Filed Pursuant to Rule 424(b)(3)
Registration No. 333-107089
PROSPECTUS
[MEDICIS LOGO]
OFFER TO EXCHANGE
1.5% CONTINGENT CONVERTIBLE SENIOR NOTES DUE 2033
FOR ALL OUR OUTSTANDING
2.5% CONTINGENT CONVERTIBLE SENIOR NOTES DUE 2032
(CUSIP NOS. 584 690 AA 9 AND 584 70K AA 2)
We, Medicis Pharmaceutical Corporation, are offering to exchange $1,230 in
principal amount of our 1.5% Contingent Convertible Senior Notes Due 2033, or
the New Notes, for each $1,000 in principal amount of our 2.5% Contingent
Convertible Senior Notes Due 2032, or the Old Notes, that is properly tendered
and accepted for exchange on the terms set forth in this prospectus and in the
accompanying Letter of Transmittal, which we refer to together as the exchange
offer. See page 38 for how to tender Old Notes.
The exchange offer is subject to important conditions, including that at least
$200 million in principal amount of the Old Notes have been validly tendered and
not withdrawn on the expiration of the exchange offer.
The exchange offer will expire at 5:00 p.m., New York City time, on August 13,
2003, the expiration date, unless we extend it. We will announce any extensions
by press release or other permitted means no later than 9:00 a.m., New York City
time on the day after expiration of the exchange offer. You may withdraw any Old
Notes tendered until the expiration of the exchange offer.
The terms of the New Notes are similar to the terms of the Old Notes, but have a
different interest rate, conversion rate, maturity date and other important
terms as described in this prospectus. See page 10 of this prospectus for a
summary comparison of the Old Notes to the New Notes.
The Old Notes are traded on The Portal(SM) Market of the National Association of
Securities Dealers, Inc. and the market price for $1,000 in principal amount of
Old Notes was $1,172.50 on July 15, 2003.
Our Class A common stock is traded on the New York Stock Exchange, or NYSE,
under the symbol "MRX". On July 15, 2003 the closing price for our Class A
common stock on the NYSE was $57.00 per share.
THE EXCHANGE OFFER IS DESCRIBED IN DETAIL IN THIS PROSPECTUS, AND WE URGE YOU TO
READ IT CAREFULLY, INCLUDING THE SECTION TITLED "RISK FACTORS," BEGINNING ON
PAGE 13 OF THIS PROSPECTUS, FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER
BEFORE YOU DECIDE TO PARTICIPATE IN THE EXCHANGE OFFER.
NEITHER OUR BOARD OF DIRECTORS NOR ANY OTHER PERSON IS MAKING ANY RECOMMENDATION
AS TO WHETHER YOU SHOULD CHOOSE TO EXCHANGE YOUR OLD NOTES FOR NEW NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
The Co-Dealer Managers for the exchange offer are:
DEUTSCHE BANK SECURITIES THOMAS WEISEL PARTNERS LLC
The date of this prospectus is August 18, 2003.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT MEDICIS THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. THIS
INFORMATION IS AVAILABLE WITHOUT CHARGE TO SECURITY HOLDERS UPON WRITTEN OR ORAL
REQUEST TO OFFICE OF INVESTOR RELATIONS, MEDICIS PHARMACEUTICAL CORPORATION,
8125 NORTH HAYDEN ROAD, SCOTTSDALE, ARIZONA 85258-2463, (602) 808-8800.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the section entitled "The Company" and "Risk
Factors," contains forward-looking statements that anticipate results based upon
management's plans that are subject to uncertainties. Forward-looking statements
give our current expectations or forecasts of future events. These statements
may be identified by use of the words "expects," "plans," "anticipates,"
"believes," "estimates" and similar words used in conjunction with discussions
of future actions, prospective products or product approvals, future performance
or results of current and anticipated products, sales efforts, expenses, the
outcome of contingencies such as legal proceedings and financial results.
Forward-looking statements may turn out to be wrong. They can be affected by
inaccurate assumptions or by known or unknown risks and uncertainties. Many
factors mentioned in this prospectus--for example, governmental regulation and
competition in our industry--will be important in determining future results. No
forward-looking statement can be guaranteed, and actual results may vary
materially from those anticipated in any forward-looking statement. We undertake
no obligation to update any forward-looking statement.
i
SUMMARY
This summary does not contain all the information you should consider
before exchanging your Old Notes for the New Notes. You should read this entire
prospectus carefully, as well as those additional documents to which we refer
you. See "Where You Can Find More Information." References in this prospectus to
"Medicis", "we", "us", "our", "the company" and "our company" refer to Medicis
Pharmaceutical Corporation and its subsidiaries unless otherwise specified.
OUR EXCHANGE OFFER
We have summarized the terms of the exchange offer in this section. Before
you decide whether to tender your Old Notes in the exchange offer, you should
read the detailed description of the exchange offer under "The Exchange Offer"
for further information.
