...............        --       22,958       40,826
  Proceeds from sale of assets..............................     2,167        1,202        3,051
  (Increase) decrease in restricted cash....................    15,144      (15,009)           3
  Cash acquired in connection with acquisitions.............       288        1,111        1,250
  Capital expenditures......................................   (44,083)    (110,281)    (100,397)
  Acquisition of license rights, product lines and
     businesses.............................................   (23,876)    (172,926)     (44,829)
  Loss of Yugoslavian cash balance..........................        --      (22,101)          --
                                                              --------    ---------    ---------
          Net cash used in investing activities.............   (50,360)    (295,046)    (100,096)
                                                              --------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt..................   145,490      225,082      284,051
  Proceeds from issuance of notes payable...................    19,976       26,720       22,858
  Proceeds from exercise of stock options...................    12,894        6,783       20,498
  Proceeds from issuance of common stock....................    42,000        4,299           --
  Proceeds from issuance of stock put right.................        --           --        1,707
  Payments on long-term debt................................   (87,632)     (27,381)     (17,555)
  Payments on notes payable.................................   (31,695)     (27,965)     (37,253)
  Dividends paid............................................   (21,017)     (17,069)     (11,631)
  Purchase of treasury stock................................   (15,304)      (4,450)          --
  Repurchase of preferred stock.............................   (28,313)          --           --
                                                              --------    ---------    ---------
          Net cash provided by financing activities.........    36,399      186,019      262,675
                                                              --------    ---------    ---------
Effect of exchange rate changes on cash and cash
  equivalents...............................................      (506)      (5,572)      (1,364)
                                                              --------    ---------    ---------
Net increase (decrease) in cash and cash equivalents........    72,656     (104,975)     170,530
Cash and cash equivalents at beginning of year..............   104,921      209,896       39,366
                                                              --------    ---------    ---------
Cash and cash equivalents at end of year....................  $177,577    $ 104,921    $ 209,896
                                                              ========    =========    =========
</TABLE>



 The accompanying notes are an integral part of these consolidated statements.

                                      F-17
<PAGE>   118


                           ICN PHARMACEUTICALS, INC.



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                               DECEMBER 31, 1999



 1. ORGANIZATION AND BACKGROUND



     ICN Pharmaceuticals, Inc. and Subsidiaries ("the Company") was formed in
November 1994, as a result of the merger of ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc., Viratek, Inc. and ICN Biomedicals, Inc. ("Biomedicals")
(collectively, the "Predecessor Companies"), in a transaction accounted for
using the purchase method of accounting (the "Merger"). The Company is a global
research based pharmaceutical company that develops, manufactures, distributes
and sells pharmaceutical, research, and diagnostic products and provides
radiation monitoring services.



 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



     Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and all of its majority-owned
subsidiaries. Investments in 20% through 50% owned affiliated companies are
included under the equity method where the Company exercises significant
influence over operating and financial affairs. Investments in less than 20%
owned companies are recorded at the lower of cost or fair value. The
accompanying consolidated financial statements reflect the elimination of all
significant intercompany account balances and transactions.



     Effective November 26, 1998, the Company's equity ownership for ICN
Yugoslavia was effectively reduced from 75% to 35% based upon a decision by the
Yugoslavian Ministry of Economic and Property Transformation. Additionally,
representatives of the Company and ICN Yugoslavia's management have been denied
access to the premises and any representation as to the management of ICN
Yugoslavia. As a result, the Company is no longer able to influence the
operating and financial affairs of ICN Yugoslavia. Accordingly, the Company has
deconsolidated the financial statements of ICN Yugoslavia as of November 26,
1998, and reduced the carrying value of its investment to fair value, currently
estimated to be zero. The Company will account for its ongoing investment in ICN
Yugoslavia under the cost method. The Company did not recognize any revenues or
expenses related to its investment in Yugoslavia in 1999. See Note 14.



     Cash and Cash Equivalents: Cash equivalents include repurchase agreements,
certificates of deposit, money market funds, and municipal debt securities which
have maturities of three months or less. For purposes of the consolidated
statements of cash flows, the Company considers highly-liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents.
The carrying amount of these assets approximates fair value due to the
short-term maturity of these instruments. At December 31, 1999 and 1998, cash
equivalents totaled $159,544,000 and $77,241,000, respectively.



     Marketable Securities: The Company classifies its investments as available
for sale. Changes in market values are reflected as unrealized gains and losses,
calculated on the specific identification method, in stockholders' equity. In
1998, upon the exchange and redemption of the Company's Bio Capital Holdings
5 1/2% Swiss Franc Exchangeable Certificates (the "New Certificates"),
marketable securities previously held in trust for the payment of the New
Certificates became available to the Company and were sold, resulting in a gain
of $1,993,000.



     Allowance for Doubtful Accounts: The Company evaluates the collectibility
of its receivables at least quarterly, based upon various factors including the
financial condition and payment history of major customers, an overall review of
collections experience on other accounts and economic factors or events expected
to affect the Company's future collections experience.



     Inventories: Inventories, which include material, direct labor and factory
overhead, are stated at the lower of cost or market. Cost is determined on a
first-in, first-out ("FIFO") basis. The Company

                                      F-18
<PAGE>   119

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



evaluates the carrying value of its inventories at least quarterly, taking into
account such factors as historical and anticipated future sales compared with
quantities on hand, the price the Company expects to obtain for its products in
their respective markets compared with historical cost and the remaining shelf
life of goods on hand.



     Property, Plant and Equipment: Property, plant and equipment is stated at
cost. The Company primarily uses the straight-line method for depreciating
property, plant and equipment over their estimated useful lives. Buildings and
related improvements are depreciated from 7 - 50 years, machinery and equipment
from 3 - 30 years, furniture and fixtures from 3 - 15 years and leasehold
improvements and capital leases are amortized over their useful lives, limited
to the life of the related lease.



     The Company follows the policy of capitalizing expenditures that materially
increase the lives of the related assets and charges maintenance and repairs to
expense. Upon sale or retirement, the costs and related accumulated depreciation
or amortization are eliminated from the respective accounts and the resulting
gain or loss is included in income.



     The Company capitalizes interest on borrowed funds during construction
periods as part of the cost of the related asset. During 1998, the Company
capitalized interest of $3,540,000; no interest was capitalized in 1999.



     Goodwill and Intangibles: The difference between the purchase price and the
fair value of net assets acquired at the date of acquisition is included in the
accompanying consolidated balance sheets as goodwill and intangibles. Intangible
assets also include acquired product rights. Goodwill and intangibles
amortization periods range from 5 to 20 years depending upon the nature of the
business or product acquired. The Company periodically evaluates the carrying
value of goodwill and intangibles including the related amortization periods. In
evaluating goodwill, the Company determines whether there has been an impairment
and the amount thereof, if any, by comparing the undiscounted future operating
income of the acquired business with the carrying value of the goodwill. In
evaluating acquired product rights and other intangible assets, the Company
determines whether there has been impairment by comparing the anticipated
undiscounted future operating income of the product line with its carrying
value. If the undiscounted operating income is less than the carrying value, the
amount of the impairment, if any, will be determined by comparing the carrying
value of each intangible asset with its fair value. Fair value is generally
based on a discounted cash flows analysis. Based on its review, the Company does
not believe that any impairment of its goodwill and intangibles has occurred.



     As of December 31, 1999 and 1998, goodwill and intangibles included the
following:



<TABLE>
<CAPTION>
                                         1999       1998     AMORTIZATION PERIODS
                                       --------   --------   --------------------
                                         (IN THOUSANDS)
<S>                                    <C>        <C>        <C>
Goodwill.............................  $ 73,943   $ 69,741          10 - 20 Years
Acquired product rights..............   436,380    423,813          15 - 18 Years
Other intangible assets..............    13,952     11,811          10 - 18 Years
                                       --------   --------
                                        524,275    505,365
Accumulated amortization.............   (67,824)   (41,112)
                                       --------   --------
                                       $456,451   $464,253
                                       ========   ========
</TABLE>



     Notes Payable: The Company classifies various borrowings with initial terms
of one year or less as notes payable. The weighted-average interest rate on
short-term borrowings outstanding at December 31, 1999 and 1998 was
approximately 7.4% and 8.5%, respectively.


                                      F-19
<PAGE>   120

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     Revenue Recognition: Revenues and the related cost of product sales are
recorded at the time of shipment or as services are performed, provided that
collection of the revenue is reasonably assured. Additionally, the Company earns
royalties as a result of the sale of product rights and technologies to third
parties. Royalty revenue is recorded at the time the products subject to the
royalty are sold by the third party.



     Barter Transactions: The Company periodically engages in barter
transactions, primarily in Russia, related to the sale of its products in
exchange for raw materials, other finished goods and costs or services incurred
in the conduct of its operations. The Company accounts for these transactions in
accordance with APB No. 29 "Accounting for Nonmonetary Transactions", whereby
the cost of the assets or service acquired is based upon the fair value of the
asset surrendered or received whichever is more clearly evident.



     Foreign Currency Translation: The assets and liabilities of the Company's
foreign operations, except those in highly inflationary economies, are
translated at end of period exchange rates. Revenues and expenses are translated
at the average exchange rates prevailing during the period. The effects of
unrealized exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are accumulated in stockholders' equity. The
monetary assets and liabilities of foreign subsidiaries in highly inflationary
economies are remeasured into U.S. dollars at end of period exchange rates and
non-monetary assets and liabilities at historical exchange rates. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 52, Foreign
Currency Translation, the Company has included in earnings all foreign exchange
gains and losses arising from foreign currency transactions and the effects of
foreign exchange rate fluctuations on subsidiaries operating in highly
inflationary economies. Recorded losses/(gains) from foreign exchange
transactions amounted to $5,085,000, $2,788,000 and ($1,678,000) for 1999, 1998
and 1997, respectively. Recorded losses from foreign exchange translation
amounted to $6,738,000, $77,713,000 and $14,468,000 for 1999, 1998 and 1997,
respectively.