Terms of the Exchange Offer........... We are offering to exchange $1,230 in
principal amount of New Notes for each
$1,000 in principal amount of our Old
Notes accepted for exchange. New Notes
will be issued in denominations of
$1,000 and any integral multiple of
$1,000. Any fractional New Notes will
be settled in cash. You may tender
all, some or none of your Old Notes.
Expiration Date; Extension;
Termination........................... The exchange offer and your withdrawal
rights will expire at 5:00 p.m. New
York City time, on August 13, 2003, or
any subsequent date to which we extend
it. We may extend the expiration date
for any reason; we will announce any
extensions by press release or other
permitted means no later than 9:00
a.m., New York City time, the day
after the previously scheduled
expiration date. You must tender your
Old Notes prior to the expiration date
if you wish to participate in the
exchange offer. We have the right to:
- extend the period during which the
exchange offer is open and retain
all tendered Old Notes, subject to
your right to withdraw your
tendered Old Notes; or
- waive any condition or otherwise
amend the terms of the exchange
offer in any respect, prior to the
expiration date, other than the
condition that the registration
statement be declared effective.
Conditions to the Exchange Offer...... The exchange offer is subject to:
- the registration statement and any
post-effective amendment to the
registration statement covering the
New Notes being effective under the
Securities Act of 1933, as amended,
or the Securities Act;
- at least $200 million in aggregate
principal amount of the Old Notes
being validly tendered and not
withdrawn by the expiration of the
exchange offer; and
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- other customary conditions.
Please read the section titled "The
Exchange Offer--Conditions to the
Exchange Offer," beginning on page 36
of this prospectus, for more
information.
Withdrawal Rights..................... You may withdraw a tender of your Old
Notes by delivering a written notice
of withdrawal to Deutsche Bank Trust
Company Americas, the exchange agent,
at any time before the exchange offer
expires. If you change your mind, you
may retender your Old Notes by again
following the exchange offer
procedures before the exchange offer
expires. You may also withdraw a
tender of your Old Notes after the
expiration of 40 business days from
the commencement date of the exchange
offer if your tender has not yet been
accepted for payment.
Procedures for Tendering Old Notes.... If you hold Old Notes through a
broker, dealer, commercial bank, trust
company or other nominee, you should
contact that person promptly if you
wish to tender your Old Notes. Tenders
of your Old Notes will be effected by
book-entry transfers through The
Depository Trust Company. If you hold
your Old Notes through a broker,
dealer, commercial bank, trust company
or other nominee, you may also comply
with the procedures for guaranteed
delivery. Please do not send letters
of transmittal to us. You should send
those letters to Deutsche Bank Trust
Company Americas, the exchange agent,
at the address set forth on page 67 of
this prospectus. The exchange agent
can answer your questions regarding
how to tender your Old Notes.
Acceptance of Old Notes............... If all the conditions to the exchange
offer are satisfied or waived prior to
the expiration date, we will accept
all Old Notes properly tendered and
not withdrawn prior to the expiration
of the exchange offer and will issue
the New Notes promptly after the
expiration date. We will issue New
Notes in exchange for Old Notes that
are accepted for exchange only after
receipt by the exchange agent of
either a timely book-entry
confirmation of transfer of Old Notes
into the exchange agent's DTC account
or a properly completed and executed
letter of transmittal. Our oral or
written notice of acceptance to the
Exchange Agent will be considered our
acceptance of the exchange offer.
Accrued Interest on Old Notes......... On December 4, 2003 you will receive
an interest payment in an amount equal
to the sum of:
(i) the accrued but unpaid interest on
the Old Notes, at an annual interest
rate of 2.5%, from
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and including June 4, 2003 through the
expiration date of the exchange offer;
and
(ii) the accrued but unpaid interest
on the New Notes, at an annual
interest rate of 1.5%, from and
including the first day after the
expiration date of the exchange offer
to, but excluding, December 4, 2003.
Amendment of the Exchange Offer....... We reserve the right not to accept any
of the Old Notes tendered and to
otherwise interpret or modify the
terms of the exchange offer, provided
that we will comply with applicable
laws that require us to extend the
period during which notes may be
tendered or withdrawn as a result of
changes in the terms of or information
relating to the exchange offer.
Consequences of not Exchanging Old
Notes................................. If you do not exchange your Old Notes
in the exchange offer, the liquidity
of the trading market for Old Notes
not tendered for exchange, or tendered
for exchange but not accepted, could
be significantly reduced to the extent
that Old Notes are tendered and
accepted for exchange in the exchange
offer.
Use of Proceeds; Fees and Expenses of
the Exchange Offer.................... We will not receive any cash proceeds
from the exchange offer. Old Notes
that are properly tendered and
exchanged pursuant to the exchange
offer will be retired and canceled. We
estimate that the total fees and
expenses of the exchange offer will be
approximately $8.5 million.
Tax Consequences...................... Although the exchange will be a
recapitalization transaction in which
gain is not ordinarily recognized,
U.S. persons will be required to
recognize any gain to the extent of
the fair market value of the excess of
the principal amount of the New Notes
over the principal amount of the Old
Notes. No loss will be recognized on
the exchange. Any such gain will be
treated as ordinary interest income.
Non-U.S. persons who exchange their
Old Notes will qualify for an
exemption from U.S. withholding tax on
any such gain provided that certain
conditions are met. Please see the
section titled "Material United States
Federal Income Tax Considerations"
beginning on page 59 of this
prospectus.
Deciding Whether to Participate in the
Exchange Offer........................ Neither we nor our officers or
directors make any recommendation as
to whether you should tender or
refrain from tendering all or any
portion of your Old Notes in the
exchange offer. Further, we have not
authorized anyone to make any such
recommendation. You must make your own
decision as to whether you should
tender
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your Old Notes in the exchange offer
and, if so, the aggregate amount of
Old Notes to tender after reading this
prospectus, including the "Risk
Factors" and the letter of transmittal
and consulting with your advisors, if
any, based on your own financial
position and requirements.
Exchange Agent........................ Deutsche Bank Trust Company Americas
Information Agent..................... D.F. King & Co., Inc.
Co-Dealer Managers.................... Deutsche Bank Securities Inc. and
Thomas Weisel Partners LLC.
Risk Factors.......................... You should consider carefully the
matters described under "Risk
Factors," beginning on page 13 of this
prospectus as well as other
information set forth in this
prospectus and in the accompanying
letter of transmittal before you
decide to participate in the exchange
offer.
4
NEW NOTES
Issuer................................ Medicis Pharmaceutical Corporation.
New Notes Offered..................... Up to $492 million in aggregate
principal amount of 1.5% Contingent
Convertible Senior Notes Due 2033.
Maturity.............................. June 4, 2033.
Ranking............................... The New Notes will be our senior
unsecured obligations. The New Notes
will rank senior in right of payment
to all of our existing and future
subordinated indebtedness and will
rank equal in right of payment to all
of our existing and future senior
unsecured liabilities, including any
unexchanged Old Notes.
We are not restricted by the indenture
governing the New Notes from incurring
additional indebtedness, and we and
our subsidiaries have significant
ability to incur liens.
Interest Payment Dates................ June 4 and December 4 beginning
December 4, 2003.
Contingent Interest................... We will pay contingent interest during
any six-month period from June 4 to
December 3 and from December 4 to June
3, with the initial six-month period
commencing June 4, 2008, if the
average trading price of the New Notes
per $1,000 in principal amount for the
five trading day period ending on the
third trading day immediately
preceding the first day of the
applicable six-month period equals
$1,200 or more. During any period when
contingent interest is payable, it
will be payable at a rate equal to
0.5% per annum.
Conversion Rights..................... Holders may surrender New Notes for
conversion into shares of our Class A
common stock prior to the maturity
date in the following circumstances:
- during any quarter commencing after
September 30, 2003, if the closing
sale price of our Class A common
stock for at least 20 trading days
in the period of 30 consecutive
trading days ending on the last
trading day of the quarter
preceding the quarter in which the
conversion occurs, is more than
120% of the conversion price per
share of our Class A common stock
on that 30th trading day;
- if we have called the New Notes for
redemption;
- during the five trading day period
immediately following any nine
consecutive trading
5
day period in which the closing price
per $1,000 in principal amount of the
New Notes for each day of such period
was less than 95% of the product of
the closing sale price of our Class A
common stock on that day multiplied
by the number of shares of our Class
A common stock issuable upon
conversion of $1,000 in principal
amount of the New Notes; or
- upon the occurrence of specified
corporate transactions described
under "Description of the New
Notes--Conversion Rights."
Conversion Price; Adjustments......... Holders may convert any outstanding
New Notes into shares of our Class A
common stock at the initial conversion
price of $77.52 per share, which is
equal to approximately 12.8998 shares
per $1,000 in principal amount of New
Notes. The conversion price may be
adjusted for certain transactions
affecting our Class A common stock as
described under "Description of the
New Notes--Conversion Rate
Adjustments", but it will not be
adjusted for accrued interest. In
addition, prior to June 11, 2008, we
will adjust the conversion price if we
declare a dividend or distribution to
all or substantially all of the
holders of Class A common stock to the
extent such dividend or distribution
is payable in cash and is greater than
$0.05 per issued and outstanding share
of Class A common stock per fiscal
quarter. See "Description of the New
Notes--Conversion Rate Adjustment."