     Income Taxes: Income taxes are calculated in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or tax returns. A valuation allowance is
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. In estimating future tax consequences, SFAS No. 109
generally considers all expected future events other than an enactment of
changes in tax laws or rates.



     Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.



     Comprehensive Income: The Company has adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. Comprehensive income includes such items as
foreign currency translation adjustments and unrealized holding gains and losses
on available-for-sale securities and are presented as a component of
stockholders' equity.



     The balance of accumulated other comprehensive income at December 31, 1999
and 1998 consists of accumulated foreign currency translation adjustments. None
of the components of other comprehensive income have been recorded net of any
tax provision or benefit as the Company does not expect to realize any
significant tax benefit or expense from these items.


                                      F-20
<PAGE>   121

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     Per Share Information: Basic earnings per share is computed by dividing
income available to common stockholders by the weighted-average number of shares
outstanding. In computing diluted earnings per share, the weighted-average
number of shares outstanding is adjusted to reflect the effect of potentially
dilutive securities including options, warrants, and convertible debt or
preferred stock, and income available to common stockholders is adjusted to
reflect any changes in income or loss that would result from the issuance of the
dilutive common shares.



     The Company's Board of Directors declared a quarterly cash distribution of
$0.07 per share for each fiscal quarter of 1999. During 1998, the Company's
Board of Directors declared a quarterly cash dividend or distribution of $0.06
per share for each fiscal quarter. During 1997, the Company's Board of Directors
declared quarterly cash distributions and dividends for each quarter, totaling
$0.21 per share.



     Stock-Based Compensation: The Company has adopted the disclosure only
provisions of SFAS No. 123 for stock options issued to employees. Compensation
cost for stock-based compensation issued to employees has been measured using
the intrinsic value method provided by Accounting Principles Board No. 25.



     Reclassifications: Certain prior year items have been reclassified to
conform with the current year presentation, with no effect on previously
reported net income or stockholders' equity.



     New Accounting Pronouncements: In December 1999, the Securities and
Exchange Commission (the "SEC") released Staff Accounting Bulletin ("SAB") No.
101, which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. The Company is required to
be in conformity with the provisions of SAB 101 no later than fourth quarter
2000 and the Company does not expect a material change in its financial
condition or results of operations as a result of SAB 101.



 3. ACQUISITIONS



     MultiPharma -- Effective September 1, 1999, the Company acquired a chain of
88 retail outlets in Moscow and St. Petersburg, Russia, for consideration of
$7,644,000. The acquisition was accounted for as a purchase and is not material
to the financial position or results of operations of the Company. Goodwill of
$3,141,000 was recorded in connection with the acquisition and is being
amortized over a 15 year estimated useful life.



     Fuzio-Pharma Rt. -- Effective January 1, 1999, the Company acquired 97% of
Fuzio-Pharma Rt., a Hungarian distributor of pharmaceutical products with both
wholesale distribution and retail pharmacy operations, for approximately
$2,230,000. The acquisition was accounted for as a purchase and is not material
to the financial position or results of operations of the Company. Goodwill of
$1,335,000 was recorded in connection with this acquisition and is being
amortized over a 15 year estimated useful life.


                                      F-21
<PAGE>   122

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     The following table presents unaudited consolidated pro forma financial
information for the twelve months ended December 31, 1999 and 1998, as though
the above acquisitions made in 1999 had occurred on January 1, 1998 (in
thousands, except per share data):



<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                    -----------------------
                                                      1999         1998
                                                    --------    -----------
                                                          (UNAUDITED)
<S>                                                 <C>         <C>
Revenues..........................................  $758,247    $   915,838
Income (loss) before provision for income taxes
  and minority interest...........................   138,409       (407,367)
Net income (loss).................................   117,231       (364,647)
Basic earnings (loss) per share...................  $   1.51    $     (4.95)
</TABLE>



     The unaudited pro forma financial information is presented for information
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions taken place on January 1, 1998. In
addition, the pro forma results are not intended to be a projection of the
future results and do not reflect any synergies that might be achieved from the
combined operations.



     The Company has allocated the purchase price of the acquired businesses
first to the identifiable assets acquired based upon estimated fair values and
the liabilities assumed at estimated present values. A summary of the purchase
price allocation of the 1999 acquisitions is as follows (in thousands):



<TABLE>
<S>                                                           <C>
Current assets..............................................  $ 11,549
Property, plant and equipment...............................     9,029
Other non-current assets....................................       223
Goodwill....................................................     4,476
Current liabilities.........................................   (15,600)
Long-term liabilities.......................................       (91)
                                                              --------
          Total purchase price, net of cash acquired of
             $288...........................................  $  9,586
                                                              ========
</TABLE>



     Product Acquisitions -- The Company acquired the rights to certain products
from several companies for total consideration of $14,212,000. None of the above
product acquisitions are material to the financial results of the Company.



 4. RELATED PARTY TRANSACTIONS



     In June 1996, the Company made a short-term loan to the Chairman and CEO in
the amount of $3,500,000 for personal legal obligations. During August 1996,
this amount was repaid to the Company. In connection with this transaction, the
Company guaranteed $3,600,000 of debt of the Chairman with a third party bank.
Interest paid by the Company on behalf of the Chairman is charged to the
Chairman as compensation expense and amount to $163,166, $181,901 and $178,805
for the three years ended December 31, 1999, 1998 and 1997. In addition to the
guarantee, the Company deposited $3,600,000 with this bank as collateral to the
Chairman's debt. This deposit is recorded as a long-term asset on the
consolidated balance sheet. The Chairman has provided collateral to the
Company's guarantee in the form of a right to the proceeds of the exercise of
options to acquire 150,000 shares with an exercise price of $15.17 and the
rights to a $4,000,000 life insurance policy provided by the Company. In the
event of any default on the debt to the bank, the Company has recourse that is
limited to the collateral described above. Both the transaction and the
sufficiency of the collateral for the guarantee were approved by the Board of
Directors. In 1997, the


                                      F-22
<PAGE>   123

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



Company made a short-term advance of $327,000 to the Chairman and CEO, which was
repaid, with interest, in 1997.



 5. CONCENTRATIONS OF CREDIT RISK



     The Company is exposed to concentrations of credit risk related to its cash
deposits and marketable securities. The Company places its cash and cash
equivalents with respected financial institutions and limits the amount of
credit exposure to any one financial institution. The Company's cash and cash
equivalents and restricted cash include $160,000,000 and $109,000,000, at
December 31, 1999 and 1998, respectively, held in time deposits, money market
funds, and municipal debt securities through approximately ten major financial
institutions. The Company is also exposed to credit risk on its accounts
receivable balances in Russia as a result of the current economic situation. The
Russian accounts receivable balances at December 31, 1999 and 1998 are
$22,772,000 and $25,857,000, which is net of the allowances for doubtful
accounts of $9,142,000 and $17,477,000, respectively.



 6. INCOME TAXES



     Pretax income (loss) from continuing operations before minority interest
for each of the years ended December 31, consists of the following (in
thousands):



<TABLE>
<CAPTION>
                                           1999        1998         1997
                                         --------    ---------    --------
<S>                                      <C>         <C>          <C>
Domestic...............................  $ 96,270    $(252,597)   $(21,886)
Foreign................................    43,715     (142,484)    127,457
                                         --------    ---------    --------
                                         $139,985    $(395,081)   $105,571
                                         ========    =========    ========
</TABLE>



     The income tax (benefit) provision for each of the years ended December 31,
consists of the following (in thousands):



<TABLE>
<CAPTION>
                                             1999        1998        1997
                                            -------    --------    --------
<S>                                         <C>        <C>         <C>
Current
  Federal.................................  $ 6,206    $     --    $     --
  State...................................      674         640         200
  Foreign.................................   15,469       9,566       7,440
                                            -------    --------    --------
                                             22,349      10,206       7,640
Deferred
  Federal.................................    8,779     (11,409)    (31,375)
  State...................................    1,199          --          --
  Foreign.................................   (3,331)      3,186      (4,001)
                                            -------    --------    --------
                                              6,647      (8,223)    (35,376)
                                            -------    --------    --------
                                            $28,996    $  1,983    $(27,736)
                                            =======    ========    ========
</TABLE>



     The current federal tax provision has not been reduced for the tax benefit
associated with the exercise of employee stock options. The 1999 tax benefit of
$5,173,000 was credited directly to additional capital and the 1998 and 1997 tax
benefit amounts of $5,845,000 and $6,703,000, respectively, have been included
in the valuation allowance.