Upon conversion, the holder will not
receive any cash payment representing
accrued and unpaid interest, including
contingent interest, if any.
Optional Redemption................... We may redeem some or all of the New
Notes at any time on or after June 11,
2008, at a price equal to 100% of the
principal amount of the New Notes,
plus accrued and unpaid interest,
including contingent interest, if any,
up to but not including the date of
redemption, payable in cash.
Repurchase of Notes at the Option of
the Holder............................ You may require us to repurchase your
New Notes on June 4, 2008, 2013 and
2018 for a purchase price equal to
100% of the principal amount of the
New Notes on the repurchase date, plus
accrued and unpaid interest, including
contingent interest, if any, up to but
not including the date of repurchase,
payable in cash. See "Description of
the New Notes--Repurchase of New Notes
at the Option of the Holder."
6
Change in Control..................... When a change in control, as that term
is defined in "Description of the New
Notes--Right to Require Purchase of
New Notes upon a Change in Control",
occurs, you will have the right to
require us to repurchase your New
Notes at a purchase price equal to
100% of the principal amount of the
New Notes, plus accrued and unpaid
interest, including contingent
interest, if any, up to but not
including the date of repurchase,
payable in cash.
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THE COMPANY
We are a leading specialty pharmaceutical company focusing primarily on
developing and marketing drugs in the U.S. for the treatment of dermatological,
pediatric and podiatric conditions and the marketing of dermal aesthetic
enhancement products in Canada. We believe that annual U.S. pharmaceutical sales
in the dermatological, pediatric and podiatric markets exceed $10 billion.
We have built our business by executing a four-part growth strategy. This
strategy consists of growing existing core brands, developing new products and
important product line extensions, entering into strategic collaborations and
acquiring complementary products, technologies and businesses.
We offer a broad range of drugs addressing various conditions including
acne, fungal infections, asthma, rosacea, hyperpigmentation, photoaging,
psoriasis, eczema, skin and skin-structure infections, seborrheic dermatitis and
cosmesis (improvement in the texture and appearance of skin). We currently offer
15 branded products. Our core brands, DYNACIN(R), LOPROX(R), LUSTRA(R),
OMNICEF(R), ORAPRED(R), PLEXION(R) and TRIAZ(R), account for substantially all
of our revenue. Most of our core brands enjoy market leadership in the segments
in which they compete. Because of the significance of these brands to our
business, we concentrate our sales and marketing efforts in promoting them to
physicians in our target markets. We also sell a number of other products, all
of which are profitable, but which are considered less critical to our business.
In March 2003, we expanded into the dermal aesthetic market through our
acquisition of the exclusive U.S. and Canadian rights to market, distribute and
commercialize the dermal restorative product lines known as RESTYLANE(R),
PERLANE(TM) and RESTYLANE(R) Fine Lines from Q-Med AB, a Swedish
biotechnology/medical device company and its affiliates, collectively Q-Med. The
RESTYLANE(R), PERLANE(TM) and RESTYLANE(R) Fine Lines products are currently
being sold in over 60 countries by Q-Med, but are not yet approved for use in
the U.S. We offer RESTYLANE(R), PERLANE(TM) and RESTYLANE(R) Fine Lines in
Canada for treating fine lines and wrinkles, shaping facial contours, correcting
deep facial folds and enhancing the appearance and fullness of lips.
In countries where they are currently marketed, RESTYLANE(R), PERLANE(TM)
and RESTYLANE(R) Fine Lines are injectable, transparent, non-animal stabilized
hyaluronic acid gels, which require no patient sensitivity tests in advance of
product administration. These transparent, injectable products have varying gel
particle sizes which provide physicians in countries where the products are
approved with flexibility in treating fine lines and wrinkles, shaping facial
contours, correcting deep facial folds and enhancing the appearance and fullness
of lips.
In countries where the products are currently marketed, pre-packaged glass
syringes provide physicians with various options to treat nasolabial folds,
glabellar lines, periorbital lines, perioral lines, vermillion borders, lips,
chins, cheeks, smile lines, worry lines and oral commissures. In the U.S., the
FDA regulates these products as medical devices. A pre-market approval
application for RESTYLANE(R) was filed with the FDA in June 2002 and is
currently under review. While we cannot speculate on any expected date of
approval by the FDA, or the indications that may be approved, we believe it is
possible that an approval could be received by the end of 2003. We anticipate
that applications for PERLANE(TM) and RESTYLANE(R) Fine Lines will be submitted
during our fiscal year 2004 and fiscal year 2005, respectively.
In addition to our expansion into the dermal aesthetic market in March
2003, in November 2001, we expanded into the pediatric market through our merger
with Ascent Pediatrics, Inc., or Ascent. Ascent markets products to U.S.-based
pediatricians, including an oral treatment for children with asthma and other
inflammatory respiratory conditions. Since the merger, this sales force has
introduced three of our core dermatological brands to high prescribing
pediatricians.
Our dedicated sales force, consisting of 179 employees as of June 30,
2003, focuses on high prescribing dermatologists, pediatricians and podiatrists.
Since a relatively small number of physicians is responsible for writing a
majority of prescriptions, we believe that the size of our sales force is
appropriate to reach our target physicians. Our dermatology sales force consists
of
8
97 employees who regularly call on approximately 5,000 dermatologists and 3,000
podiatrists. Our pediatric sales force, which became part of Medicis following
the merger with Ascent, consists of approximately 70 employees who call on
approximately 12,000 pediatricians. We also have four national account managers
who regularly call on managed care organizations, large retail chains, insurance
carriers and related organizations. We are in the process of hiring a dermal
aesthetic sales force in preparation for FDA approval of RESTYLANE(R). Our
dermal aesthetic sales force currently consists of eight employees, which we
expect to increase to 37 upon commercial launch of RESTYLANE(R) in the U.S.
Our principal executive offices are located at 8125 North Hayden Road,
Scottsdale, Arizona 85258-2463. Our telephone number is (602) 808-8800.
Our Class A common stock is traded on the NYSE under the symbol "MRX". For
additional information concerning our company, please see "Where You Can Find
More Information" on page 66 of this prospectus.
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SUMMARY COMPARISON OF THE OLD NOTES TO THE NEW NOTES
The following comparison of the terms of the Old Notes to the terms of the
New Notes is only a summary. For a more detailed description of the terms of the
New Notes, please see "Description of the New Notes". For a more detailed
description of the differences between the Old Notes and the New Notes, please
see "Comparison Between the Terms of the Old Notes and the New Notes".
OLD NOTES NEW NOTES
------------------------------ ------------------------------
Issuer............................... Medicis Pharmaceutical Medicis Pharmaceutical
Corporation. Corporation.
Notes Offered........................ $400 million in aggregate Up to $492 million in
principal amount of 2.5% aggregate principal amount of
Contingent Convertible Senior 1.5% Contingent Convertible
Notes Due 2032 issued under an Senior Notes Due 2033 to be
Indenture dated as of June 4, issued under a new Indenture
2002 between our company and between our company and
Deutsche Bank Trust Company Deutsche Bank Trust Company
Americas, as trustee. Americas, as trustee.
Interest Payment Dates............... Payable on June 4 and December Same terms as the Old Notes.
4 of each year.
Interest............................. 2.5% per annum in cash. 1.5% per annum in cash.
Contingent Interest.................. 0.5% per annum after June 4, 0.5% per annum after June 4,
2007. 2008.
Maturity............................. June 4, 2032. June 4, 2033.
Conversion Rights.................... Holders of the Old Notes may Holders of the New Notes may
convert their Old Notes into convert their New Notes into
shares of our Class A common shares of our Class A common
stock prior to the maturity stock prior to the maturity
date in the following date in the following
circumstances: circumstances:
- during any quarter - same terms as the Old Notes,
commencing after June 30, except that (i) the New
2003, if the closing sale Notes cannot be converted
price of our Class A common prior to any quarter
stock for at least 20 commencing after September
trading days in the period 30, 2003, and (ii) the
of 30 consecutive trading closing sale price of our
days ending on the last Class A common stock must
trading day of the quarter exceed 120% of the
preceding the quarter in conversion price during such
which the conversion occurs, period.
is more than 110% of the
conversion price for the Old
Notes on that 30th trading
day.
- if we have called the Old - same terms as the Old Notes.
Notes for redemption.
- during the five trading day - same terms as the Old Notes.
period immediately following
any nine consecutive trading
day period in which the
trading price per $1,000 in
principal amount of the Old
Notes for each day of such
period was less than 95% of
the product of the closing
sale price of our Class A
10
OLD NOTES NEW NOTES
------------------------------ ------------------------------
common stock on that day
multiplied by the number of
share of our Class A common
stock issuable upon
conversion of $1,000 in
principal amount of the Old
Notes.
- upon the occurrence of - same terms as the Old Notes.
specified corporate
transactions.
Conversion Price..................... The Old Notes may be converted Same terms as the Old Notes,
into our Class A common stock except that (i) the initial
at the initial conversion conversion price per share for
price per share of $58.10. the New Notes will be $77.52.
This represents a conversion This represents a conversion
rate of approximately 17.2117 rate of approximately 12.8998
shares of our Class A common shares of our Class A common
stock per $1,000 in principal stock per $1,000 in principal
amount of Old Notes. The amount of New Notes and (ii)
conversion price may be prior to June 11, 2008, we
adjusted for certain will adjust the conversion
transactions affecting our price if we declare a dividend
Class A common stock, but will or distribution to all or
not be adjusted for accrued substantially all of the
interest. Upon conversion, the holders of our Class A common
holder will not receive any stock to the extent such
cash payment representing dividend or distribution is
accrued and unpaid interest, payable in cash and is greater
including contingent interest, than $0.05 per issued and
if any. outstanding share of Class A
common stock per fiscal
quarter. See "Description of
the New Notes--Conversion Rate
Adjustment".