                                      F-23
<PAGE>   124

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     The primary components of the Company's net deferred tax asset at December
31, 1999 and 1998 are as follows (in thousands):



<TABLE>
<CAPTION>
                                                         1999        1998
                                                       --------    --------
<S>                                                    <C>         <C>
Deferred tax assets:
  NOL carryforwards..................................  $ 73,719    $100,840
  Capital loss carryforward..........................    25,458      18,988
  Inventory and other reserves.......................     8,809      14,514
  Tax credit carryforwards...........................     1,544         947
  Other..............................................     8,188       5,674
  Valuation allowance................................   (36,626)    (55,938)
                                                       --------    --------
     Total deferred tax asset........................    81,092      85,025
                                                       --------    --------
Deferred tax liabilities:
  Other..............................................    (9,507)     (7,092)
                                                       --------    --------
     Total deferred tax liability....................    (9,507)     (7,092)
                                                       --------    --------
          Net deferred tax asset.....................  $ 71,585    $ 77,933
                                                       ========    ========
</TABLE>



     In connection with the merger in 1994, the Company acquired approximately
$226,000,000 of net operating loss carryforwards ("NOLs"). Included in the total
acquired NOLs were $191,000,000 of domestic NOLs and $35,000,000 of foreign
NOLs. Internal Revenue Service Code Section 382 imposes an annual limitation on
the availability of domestic NOLs that can be used to reduce taxable income
after substantial ownership changes of a corporation. Consequently, the
Company's annual limitation on utilization of the acquired domestic NOLs is
approximately $33,000,000 per year.



     At December 31, 1999, the Company has domestic and foreign NOLs of
approximately $189,000,000 and $16,600,000, respectively and a capital loss
carryforward of $72,736,000. The Company's NOLs begin to expire in the year 2000
and the capital loss carryforward expires in the year 2003.



     In 1999, the valuation allowance primarily relates to the deduction for the
write-off of ICN Yugoslavia and a $12,548,000 tax benefit from the exercise of
stock options included in the NOL carryforward. Upon realization, the
$12,548,000 tax benefit of stock options included in the NOL carryforward will
be added to additional capital. Ultimate realization of the deferred tax assets
is dependent upon the Company generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized. The amount of the deferred tax assets considered realizable,
however, could be reduced in the future if estimates of future taxable income
during the carryforward period are reduced.


                                      F-24
<PAGE>   125

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     The Company's effective tax rate differs from the applicable U.S. statutory
federal income tax rate due to the following:



<TABLE>
<CAPTION>
                                                         1999    1998    1997
                                                         ----    ----    ----
<S>                                                      <C>     <C>     <C>
Statutory rate.........................................   35%    (35)%    35%
Foreign source income taxed at lower effective rates:
  Yugoslavia...........................................   --      15     (17)
  Russia...............................................    1       3      (5)
  Hungary..............................................    5      --      (2)
  China................................................    1      --      --
  Latin America and Puerto Rico........................   (5)     --      --
  Other Countries......................................   --      (1)     (4)
Change in valuation allowance..........................  (18)      5     (33)
Basis difference in Yugoslavia.........................   --      14      --
Other, net.............................................    2      --      --
                                                         ---     ---     ---
Effective rate.........................................   21%      1%    (26)%
                                                         ===     ===     ===
</TABLE>



     In Russia, the Company continues to benefit from special tax relief that
benefits pharmaceutical companies. Under this relief approximately 75% of the
income generated in Russia related to the manufacture and sale of prescription
medicines is exempt from taxation. This reduces the statutory rate to
approximately 8%. The continuing tax benefits in Russia are subject to potential
changes in tax law that may be enacted in the future. Should these benefits be
repealed, income generated in Russia would require the Company to provide taxes
at the current statutory rate of 35%.



     In Hungary, the Company benefited from a tax holiday, which expired on
December 31, 1998.



     In 1998 and 1997, the Company received the benefit of favorable tax laws in
Yugoslavia that resulted in income taxes at a rate lower than the 25%
Yugoslavian statutory rate. Under Yugoslavian law, taxable earnings attributed
to foreign investment are exempt from taxation for a five-year period.
Accordingly, 75% of ICN Yugoslavia's taxable income, the Company's ownership in
ICN Yugoslavia, was exempt from taxation for the five years ended December 31,
1996. Also in Yugoslavia, the Company received a tax credit for capital
investments, which may include short-term government bonds and property and
equipment, which can only be used in the year in which the investment is made.
Effective January 1, 1997, additional changes in the Yugoslavian tax law
resulted in benefits to the Company in the form of a reduction in taxes
otherwise payable as a result of its foreign investment in ICN Yugoslavia.



     ICN Hungary generated tax loss carryforwards in 1999 and in 1998. In 1998,
the Company's Russian subsidiaries also generated deferred income tax assets,
primarily related to bad debt reserves. Management believes that it is more
likely than not that these future tax benefits will not be realized prior to
expiration as a result of the seizure of ICN Yugoslavia and the economic crisis
affecting Eastern Europe. Accordingly, the Company recorded a valuation
allowance against these loss carryforwards and deferred income tax assets,
resulting in no tax benefit being recorded in 1999 and 1998.



     In 1999 and 1998, the provision for income taxes includes a deferred tax
benefit of $25,286,000 and $8,223,000, respectively, resulting from the
recognition of deferred tax assets through the reduction of the related
valuation allowance. During 1998, the Company acquired product rights from Roche
and SKB and in 1998 its partner, Schering-Plough, received FDA approval to
market Rebetron(TM) for which the Company will receive royalties. These new
products and royalties are


                                      F-25
<PAGE>   126

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



expected to generate future taxable income that resulted in a deferred tax
benefit related to the release of a portion of the valuation allowance.
Additionally, the Company has announced its intention to dispose of its
Biomedicals business which management expects will result in a net capital gain.
The capital gain will result in a future tax benefit because a portion of the
capital loss carryforwards can be utilized to offset the expected future gain.



     During 1999, no U.S. income or foreign withholding taxes were provided on
the undistributed earnings of the Company's foreign subsidiaries with the
exception of the Company's Panamanian subsidiary, Alpha Pharmaceuticals, since
management intends to reinvest those undistributed earnings in the foreign
operations. Included in consolidated retained earnings at December 31, 1999, is
approximately $186,000,000 of accumulated earnings of foreign operations that
would be subject to U.S. income or foreign withholding taxes, if and when
repatriated.



 7. EARNINGS PER SHARE



     The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):



<TABLE>
<CAPTION>
                                                   1999        1998         1997
                                                 --------    ---------    --------
<S>                                              <C>         <C>          <C>
Income:
  Net income (loss)............................  $118,626    $(352,074)   $113,924
  Dividends and accretion on preferred stock...        --          (34)     (5,651)
                                                 --------    ---------    --------
  Numerator for basic earnings per share --
     income available to common stockholders...   118,626     (352,108)    108,273
  Effect of dilutive securities:
     8 1/2% Convertible Subordinated Notes.....        --           --       9,328
     Other dilutive securities.................        (5)          --         160
                                                 --------    ---------    --------
  Numerator for diluted earnings per share --
     income available to common stockholders
     after assumed conversions.................  $118,621    $(352,108)   $117,761
                                                 ========    =========    ========
Shares:
  Denominator for basic earnings per share --
     weighted-average shares outstanding.......    77,833       73,637      55,965
  Effect of dilutive securities:
     Employee stock options....................     2,680           --       3,033
     Series C Convertible Preferred Stock......        --           --       1,266
     Series D Convertible Preferred Stock......       599           --          --
     8 1/2% Convertible Subordinated Notes.....        --           --       6,744
     Other dilutive securities.................       977           --       2,642
                                                 --------    ---------    --------
  Dilutive potential common shares.............     4,256           --      13,685
                                                 --------    ---------    --------
  Denominator for diluted earnings per share --
     adjusted weighted-average shares and
     assumed conversions.......................    82,089       73,637      69,650
                                                 ========    =========    ========
Basic earnings (loss) per share................  $   1.52    $   (4.78)   $   1.93
                                                 ========    =========    ========
Diluted earnings (loss) per share..............  $   1.45    $   (4.78)   $   1.69
                                                 ========    =========    ========
</TABLE>


                                      F-26
<PAGE>   127

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



8. DETAIL OF CERTAIN ACCOUNTS



<TABLE>
<CAPTION>
                                                         1999        1998
                                                       --------    --------
                                                          (IN THOUSANDS)
<S>                                                    <C>         <C>
ACCOUNTS RECEIVABLE, NET:
  Trade accounts receivable..........................  $206,766    $202,589
  Royalties receivable...............................    34,725       8,342
  Other receivables..................................    16,958      17,818
                                                       --------    --------
                                                        258,449     228,749
  Allowance for doubtful accounts....................   (26,547)    (48,748)
                                                       --------    --------
                                                       $231,902    $180,001
                                                       ========    ========
INVENTORIES, NET:
  Raw materials and supplies.........................  $ 32,683    $ 33,915
  Work-in-process....................................    12,610      13,372
  Finished goods.....................................    99,429      90,846
                                                       --------    --------
                                                        144,722     138,133
  Allowance for inventory obsolescence...............    (7,960)    (11,588)
                                                       --------    --------
                                                       $136,762    $126,545
                                                       ========    ========
PROPERTY, PLANT AND EQUIPMENT, NET:
  Land...............................................  $ 18,869    $ 17,678
  Buildings..........................................   146,402     124,402
  Machinery and equipment............................   184,230     152,037
  Furniture and fixtures.............................    20,588      19,372
  Leasehold improvements.............................     5,964       3,341
                                                       --------    --------
                                                        376,053     316,830
  Accumulated depreciation and amortization..........   (77,122)    (57,455)
  Construction in progress...........................    33,429      68,381
                                                       --------    --------
                                                       $332,360    $327,756
                                                       ========    ========
</TABLE>



             At December 31, 1999 and 1998, construction in progress
        includes costs incurred to date for the construction of a new
        pharmaceutical factory at the Company's Rzeszow, Poland facility
        and other plant expansion projects.