Optional Redemption of the Notes..... At any time on or after June Same terms as the Old Notes,
11, 2007, the Old Notes are except the New Notes will be
redeemable at our option, in redeemable at our option at
whole at any time, or in part any time on or after June 11,
from time to time, on not less 2008.
than 20 days nor more than 60
days' notice, at a price equal
to 100% of the principal
amount of the Old Notes, plus
accrued and unpaid interest,
including contingent interest,
if any, up to but not
including the date of
redemption, payable in cash.
Repurchase of the Notes at the Option A holder of Old Notes has the Same terms as the Old Notes,
of the Holder...................... right to require us to except the purchase dates for
purchase all or a portion of the New Notes will be June 4,
such holder's Old Notes on 2008, 2013 and 2018.
June 4, 2007, 2012 and 2017.
We will repurchase the Old
Notes for an amount of cash
equal to 100% of the principal
amount of the Old Notes on the
date of
11
OLD NOTES NEW NOTES
------------------------------ ------------------------------
purchase, plus accrued and
unpaid interest including
contingent interest, if any,
up to but not including the
date of repurchase, payable in
cash.
Events of Default.................... - Default in the payment of Same terms as the Old Notes.
principal, or default for 30
days in payment of any
interest (including
contingent interest);
- Failure to pay when due,
within 15 days of a written
notice, the principal of
indebtedness for money
borrowed by us or our
subsidiaries in excess of
$20 million, or the
acceleration of that
indebtedness that is not
withdrawn within 15 days of
the written notice;
- Failure to cure within 60
days a default in performance
or breach of any of the
covenants in the Old
Indenture; or
- Certain events of
bankruptcy, insolvency or
reorganization.
Transfer Restrictions................ We have filed a Registration At the closing of the exchange
Statement on Form S-3 for the offer, the New Notes will be
resale of the Old Notes; registered under the
however unless the Old Notes Securities Act and, so long as
have been resold pursuant to not held by affiliates, will
that Registration Statement or be freely tradable.
the supplements thereto, the
Old Notes may only be offered
or sold in transactions exempt
from, or not subject to, the
registration requirements of
the Securities Act.
12
RISK FACTORS
You should carefully consider the risks described below before you decide
to exchange your Old Notes for the New Notes. The risks and uncertainties set
forth below are not the only risks and uncertainties that we face. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business and results of operations. If any of the
following risks actually occur they could materially and adversely affect our
business, financial condition or operating results. In that case, the trading
price of our Class A common stock could decline which in turn could result in a
decline in the trading price of the New Notes or the loss of all or a part of
your investment.
RISKS RELATING TO THE EXCHANGE OFFER
IF AN ACTIVE MARKET FOR THE NEW NOTES FAILS TO DEVELOP OR IS NOT SUSTAINED, THE
TRADING PRICE AND LIQUIDITY OF THE NEW NOTES COULD BE MATERIALLY AND ADVERSELY
AFFECTED.
Prior to the exchange offer, there has been no trading market for the New
Notes. Each of the dealer managers, Deutsche Bank Securities Inc. and Thomas
Weisel Partners LLC has advised us that it currently intends to make a market in
the New Notes. However, neither Deutsche Bank Securities Inc. nor Thomas Weisel
Partners LLC is obligated to make a market and may discontinue this
market-making activity at any time without notice. The liquidity of the trading
market for the New Notes will depend in part on the level of participation of
the holders of Old Notes in the exchange offer. The greater the participation in
the exchange offer, the greater the liquidity of the trading market for the New
Notes and the lesser the liquidity of the trading market for the Old Notes not
tendered in the exchange offer. As a result, we cannot assure you that any
market for the New Notes will develop or, if one does develop, that it will be
maintained. If an active market for the New Notes fails to develop or be
sustained, the trading price and liquidity of the New Notes could be materially
adversely affected.
IF YOU DO NOT EXCHANGE YOUR OLD NOTES, THERE MAY BE A SUBSTANTIALLY SMALLER
PUBLIC TRADING MARKET FOR YOUR OLD NOTES AND THE MARKET PRICE OF YOUR OLD NOTES
MAY DECLINE.
If the exchange offer is consummated, the trading and the liquidity of the
market for the Old Notes may be significantly limited. As a result, the
unexchanged Old Notes may trade at a discount to the price at which they would
trade if the transactions contemplated by this prospectus were not consummated,
subject to prevailing interest rates, the market for similar securities and
other factors. We cannot assure you that an active market in the unexchanged Old
Notes will exist or be maintained and we cannot assure you as to the prices at
which the unexchanged Old Notes may be traded.
OUR BOARD OF DIRECTORS HAS NOT MADE A RECOMMENDATION WITH REGARD TO WHETHER OR
NOT YOU SHOULD TENDER YOUR NOTES IN THE EXCHANGE OFFER NOR HAS OUR COMPANY
OBTAINED A THIRD-PARTY DETERMINATION THAT THE EXCHANGE OFFER IS FAIR TO HOLDERS
OF THE OLD NOTES.
We have designed the New Notes to have terms substantially similar to the
Old Notes. The exchange offer has been unanimously approved by our board of
directors. We are not, however, making a recommendation whether holders of Old
Notes should exchange their notes. We have not retained and do not intend to
retain any unaffiliated representative to act solely on behalf of the holders
for purposes of negotiating the terms of the exchange offer and/or preparing a
report concerning the fairness of the exchange offer. We cannot assure holders
of the Old Notes that the value of the New Notes received in the exchange offer
will in the future equal or exceed the value of the Old Notes tendered and we do
not take a position as to whether you ought to participate in the exchange
offer.
13
YOU SHOULD CONSIDER THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF EXCHANGING YOUR
OLD NOTES FOR NEW NOTES IN THE EXCHANGE OFFER.
Any gain recognized on the exchange will be treated as ordinary interest
income and not as capital gain for U.S. federal income tax purposes. Interest
income generally is subject to a higher rate of tax than capital gain. No loss
will be recognized on the exchange. Please see the section titled "Material
United States Federal Income Tax Considerations" beginning on page 59 of this
prospectus. You should consult your tax advisor as to the U.S. federal, state,
local and any foreign tax consequences of exchanging your Old Notes.
DUE TO THE HIGHER CONVERSION PRICE OF THE NEW NOTES, IF YOU PARTICIPATE IN THE
EXCHANGE OFFER, YOU WILL RECEIVE FEWER SHARES OF OUR CLASS A COMMON STOCK UPON
CONVERSION AND YOUR ABILITY TO CONVERT INTO OUR CLASS A COMMON STOCK MAY BE
DELAYED.
The per share conversion price for the New Notes is $77.52, while the per
share conversion price for the Old Notes is $58.10. As a result, upon
conversion, if you own $1,000 in principal amount of new notes, you will
receive, assuming no fractional shares will be issued, 12 shares of our Class A
common stock, while a holder of unexchanged Old Notes would receive 17 shares.
Moreover, if you wish to convert your Old Notes into our Class A common
stock, the closing share price of our Class A common stock must exceed 110% of
the per share conversion price of the Old Notes, or $63.91, for a specified
trading period. Alternatively, in order to convert the New Notes into our Class
A common stock the closing share price of our Class A common stock must exceed
120% of the per share conversion price of the New Notes, or $93.02, for the same
trading period. Therefore, depending on market conditions, by tendering your Old
Notes for New Notes you will likely delay your opportunity to convert your notes
into shares of our Class A Common Stock until the stock price reaches a trading
range that exceeds the level required to convert the Old Notes into our shares.
RISKS RELATED TO OUR BUSINESS
OUR REPORTED EARNINGS PER SHARE MAY BE MORE VOLATILE BECAUSE OF THE CONVERSION
FEATURES OF THE NEW NOTES AND ANY UNEXCHANGED NOTES.
The New Notes and any unexchanged Old Notes may be converted into our
Class A common stock if, during the trading periods specified in the Indentures
governing the New Notes and the Old Notes, the closing sale price of our Class A
common stock is more than 120% and 110% of the respective conversion price per
share of our Class A common stock.
Prior to the conversion of the New Notes and the unexchanged Old Notes,
the shares of Class A common stock underlying these securities are not included
in the calculation of basic or fully diluted earnings per share. In the event
the New Notes or the Old Notes are convertible, earnings per share would be
expected to decrease as a result of the inclusion of the underlying shares of
Class A common stock in our diluted earnings per share calculations. Volatility
in our stock price could cause this condition to be met in one quarter and not
in a subsequent quarter, increasing the volatility of diluted earnings per
share.
WE CANNOT ASSURE YOU THAT THE FDA WILL APPROVE RESTYLANE(R) IN A TIMELY FASHION
OR AT ALL.
In March 2003, we completed our acquisition of the rights to market,
distribute and commercialize the dermal filler product lines known as
RESTYLANE(R), PERLANE(TM) and RESTYLANE(R) Fine Lines in the U.S. and Canada.