<TABLE>
<CAPTION>
                                                          1999       1998
                                                         -------    -------
                                                           (IN THOUSANDS)
<S>                                                      <C>        <C>
ACCRUED LIABILITIES:
  Payroll and related items............................  $13,397    $11,505
  Interest.............................................   14,287     13,726
  Other................................................   38,501     35,413
                                                         -------    -------
                                                         $66,185    $60,644
                                                         =======    =======
</TABLE>


                                      F-27
<PAGE>   128

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



 9. DEBT



     Long-term debt consists of the following (in thousands):



<TABLE>
<CAPTION>
                                                         1999        1998
                                                       --------    --------
<S>                                                    <C>         <C>
9 1/4% Senior Notes due 2005.........................  $275,000    $275,000
8 3/4% Senior Notes due 2008 (net of unamortized
  discount of $6,585)................................   318,415     196,774
Hungarian mortgage notes, repaid in 1999.............        --       5,010
U.S. mortgages with fixed and variable interest at
  rates ranging from 7.1% to 8.9%; interest and
  principal payable monthly through 2022.............     3,081      10,753
Hungarian loans in U.S. dollars and various foreign
  currencies, repaid in 1999.........................        --      33,389
Other long-term debt due in various foreign
  currencies, with interest at rates ranging from
  6.1% to 8.5%; interest and principal due in varying
  amounts through 2006...............................       777      17,979
                                                       --------    --------
                                                        597,273     538,905
Less current portion.................................       312      28,097
                                                       --------    --------
          Total long-term debt.......................  $596,961    $510,808
                                                       ========    ========
</TABLE>



     In July 1999 and August 1998, the Company completed private placements of
$125,000,000 and $200,000,000 principal amount, respectively, of its 8 3/4%
Senior Notes due 2008 (the "8 3/4% Senior Notes"). Net proceeds to the Company,
after discounts and costs of issuance, were $118,485,000 and $190,821,000,
respectively. The 8 3/4% Senior Notes are non-callable; however, pursuant to the
bond's Indenture these notes are redeemable at the Company's option prior to
November 15, 2001. The Indenture provides for the Company to redeem up to $70.0
million aggregate principal amount of the notes from the net proceeds of a
public equity offering for a price equal to 108.75% plus accrued and unpaid
interest. In connection with the private placement, the Company granted the
purchasers of the 8 3/4% Senior Notes registration rights relating to the
exchange offer and shelf registration rights. The Company used a portion of the
proceeds from the 1999 issuance for principal payments of long-term debt and
short-term borrowings.



     In August 1997, the Company completed an underwritten public offering of
$275,000,000 of its 9 1/4% Senior Notes Due 2005 (the "9 1/4% Senior Notes") for
net proceeds of $265,646,000. The 9 1/4% Senior Notes are redeemable in cash at
the option of the Company, in whole or in part, on or after August 15, 2001, at
specified redemption prices.



     The 8 3/4% Senior Notes and the 9 1/4% Senior Notes (together, the "Senior
Notes") each are general unsecured obligations of the Company which rank pari
passu in right of payment with all other unsecured senior indebtedness, and are
senior to all subordinated indebtedness of the Company. Upon a change of control
(as defined in the related indentures), the Company will be required to offer to
repurchase the Senior Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest thereon to the date of repurchase.
Interest on the Senior Notes is payable semi-annually. The indentures governing
the Senior Notes include covenants which may restrict the incurrence of
additional indebtedness, the payment of dividends and other restricted payments,
the creation of liens, the sale of assets, or the Company's ability to
consolidate or merge with another entity, subject to qualifications and
exceptions.


                                      F-28
<PAGE>   129

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     During 1998, SFr. 37,670,000 principal amount of the New Certificates was
exchanged for an aggregate of approximately 802,000 shares of the Company's
common stock and the remainder of the New Certificates were redeemed for cash.
Upon the exchange and redemption of the New Certificates, Danish bonds held in
trust for the payment of the New Certificates, having a market value of
approximately $22,958,000, became available to the Company and were sold. The
exchange increased stockholders' equity by $25,337,000 and reduced long-term
debt and accrued interest by $4,680,000.



     The Company has a mortgage totaling $3,081,000 payable in U.S. dollars,
collateralized by real property of the Company having a net book value of
$1,418,000 at December 31, 1999.



     Aggregate annual maturities of long-term debt are as follows (in
thousands):



<TABLE>
<S>                                                <C>
2000.............................................  $    312
2001.............................................       357
2002.............................................       157
2003.............................................       119
2004.............................................        81
Thereafter.......................................   596,247
                                                   --------
          Total..................................  $597,273
                                                   ========
</TABLE>



     The estimated fair value of the Company's debt, based on quoted market
prices or on current interest rates for similar obligations with like
maturities, was approximately $585,108,000 and $549,819,000 compared to its
carrying value of $597,273,000 and $538,905,000 at December 31, 1999 and 1998,
respectively.



     The Company has short and long-term lines of credit, classified in notes
payable, aggregating $7,639,000 under which borrowings of $687,000 were
outstanding at December 31, 1999. The lines of credit provide for short-term
borrowings and bear interest at variable rates based upon LIBOR (approximately
5.9% at December 31, 1999) or other indices.



10. PREFERRED STOCK



     In connection with the acquisition of rights to certain products from
SmithKline Beecham plc ("SKB") in 1998, the Company issued 821 shares of its
Series D Convertible Preferred Stock to SKB. Each share of the Series D
Convertible Preferred Stock was initially convertible into 750 shares of the
Company's common stock (together, the "SKB Shares"), subject to antidilution
adjustments, and had a liquidation preference of $28,000 per share. Except under
specified circumstances, SKB agreed not to sell the SKB Shares until November 4,
1999, unless the market price of the Company's common stock exceeded $50.00 per
common share. In connection with the issuance of the SKB shares, the Company
guaranteed SKB a price initially at $37.37 per common share, increasing at a
monthly rate of $0.43 per share for twenty months. The Company agreed to pay SKB
an additional amount in cash (or, under specified circumstances, in shares of
common stock) to the extent proceeds received by SKB from the sale of the SKB
Shares during the guarantee period ending in December 1999 and the then market
value of the unsold SKB Shares did not provide SKB with an average value of
$46.00 per common share (including any dividend paid on the SKB Shares). In
December 1999, the Company satisfied its obligation to SKB by repurchasing the
821 shares of Series D Convertible Preferred Stock for $28,313,000 in cash.


                                      F-29
<PAGE>   130

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



11. COMMON STOCK



     During 1998, the Board of Directors and the stockholders each approved the
Company's Amended and Restated 1998 Stock Option Plan (the "Stock Option Plan").
The Stock Option Plan, as amended, provides for the granting of options to
purchase a maximum of 7,854,000 shares (including 3,000,000 shares authorized in
1998) of the Company's common stock to key employees, officers, directors,
consultants and advisors of the Company. Options granted under the Stock Option
Plan must have an option price not less than 85% of the fair market value of the
Company's common stock at the date of the grant, and a term not exceeding 10
years. Options vest ratably over a four year period from the date of the grant.
Under the Stock Option Plan each nonemployee director is granted 22,500 options
on each April 18.



     The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for options granted under
the Stock Option Plan. Had compensation cost for the Company's Stock Option Plan
been determined based on the fair value at the grant date for awards in 1999,
1998 and 1997 consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and earnings (loss) per share would have been the unaudited pro
forma amounts indicated below (in thousands, except per share data):



<TABLE>
<CAPTION>
                                           1999        1998         1997
                                         --------    ---------    --------
<S>                                      <C>         <C>          <C>
Net income (loss)......................  $109,876    $(359,757)   $110,426
Earnings (loss) per share -- basic.....      1.41        (4.89)       1.87
Earnings (loss) per share -- diluted...      1.34        (4.89)       1.64
</TABLE>



     The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions:



<TABLE>
<CAPTION>
                                                   1999      1998     1997
                                                  ------    ------    -----
<S>                                               <C>       <C>       <C>
Weighted-average life (years)...................     4.4       5.0      5.0
Volatility......................................      54%       56%      46%
Expected dividend per share.....................  $ 0.36    $ 0.36    $0.24
Risk-free interest rate.........................    5.40%     5.15%    6.33%
Weighted-average fair value of options
  granted.......................................  $12.51    $19.54    $6.00
</TABLE>


                                      F-30
<PAGE>   131

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     The following table sets forth information relating to stock option plans
during the years ended December 31, 1999, 1998 and 1997 (in thousands, except
per share data):



<TABLE>
<CAPTION>
                                                    NUMBER OF   WEIGHTED AVERAGE
                                                     SHARES      EXERCISE PRICE
                                                    ---------   ----------------
<S>                                                 <C>         <C>
Shares under option, December 31, 1996............    8,715          $12.09
  Granted.........................................    2,267           13.86
  Exercised.......................................   (1,870)          11.03
  Canceled........................................     (192)          14.07
                                                     ------
Shares under option, December 31, 1997............    8,920           12.68
  Granted.........................................    2,211           42.75
  Exercised.......................................     (634)          10.94
  Canceled........................................     (144)          14.96
                                                     ------
Shares under option, December 31, 1998............   10,353           18.97
  Granted.........................................    1,451           25.66
  Exercised.......................................   (1,148)          11.10
  Canceled........................................     (288)          24.52
                                                     ------
Shares under option, December 31, 1999............   10,368          $20.59
                                                     ======
Exercisable at December 31, 1997..................    5,643          $12.29
                                                     ======
Exercisable at December 31, 1998..................    6,841          $13.43
                                                     ======
Exercisable at December 31, 1999..................    6,962          $16.10
                                                     ======
Options available for grant at December 31,
  1998............................................    1,433
                                                     ======
Options available for grant at December 31,
  1999............................................      270
                                                     ======
</TABLE>



     The schedule below reflects the number of outstanding and exercisable
options as of December 31, 1999 segregated by price range (in thousands, except
per share data):



<TABLE>
<CAPTION>
                              OUTSTANDING         EXERCISABLE
                           -----------------   -----------------
                                    WEIGHTED            WEIGHTED     WEIGHTED
                           NUMBER   AVERAGE    NUMBER   AVERAGE      AVERAGE
                             OF     EXERCISE     OF     EXERCISE    REMAINING
RANGE OF EXERCISE PRICES   SHARES    PRICE     SHARES    PRICE     LIFE (YEARS)
------------------------   ------   --------   ------   --------   ------------
<S>                        <C>      <C>        <C>      <C>        <C>
    $ 2.91 to $13.67        4,415    $10.83    4,079     $10.59        4.7
     13.92 to  26.88        3,697     19.33    2,163      17.41        5.8
     27.61 to  46.25        2,256     41.77      720      43.30        8.2
                           ------              -----
                           10,368              6,962
                           ======              =====
</TABLE>



     During 1998, the Company extended by one year the term of options to
purchase an aggregate of 304,000 shares of common stock which are held by four
employees, including the Chairman and CEO and a director. The Company recorded
an other non-cash charge of $2,909,000 for compensation expense related to these
options.



     In 1996, the Company acquired the net assets of the Siemens Dosimetry
Service Division of Siemens Medical Systems, Inc. ("Siemens"), for 1,447,250
shares of the Company's common stock (the "Siemens Shares") plus other
consideration. On December 23, 1996, Siemens sold the Siemens Shares to accounts
over which an investment company exercised investment authority (collectively,
the "Purchasers"), for $13.00 per share. In conjunction with and conditioned
upon the consummation of the sale of the Siemens Shares, the Company entered
into an agreement (the


                                      F-31
<PAGE>   132

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



"Put Agreement") with the Purchasers pursuant to which the Company sold 150,000
additional shares of common stock for $1,950,000 (together with the Siemens
Shares, the "Purchaser Shares") and sold to the Purchasers, for $3,200,000, the
right to put (the "Put Right") 1,597,250 shares of common stock, valued at
$23,120,000 at December 31, 1996, to the Company at $20 per share on January 10,
2000. The Put Agreement also entitled the Company to a portion of any proceeds
from the sale of the Purchaser Shares in excess of the $20 per share put price.
In 1997, the Purchaser sold substantially all shares subject to the Put Right
and the Put Right expired entirely; the $23,120,000 value of the Purchaser
Shares was added to the Company's stockholders' equity. In addition, the Company
received a cash payment from the Purchasers, which was also added to
stockholders' equity.



     Stock repurchase plan: In 1998, the Company's Board of Directors authorized
two stock repurchase programs. The first repurchase program authorized the
Company to repurchase up to $10,000,000 of its outstanding common stock. The
second authorized the Company to initiate a long-term repurchase program that
allows the Company to repurchase up to 3,000,000 shares of its common stock. In
executing the repurchase programs, the Company is limited by covenants contained
in the indentures relating to the Company's Senior Notes. In the indentures, the
Company is permitted to repurchase up to $10,000,000 of its common stock under
the first program; however, repurchases under the second program will only be
permitted as the Company generates cumulative net income, as provided for in the
indentures. In 1998, the Company repurchased an aggregate of 200,000 shares of
its common stock for $4,450,000. In March 1999, the Company repurchased
additional shares of 223,967 of its common stock for $5,550,000, completing its
first stock repurchase program. In December 1999, the Company repurchased
additional shares of 390,200 of its common stock for $9,754,000, initiating the
second stock repurchase program.



     During 1999, the Company sold put options to an independent third party;
the proceeds were used to purchase call options from the same party in a private
placement transaction not requiring any net cash outlay at the time. The put
options and the corresponding call options each expire from August 2000 through
December 2000 and are exercisable only at the expiration dates. The Company may,
at its option, make a physical settlement, a cash settlement, or a net share
settlement of its positions under the put options and the call options. The
Company has a maximum potential obligation under the put options to purchase
2,380,953 shares of its common stock for an aggregate price of approximately
$67,500,000. The call options entitle the Company to buy 1,064,085 shares of its
common stock for approximately $33,519,000. The net shares issuable in
settlement of the put options are considered outstanding for the purpose of
computing diluted earnings per share, based upon the market price of the
Company's common stock on December 31, 1999. The net settlement obligation of
the Company was approximately $7,200,000 or 285,714 shares at year-end 1999.



     Stockholder Rights Plan: In connection with the Merger, the Company adopted
a Stockholder Rights Plan to protect stockholders' rights in the event of a
proposed or actual acquisition of 15% or more of the outstanding shares of the
Company's common stock. As part of this plan, each share of the Company's common
stock carries a right to purchase one one-hundredth ( 1/100) of a share of
Series A Preferred Stock (the "Rights"), par value $0.01 per share, of the
Company at a price of $125 per one one-hundredth of a share, subject to
adjustment, which becomes exercisable only upon the occurrence of certain
events. The Rights are subject to redemption at the option of the Board of
Directors at a price of $0.01 per right until the occurrence of certain events.
The Rights expire on November 1, 2004.


                                      F-32
<PAGE>   133

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     Long-term Incentive Plan: The Company has a long-term incentive plan, which
provides for the issuance of shares of the Company's common stock to senior
executives. Shares issued under the long-term incentive plan are restricted and
vest over a four-year period. In 1999, no shares were issued under the plan. In
1998, approximately 319,000 shares of the Company's common stock having a value
of $10,466,000 were issued under this plan. Compensation expense for the value
of the common shares issued is being recognized over the vesting period and is
credited to additional capital. During 1999 and 1998, the Company recorded an
other non-cash charge relating to the compensation expense of $2,737,000 and
$2,398,000, respectively. As of December 31, 1999, the unamortized compensation
cost related to the restricted shares was $4,861,000. The amount expected to be
recognized in 2000, 2001 and 2002, assuming that all current participants in the
long-term incentive plan remain in the plan through the vesting period, is
$2,333,000, $2,333,000 and $195,000, respectively.



     Contingently issuable shares: Effective October 1, 1998, the Company issued
2,883,871 shares of its common stock to Roche as part of the consideration for
the rights to four pharmaceutical products. Under the terms of the agreement
with Roche, the Company has guaranteed to Roche a per share price initially at
$31.00, increasing at a rate of 6% per annum through December 31, 2000. Should
Roche sell any of the shares prior to December 31, 2000, the Company is entitled
to one-half of any proceeds realized by Roche in excess of the guaranteed price.
Should the market price of the Company's common stock be below the guaranteed
price at the end of the guarantee period, the Company will be required to
satisfy the aggregate guarantee amount by payment to Roche in cash or, in
certain circumstances, in additional shares of the Company's common stock. As of
December 31, 1999, the Company's guarantee has been reduced to 500,000 shares of
its common stock from the 2,883,871 shares originally issued to Roche. The
aggregate guaranteed value of the shares held by Roche exceeds their market
value by approximately $3,995,000 at the end of 1999 and the Company may be
required to issue approximately 160,000 additional common shares in satisfaction
of this agreement.



     Other: During 1999, the Company sold 2,041,498 shares of its common stock
to Schering-Plough for $42,000,000. The sale was pursuant to the terms of the
Stock Purchase Agreement made between the Company and Schering-Plough in 1995.
See Note 16. In 1997, long-term debt of the Company having an aggregate carrying
value of $124,060,000 was converted into 10,052,000 shares of the Company's
common stock. In addition, the Company issued 812,000 shares of its common
stock, having a value of $10,000,000, in settlement of litigation. The Company
also issued 129,665 shares of its common stock, having a value of $1,875,000, in
payment of a portion of the 6% annual dividend on the Series B Convertible
Preferred Stock.



12. COMMITMENTS AND CONTINGENCIES



     On August 11, 1999, the United States Securities and Exchange Commission
filed a complaint in the United States District Court against the Company, the
Chairman (Milan Panic) and one current and one former officer of the Company
(the "SEC Complaint"). The SEC Complaint alleges that the Company and the
individual named defendants made untrue statements of material fact or omitted
to state material facts necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading and
engaged in acts, practices, and courses of business which operated as a fraud
and deceit upon other persons in violation of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The action concerns
the status and disposition of the Company's 1994 new drug application for
Virazole(R) as a monotherapy treatment for hepatitis C (the "NDA"). The SEC
Complaint seeks


                                      F-33
<PAGE>   134

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



injunctive relief, unspecified civil penalties, and an order barring Mr. Panic
from acting as an officer or director of any publicly-traded company.



     The Company has received subpoenas from a Grand Jury in the United States
District Court for the Central District of California requesting the production
of documents covering a broad range of matters over various time periods. The
Company understands that the Company, Mr. Panic, two current senior executive
officers, a former senior officer, a current employee, and a former employee of
the Company are targets of the investigation. The Company also understands that
a senior executive officer, a director, a former officer, a current employee and
a former employee are subjects of the investigation. The United States
Attorney's office has advised counsel for the Company that the areas of its
investigation include disclosures made and not made concerning the NDA to the
public and other third parties; stock sales for the benefit of Mr. Panic
following receipt on November 28, 1994 of a letter from the FDA informing the
Company that the NDA had been found not approvable; possible violations of the
economic embargo imposed by the United States upon the Federal Republic of
Yugoslavia, based upon alleged sales by the Company and Mr. Panic of stock
belonging to Company employees; and, with respect to Mr. Panic, personal
disposition of assets of entities associated with Yugoslavia, including possible
misstatements and/or omissions in federal tax filings. The Company has, and
continues to, cooperate in the Grand Jury investigation. A number of current and
former employees of the Company have been interviewed by the government in
connection with the investigation. The United States Attorney's office has
issued subpoenas requiring various current and former officers and employees of
the Company to testify before the Grand Jury. Certain current and former
officers and employees testified before the Grand Jury beginning in July 1998.



     The Company has commenced litigation in the United States District Court of
the District of Columbia against the government of Yugoslavia and related
agencies to recover damages and obtain injunctive relief. In addition, the
government of Yugoslavia, through a related agency, filed an arbitration
proceeding against the Company before the International Chamber of Commerce for
damages related to the Company's acquisition of majority control of ICN
Yugoslavia. The Company intends to prosecute vigorously its claims against the
FRY, the ROS, and the State Fund, and to defend against the State Fund's claims
against the Company, which the Company believes to be meritless and filed solely
as a response to the action filed earlier by the Company in the District Court.



     The Company is a party to other pending lawsuits or subject to a number of
threatened lawsuits. While the ultimate outcome of pending and threatened
lawsuits and the Grand Jury investigation cannot be predicted with certainty,
and an unfavorable outcome could have a negative impact on the Company, at this
time in the opinion of management, the ultimate resolution of these matters will
not have a material effect on the Company's consolidated financial position,
results of operations or liquidity.



     Product Liability Insurance: The Company is currently self-insured with
respect to product liability claims and could be exposed to possible claims for
personal injury resulting from allegedly defective products. 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 negative impact on the results of operations
and cash flows of the Company.



     Benefits Plans: The Company has a defined contribution plan that provides
all U.S. employees the opportunity to defer a portion of their compensation for
payout at a subsequent date. The Company can voluntarily make matching
contributions on behalf of participating and eligible

                                      F-34
<PAGE>   135

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



employees. The Company's expense related to such defined contribution plan was
not material in 1999, 1998 and 1997.



     Other: Milan Panic, the Company's Chairman of the Board and Chief Executive
Officer, is employed under a contract expiring December 31, 2002 that provides
for, among other things, certain health and retirement benefits. The contract is
automatically extended at the end of each term for successive one year periods
unless either the Company or Mr. Panic terminates the contract upon six months
prior written notice. Mr. Panic, at his option, may provide consulting services
upon his retirement and will be entitled, when serving as a consultant, to
participate in the Company's medical and dental plans. The consulting fee shall
not at any time exceed the annual compensation as adjusted, paid to Mr. Panic.
Upon Mr. Panic's retirement, the consulting fee shall not be subject to further
cost-of-living adjustments.



     The Company has employment agreements with seven key executives which
contain "change in control" benefits. Upon a "change in control" of the Company,
as defined in the contract, the employee shall receive severance benefits equal
to three times salary or for the Chairman five times salary and other benefits.
As of December 31, 1999, the Company's obligation, assuming a change in control
had occurred would be $27,488,000 for all employment contracts.



13. BUSINESS SEGMENTS AND GEOGRAPHIC DATA



     The Company is a global, research-based pharmaceutical company that
develops, manufactures, distributes and sells pharmaceutical, research, and
diagnostic products and provides radiation monitoring services. The Company is
organized and operates in the Pharmaceuticals group and the Biomedicals group.
The Pharmaceuticals group produces and markets a variety of pharmaceutical
products worldwide and derives royalty revenues from sales of some of its
products by a third party under a license agreement. The Biomedicals group
markets research products and related services, immunodiagnostic reagents and
instrumentation, and provides radiation monitoring services.



     In 1999, the principal markets for the Company's products were North
America, Western and Central Europe, and Latin America, which represented
approximately 36%, 27%, and 14%, respectively, of the Company's revenues for the
year. Approximately 64%, 76%, and 82% of the Company's revenues for the years
ended December 31, 1999, 1998 and 1997, respectively, were generated from
operations outside the United States. The Company's foreign operations are
subject to 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 provide any hedges on its foreign currency exposure and, in certain
countries in which the Company operates, no effective hedging programs are
available.



     The Company's Russian subsidiaries periodically engage in barter
transactions related to the sale of its products in exchange for raw materials,
other finished goods and costs or services incurred in the conduct of its
operations. For each of the periods ended December 31, 1999, 1998 and 1997, the
Company's Russian subsidiaries recorded approximately $8,000,000 in revenue
related to barter transactions.


                                      F-35
<PAGE>   136

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which requires reporting certain financial
information according to the "management approach." This approach requires
reporting information regarding operating segments on the basis used internally
by management to evaluate segment performance. SFAS 131 also requires
disclosures about products and services, geographic areas and major customers.
The Statement was effective December 31, 1998 and has been adopted for all
periods presented.



     The Company is organized into business units on the basis of geographic
region. In applying SFAS 131, these business units have been aggregated into
seven reportable segments based on similar long-term economic characteristics.
During 1999, the Company decided to manage its Central European businesses from
the Western European headquarters in anticipation of the entry of Poland,
Hungary and the Czech Republic into the European Union. As a result, the Company
integrated ICN Hungary, ICN Czech Republic and ICN Poland into the Western and
Central Europe segment, which were previously reported under the Other Eastern
Europe segment. All amounts for 1998 and 1997 have been restated to conform with
the current year presentation. The Company's Latin American Segment principally
comprises Mexico.



     The accounting policies of the segments are the same as those described in
Note 2. The Company evaluates segment performance based on income from
operations, which excludes intersegment sales as well as interest income and
expense and foreign exchange gains and losses. The Company allocates
amortization on the product rights acquired from Roche and SKB among the
segments where the related revenues are reported; the unamortized cost of such
acquired product rights is included in assets of the North America
Pharmaceuticals segment.



     The tables below present information about reported segments and geographic
data for the years ended December 31, 1999, 1998, and 1997 (in thousands):



<TABLE>
<CAPTION>
                                         REVENUES                  OPERATING INCOME (LOSS)
                              ------------------------------   -------------------------------
                                1999       1998       1997       1999       1998        1997
                              --------   --------   --------   --------   ---------   --------
<S>                           <C>        <C>        <C>        <C>        <C>         <C>
Pharmaceuticals
  North America.............  $254,694   $182,778   $117,355   $174,015   $ 100,311   $ 48,453
  Western and Central
     Europe.................   185,417    154,346    118,010     14,593      11,559     23,670
  Latin America.............   100,325     85,351     63,668     34,691      26,791     17,467
  Russia....................    91,648    163,691    134,688      9,005       9,340     28,982
  Yugoslavia................        --    141,740    225,530         --    (140,419)    60,235
  Asia, Africa, Australia...    54,131     48,649     22,036     13,266      10,062      2,903
                              --------   --------   --------   --------   ---------   --------
Total Pharmaceuticals.......   686,215    776,555    681,287    245,570      17,644    181,710
Biomedicals.................    61,197     61,509     70,915      6,416       5,471      5,148
                              --------   --------   --------   --------   ---------   --------
Consolidated revenues and
  segment operating income..  $747,412   $838,064   $752,202    251,986      23,115    186,858
                              ========   ========   ========
Corporate expenses..........                                     53,129     312,683     61,560
Interest income.............                                     (8,894)    (13,057)   (15,912)
Interest expense............                                     55,943      38,069     22,849
Translation and exchange
  losses, net...............                                     11,823      80,501     12,790
                                                               --------   ---------   --------
Income (loss) before income
  taxes and minority
  interest..................                                   $139,985   $(395,081)  $105,571
                                                               ========   =========   ========
</TABLE>


                                      F-36
<PAGE>   137

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     Operating income for 1999 did not include any revenues or expenses related
to the Company's investment in ICN Yugoslavia. Operating income (loss) for 1998
includes the Eastern European charges totaling $440,820,000. These charges are
included in Yugoslavia Pharmaceuticals ($173,508,000), Russia Pharmaceuticals
($11,770,000), Western and Central Europe Pharmaceuticals ($15,659,000), North
America Pharmaceuticals ($3,150,000), and Biomedicals ($647,000). In addition,
Eastern European charges of $236,086,000 (principally the write-off of the
Company's investment in ICN Yugoslavia) are included in Corporate expenses.



<TABLE>
<CAPTION>
                          DEPRECIATION AND AMORTIZATION        CAPITAL EXPENDITURES(1)
                          -----------------------------    -------------------------------
                           1999       1998       1997       1999        1998        1997
                          -------    -------    -------    -------    --------    --------
<S>                       <C>        <C>        <C>        <C>        <C>         <C>
Pharmaceuticals
  North America.........  $14,487    $13,609    $ 7,284    $ 8,088    $  2,425    $ 57,921
  Western and Central
     Europe.............   16,672     10,993      5,040     10,111      22,082       4,926
  Latin America.........    8,549      5,563      2,014      3,198       2,366       1,727
  Russia................    4,544        104        246     12,636      41,803      17,923
  Yugoslavia............       --      3,720      4,046         --      22,472      13,492
  Asia, Africa,
     Australia..........    6,323      5,488        142        103          13         646
                          -------    -------    -------    -------    --------    --------
Total Pharmaceuticals...   50,575     39,477     18,772     34,136      91,161      96,635
Biomedicals.............    6,695      4,669      4,535      2,379       3,019       3,160
Corporate...............    8,232      6,950      5,446      9,124      16,101       6,602
                          -------    -------    -------    -------    --------    --------
                          $65,502    $51,096    $28,753    $45,639    $110,281    $106,397
                          =======    =======    =======    =======    ========    ========
</TABLE>


---------------

(1) Includes noncash capital expenditures of $1,556, $-0- and $6,000 for 1999,
    1998 and 1997, respectively.



<TABLE>
<CAPTION>
                                                                     ASSETS
                                                     --------------------------------------
                                                        1999          1998          1997
                                                     ----------    ----------    ----------
<S>                                                  <C>           <C>           <C>
Pharmaceuticals
  North America....................................  $  516,231    $  519,920    $  333,698
  Western and Central Europe.......................     218,577       226,436       177,426
  Latin America....................................     100,118        66,486        30,191
  Russia...........................................     174,838       154,424       145,162
  Yugoslavia.......................................          --            --       421,731
  Asia, Africa, Australia..........................      98,402        79,274        25,735
                                                     ----------    ----------    ----------
Total Pharmaceuticals..............................   1,108,166     1,046,540     1,133,943
Biomedicals........................................      67,692        76,671        74,334
Corporate..........................................     296,403       233,185       283,468
                                                     ----------    ----------    ----------
                                                     $1,472,261    $1,356,396    $1,491,745
                                                     ==========    ==========    ==========
</TABLE>


                                      F-37
<PAGE>   138

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



  Geographic Data



<TABLE>
<CAPTION>
                                   REVENUES                       LONG-LIVED ASSETS
                       --------------------------------    --------------------------------
                         1999        1998        1997        1999        1998        1997
                       --------    --------    --------    --------    --------    --------
<S>                    <C>         <C>         <C>         <C>         <C>         <C>
United States........  $271,217    $199,234    $137,725    $500,981    $512,261    $343,900
Canada...............    19,799      18,960      20,824       3,289       3,345       3,602
Western and Central
  Europe.............   201,825     172,919     138,402     133,565     145,541     114,636
Latin America(1).....   101,728      86,634      66,166      38,846      34,456       8,603
Russia...............    91,648     163,691     134,688      99,870      86,969      39,330
Yugoslavia...........        --     141,740     225,530          --          --     115,784
Asia, Africa,
  Australia..........    61,195      54,886      28,867      49,885      55,143       9,429
                       --------    --------    --------    --------    --------    --------
                       $747,412    $838,064    $752,202    $826,436    $837,715    $635,284
                       ========    ========    ========    ========    ========    ========
</TABLE>


---------------

(1) Latin American region is principally Mexico.



     Revenues are attributed to the countries based upon the country of domicile
of the Company's subsidiary which made the sale, with the exception of certain
sales exported from the United States into the Asia, Africa, and Australia
region, where the sales are attributed to the region based upon the location of
the customer. During 1997, sales to the Yugoslavian government and government-
sponsored entities represented approximately 22% of the Company's total
revenues. For 1999 and 1998, no customer accounted for 10% or more of the
Company's revenues. Long-lived assets principally consist of property, plant,
and equipment, acquired product rights, and goodwill.



14. ICN YUGOSLAVIA



     On February 6, 1999, the government of the Federal Republic of Yugoslavia,
acting through the Federal Ministry of Health and/or the Ministry of Health of
Serbia, seized control of the Company's 75% owned subsidiary, ICN Yugoslavia.
This action, based on a decision by the Ministry for Economic and Property
Transformation that was reached on November 26, 1998, effectively reduced the
Company's equity ownership of ICN Yugoslavia from 75% to 35%. The Ministry of
Economic and Property Transformation decision was based on the unilaterally
imposed recalculation of the Company's original capital contribution to ICN
Yugoslavia. Subsequent to the seizure, the Commercial Court of Belgrade issued
an order stating that a change in control had occurred. These actions were
taken, contrary to Yugoslavian law, without any notification to or
representation by the Company. Since the change of control, representatives of
the Company and ICN Yugoslavia's management have been denied access to the
premises and any representation as to the management of ICN Yugoslavia. As a
result, the Company is no longer able to influence the operating and financial
affairs of ICN Yugoslavia and deconsolidated the financial statements of ICN
Yugoslavia as of November 26, 1998. Accordingly, the Company recorded a charge
of $235,290,000 in the fourth quarter of 1998, which is included in Eastern
European Charges in the accompanying consolidated statements of income. This
charge reduces the carrying value of the Company's investment in ICN Yugoslavia
to its fair value, currently estimated to be zero.


                                      F-38
<PAGE>   139

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999


     The summary balance sheet of ICN Yugoslavia as of the effective date of the
write-off (November 26, 1998) is presented below.

                     ICN YUGOSLAVIA SUMMARY BALANCE SHEET,
                        EXCLUDING INTERCOMPANY BALANCES
                            AS OF NOVEMBER 26, 1998
                           (UNAUDITED, IN THOUSANDS)

<TABLE>
<S>                                                           <C>
Cash........................................................  $ 22,101
Accounts receivable, net....................................    58,188
Notes receivable............................................    25,000
Inventories, net............................................    46,652
Other current assets........................................     8,153
Other long-term assets......................................   167,059
                                                              --------
                                                              $327,153
                                                              ========
Current liabilities.........................................  $ 39,167
Minority interest and long-term liabilities.................    52,696
Stockholders' equity........................................   235,290
                                                              --------
                                                              $327,153
                                                              ========
</TABLE>

                                      F-39
<PAGE>   140

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



     The following table represents the Consolidated Statements of Income of the
Company, ICN Yugoslavia and the pro-forma results excluding ICN Yugoslavia for
the years 1998 and 1997.



                       CONSOLIDATED STATEMENTS OF INCOME


                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


                (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                           1998                                     1997
                          --------------------------------------   --------------------------------------
                                                      EXCLUDING                                EXCLUDING
                          CONSOLIDATED   YUGOSLAVIA   YUGOSLAVIA   CONSOLIDATED   YUGOSLAVIA   YUGOSLAVIA
                          ------------   ----------   ----------   ------------   ----------   ----------
<S>                       <C>            <C>          <C>          <C>            <C>          <C>
Net Revenues............   $  838,064    $ 141,740    $ 696,324      $752,202      $225,530    $  526,672
Cost and expenses:
  Cost of product
     sales..............      353,600       80,430      273,170       351,978       117,210       234,768
  Selling, general and
     administrative.....      312,377       25,081      287,296       256,234        42,215       214,019
  Research and
     development........       20,835        3,140       17,695        18,692         5,870        12,822
  Eastern European
     charges............      440,820      408,798       32,022            --            --            --
                           ----------    ---------    ---------      --------      --------    ----------
Total expenses..........    1,127,632      517,449      610,183       626,904       165,295       461,609
                           ----------    ---------    ---------      --------      --------    ----------
     Income (loss) from
       operations.......     (289,568)    (375,709)      86,141       125,298        60,235        65,063
Translation and exchange
  losses, net...........       80,501       23,865       56,636        12,790        12,602           188
Interest expense
  (income), net.........       25,012         (630)      25,642         6,937       (10,786)       17,723
Provision (benefit) for
  income taxes..........        1,983        1,029          954       (27,736)        1,440       (29,176)
Minority interest.......      (44,990)     (41,173)      (3,817)       19,383        15,111         4,272
                           ----------    ---------    ---------      --------      --------    ----------
  Net income (loss).....   $ (352,074)   $(358,800)   $   6,726      $113,924      $ 41,868    $   72,056
                           ==========    =========    =========      ========      ========    ==========
  Basic earnings (loss)
     per share..........   $    (4.78)                $    0.09      $   1.93                  $     1.19
                           ==========                 =========      ========                  ==========
  Diluted earnings
     (loss) per share...   $    (4.78)                $    0.09      $   1.69                  $     1.09
                           ==========                 =========      ========                  ==========
</TABLE>



     Through the first quarter of 1998, the majority of ICN Yugoslavia's
domestic sales were made to the Yugoslavian government or government-funded
entities. During early 1997, the Company established credit terms with the
Yugoslavian government under which future receivables were interest-bearing with
one year terms and payable in dinars, but fixed in dollar amounts. At December
31, 1997, the Company had approximately $145,431,000 of notes receivable from
the Yugoslavian government under such terms. During the first quarter of 1998,
the Company continued to make sales to the Yugoslavian government and
government-sponsored entities under similar fixed dollar terms in order to
reduce the Company's exposure to losses resulting from exchange rate
fluctuations. In the second quarter of 1998, the Yugoslavian government
defaulted on its obligations to the Company on $176,204,000 of accounts and
notes receivable. As a result of the government's default and the suspension of
sales to the government, the Company recorded a $173,440,000 charge against
earnings at ICN Yugoslavia in the second quarter of 1998. The charge is included
in Eastern European Charges ($165,646,000), cost of product sales ($3,667,000),
and


                                      F-40
<PAGE>   141

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



interest income ($4,127,000) in the accompanying consolidated statements of
income. The charge consists of a $151,204,000 reserve for losses on notes
receivable (including accrued interest), reserves of $7,757,000 for losses on
accounts receivable from government-sponsored entities, and a $14,479,000
write-down of the value of certain related investments and assets.



     In the third quarter of 1998 ICN Yugoslavia recorded a charge for losses on
accounts receivable of $7,862,000 as a result of the Russian economic situation.
See Note 15.



15. ICN RUSSIA



     The Company's Russian operations generated 12%, 20%, and 18% of the
Company's total revenues for the years 1999, 1998 and 1997, respectively.



     Russia continues to experience economic difficulties following the
financial crisis of August 1998. Consequently, the ruble continues to devalue,
there is continued volatility in the debt and equity market, hyperinflation
persists, confidence in the banking sector has yet to be restored and there
continues to be general lack of liquidity in the economy. In addition, laws and
regulations affecting businesses operating within Russia continue to evolve.
Russia's return to economic stability is dependent to a large extent on the
effectiveness of the measures taken by the government, decisions of
international lending organizations, and other actions, including regulatory and
political developments, which are beyond the Company's control.



     Since August 1998, the ruble fell sharply from a rate of 6.3 rubles to $1
to a rate of 20.7 rubles to $1 at December 31, 1998 and has further declined to
a rate of 27.5 rubles to $1 at December 31, 1999. As a result of these declines
in the ruble exchange rate, the Company recorded translation and exchange losses
of $53,848,000 and $6,738,000 related to its Russian operations during 1998 and
1999, respectively. As of December 31, 1999, ICN Russia had a net monetary asset
position of approximately $15,427,000, which is subject to foreign exchange loss
as further declines in the value of the ruble in relation to the dollar occur.



     The Company believes that the economic and political environment in Russia
has affected the pharmaceutical industry in the region. Many Russian companies,
including many of the Company's customers, continue to experience liquidity
problems as monetary policy has limited the money supply, and Russian companies
often lack access to an effective banking system. As a result, many Russian
companies have limited ability to pay their debts, which has led to a number of
business failures in the region. In addition, the devaluation has reduced the
purchasing power of Russian companies and consumers, thus increasing pressure on
the Company and other producers to limit price increases in hard currency terms.
These factors have affected, and may continue to affect, sales and gross margins
in the Company's Russian operations. As a result of the Russian economic
situation, the Company recorded a charge in 1998 of $42,289,000, representing
reserves for accounts receivable of $37,873,000, the write-off of certain
investments of $2,011,000, and a reduction in the value of certain inventories
of $2,405,000.



16. AGREEMENT WITH SCHERING-PLOUGH CORPORATION



     On July 28, 1995, the Company entered into an Exclusive License and Supply
Agreement (the "License Agreement") and a Stock Purchase Agreement (the
"Agreement") with Schering-Plough Corporation ("Schering-Plough"). Under the
License Agreement, Schering-Plough licensed all oral forms of ribavirin for the
treatment of chronic hepatitis C (HCV) in combination with Schering-Plough's
alpha interferon. The License Agreement provided the Company an initial
non-refundable payment and future royalty payments to the Company from sales of
ribavirin by Schering-Plough,


                                      F-41
<PAGE>   142

                           ICN PHARMACEUTICALS, INC.



             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1999



including minimum royalty rates. As part of the initial License Agreement, the
Company retained the right to co-market ribavirin capsules in the European Union
under its trademark Virazole(R). In addition, Schering-Plough was obligated to
purchase up to $42,000,000 in common stock of the Company upon the achievement
of regulatory milestones. Under the Agreement, Schering-Plough is responsible
for all clinical developments worldwide. In 1998, the Company sold to
Schering-Plough its right to co-market oral ribavirin for the treatment of HCV
in the European Union, in exchange for increased royalty rates on sales of
ribavirin worldwide. In addition, the Company received a one-time payment of
$16,500,000 from Schering-Plough in consideration for the sale to
Schering-Plough of the additional marketing rights in the European Union, in
settlement of past royalties, and as reimbursement for expenses incurred by the
Company in preparation for the launch of ribavirin capsules in the European
Union.



     In February and December 1999, Schering-Plough purchased 1,141,498 and
900,000 shares of the Company's common stock for $27,000,000 and $15,000,000,
respectively.



17. SUPPLEMENTAL CASH FLOW DISCLOSURES



     In 1998 and 1997, the Company sold marketable securities and recognized
other non-cash gains of $1,993,000 and $2,047,000, respectively.



     In 1999, the Company recorded another non-cash charge of $1,000,000 related
to the abandonment of unproductive assets.



     The following table sets forth the amounts of interest and income taxes
paid during 1999, 1998 and 1997 (in thousands):



<TABLE>
<CAPTION>
                                                               1999       1998       1997
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Interest paid (net of amounts capitalized of $-0-, $3,540,
  and $5,419 in 1999, 1998, and 1997, respectively).........  $52,165    $34,240    $11,750
                                                              =======    =======    =======
Income taxes paid...........................................  $21,049    $15,207    $ 4,543
                                                              =======    =======    =======
</TABLE>


                                      F-42
<PAGE>   143

------------------------------------------------------
------------------------------------------------------

     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.................    i
Incorporation of Documents by
  Reference...........................   ii
Summary...............................    1
The Company...........................    1
Offering of the Old Notes.............    4
The Exchange Offer....................    4
The New Notes.........................    8
Risk Factors..........................   12
Use of Proceeds.......................   19
Capitalization........................   20
Selected Financial Data...............   21
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   24
The Exchange Offer....................   41
Business..............................   49
Management............................   62
Description of the New Notes..........   65
Book Entry; Delivery and Form.........   87
U.S. Federal Income Tax
  Consequences........................   89
Plan of Distribution..................   94
Legal Matters.........................   94
Independent Accountants...............   94
Index to Financial Statements.........  F-1
</TABLE>


------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------

                                ----------------
                                   PROSPECTUS
                                ----------------
                                  $325,000,000

                                   [ICN LOGO]

                           ICN PHARMACEUTICALS, INC.
                               OFFER TO EXCHANGE
                                ALL OUTSTANDING
                          8 3/4% SENIOR NOTES DUE 2008
                                      FOR
                     8 3/4% SERIES B SENIOR NOTES DUE 2008
                                           , 2000
------------------------------------------------------
------------------------------------------------------
<PAGE>   144

                                    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>   145

     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
    -------                           -----------
    <C>       <S>
      1.1*    Purchase Agreement dated as of August 14, 1998, by and among
              ICN and Schroder & Co. Inc..................................
      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 20, 1998, by and among ICN and
              United States Trust Company of New York.....................
      4.3*    Registration Rights Agreement, dated as of August 20, 1998,
              by and among ICN and Schroder & Co. Inc.....................
      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...............................
      5.2*    Form of tax opinion of Proskauer Rose LLP...................
     12.1     Statement re computation of ratios..........................
     15.1     Awareness letter of Independent Accountants regarding
              Unaudited Interim Financial Information
     21.1*    Subsidiaries of the Registrant..............................
     23.1     Consent of PricewaterhouseCoopers LLP.......................
     23.2*    Consent of Proskauer Rose LLP (contained in opinion filed as
              Exhibit 5.1)................................................
     23.3*    Form of Consent of Proskauer Rose LLP (contained in tax
              opinion filed as Exhibit 5.2)...............................
       24*    Power of Attorney (included on pages II-5 and II-6).........
       25*    Statement of eligibility of trustee.........................
</TABLE>


---------------
*  Previously filed.

                                      II-2
<PAGE>   146

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 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

                                      II-3
<PAGE>   147

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>   148

                        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 29th day of
June 2000.


                                          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: June 29, 2000                       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 Chief  June 29, 2000
-----------------------------------------------------         Executive Officer
                     Milan Panic

                          *                             Executive Vice President and    June 29, 2000
-----------------------------------------------------      Chief Financial Officer
                  Richard A. Meier

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                 Norman Barker, Jr.

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                 David H. Batchelder

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                Senator Birch E. Bayh

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                   Alan F. Charles

                          *                                       Director              June 29, 2000
-----------------------------------------------------
            Roger Guillemin, M.D., Ph.D.
</TABLE>


                                      II-5
<PAGE>   149


<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                   DATE
                      ---------                                     -----                   ----
<S>                                                    <C>                              <C>
                          *                                  President, Director        June 29, 2000
-----------------------------------------------------
                     Adam Jerney

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                Andrei Kozyrev, Ph.D

                          *                                       Director              June 29, 2000
-----------------------------------------------------
               Weldon B. Jolley, Ph.D.

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                 Jean-Francois Kurz

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                  Thomas H. Lenagh

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                  Stephen D. Moses

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                Michael Smith, Ph.D.

                          *                                       Director              June 29, 2000
-----------------------------------------------------
               Roberts A. Smith, Ph.D.

                          *                                       Director              June 29, 2000
-----------------------------------------------------
                  Richard W. Starr
</TABLE>


*By: /s/ DAVID C. WATT
------------------------------------
           David C. Watt
          Attorney-in-fact

                                      II-6
<PAGE>   150

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
      1.1*    Purchase Agreement dated as of August 14, 1998, by and among
              ICN and Schroder & Co. Inc..................................
      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 20, 1998, by and among ICN and
              United States Trust Company of New York.....................
      4.3*    Registration Rights Agreement, dated as of August 20, 1998,
              by and among ICN and Schroder & Co. Inc.....................
      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...............................
      5.2*    Form of tax opinion of Proskauer Rose LLP...................
     12.1     Statement re computation of ratios..........................
     15.1     Awareness letter of Independent Accountants regarding
              Unaudited Interim Financial Information
     21.1*    Subsidiaries of the Registrant..............................
     23.1     Consent of PricewaterhouseCoopers LLP.......................
     23.2*    Consent of Proskauer Rose LLP (contained in opinion filed as
              Exhibit 5.1)................................................
     23.3*    Form of Consent of Proskauer Rose LLP (contained in the tax
              opinion filed as Exhibit 5.2)...............................
       24*    Power of Attorney (included on pages II-5 and II-6).........
       25*    Statement of eligibility of trustee.........................
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* Previously filed.


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