The products are approved for sale in Canada. A pre-market approval application
for RESTYLANE(R) was filed with the FDA in June 2002 and is currently under
review. We cannot assure you that the FDA approval of RESTYLANE(R) will occur by
the end of 2003, which we currently anticipate, if at all. If we experience
delays in obtaining FDA approval or if the FDA does not approve RESTYLANE(R) at
all, our financial performance could be materially and negatively affected. In
addition, in countries where RESTYLANE(R) is currently
14
marketed, no patient sensitivity tests are required in advance of product
administration. We cannot assure you that the FDA will approve RESTYLANE(R)
without a sensitivity test requirement, or for the same indications as approved
in other countries. Even if the FDA does approve RESTYLANE(R), we cannot assure
you that the FDA will approve supplements to the pre-market approval of
PERLANE(TM) and RESTYLANE(R) Fine Lines in a timely fashion, or for the same
indications as approved in other countries, or at all.
WE CANNOT ASSURE YOU OUR DERMAL AESTHETIC ENHANCEMENT PRODUCTS WILL ACHIEVE
WIDESPREAD ACCEPTANCE.
We cannot assure you that we will be able to achieve market acceptance of
our dermal aesthetic enhancement products. This market is very competitive and
some of our competitors have been competing in this market for a significant
period of time. Additionally, we expect that new competitors will be entering
this market over the next few years. If we are unable to anticipate, identify or
to react to competitive products or if changing preferences of consumers in the
dermal aesthetic enhancement marketplace shift to other treatments for the
treatment of fine lines and wrinkles, shaping facial contours, correcting deep
facial folds and enhancing the appearance and fullness of lips, we may
experience difficulties in achieving market acceptance or may experience a
decline in demand for RESTYLANE(R), PERLANE(TM) and RESTYLANE(R) Fine Lines. In
addition, the popular media may produce negative reports on the efficacy, safety
or side effects of these products, which could negatively impact consumer
perceptions of the product and negatively influence market acceptance or cause a
decline in demand. We cannot assure you that consumers will prefer RESTYLANE(R),
PERLANE(TM) and RESTYLANE(R) Fine Lines over other treatment options, or that we
will be able to respond in a timely manner to changes in consumer preferences.
WE CANNOT ASSURE YOU THAT WE WILL EFFECTIVELY INTEGRATE OUR DERMAL AESTHETIC
ENHANCEMENT PRODUCTS INTO OUR EXISTING BUSINESS OR THAT OUR MARKETING EFFORTS OF
THE RESTYLANE(R) PRODUCT WILL BE SUCCESSFUL.
We will not be able to achieve the benefits of the acquisition of
RESTYLANE(R) unless we are able to integrate the operations of the dermal
aesthetic enhancement products with our existing products. We cannot assure you
that this will occur. Moreover, the integration of these operations requires
substantial attention from management and any diversion of management's
attention could impact our operations. In anticipation of the commercial launch
of RESTYLANE(R) in the U.S. we are expending significant resources. We will not
see any revenue associated with that investment until commercial sales of
RESTYLANE(R) begin, if at all. Although we have experience in the sales and
marketing of dermatological, pediatric and podiatric products, we have no such
experience in the dermal aesthetic enhancement market. We cannot assure you that
we will be able to hire and retain personnel with experience in the dermal
aesthetic enhancement market or execute our business plan with respect to this
market segment.
The continued effectiveness, or persistence, of RESTYLANE(R) correlates
directly with the physician's injection technique at the time of administration.
We are prevented from conducting patient-based training of physicians in the
U.S. until the FDA has approved RESTYLANE(R). Accordingly if immediately
following the commercial launch of RESTYLANE(R) patients experience a lack of
persistence due to non-optimal administration by physicians, future sales of
RESTYLANE(R) could be adversely impacted.
WE COULD EXPERIENCE DIFFICULTIES IN OBTAINING SUPPLIES OF RESTYLANE(R),
PERLANE(TM) AND RESTYLANE(R) FINE LINES.
The manufacturing process to create bulk non-animal stabilized hyaluronic
acid necessary to produce RESTYLANE(R), PERLANE(TM) and RESTYLANE(R) Fine Lines
is technically complex and requires significant lead-time. Any failure by us to
accurately forecast demand for finished product could result in an interruption
in the supply of RESTYLANE(R), PERLANE(TM) and RESTYLANE(R) Fine Lines and a
resulting decrease in sales of the products. In addition, because of the lead
time
15
associated with obtaining a supply of RESTYLANE(R) following FDA approval, we
may not be in a position to immediately launch and sell products in the U.S.
We depend exclusively on Q-Med for our supply of RESTYLANE(R), PERLANE(TM)
and RESTYLANE(R) Fine Lines. There are currently no alternative suppliers of
these products. Q-Med has committed to supply RESTYLANE(R) to us under a
perpetual license that is subject to customary conditions and our delivery of
specified milestone payments. Q-Med manufactures RESTYLANE(R), PERLANE(TM) and
RESTYLANE(R) Fine Lines at its facility in Uppsala, Sweden. We cannot be certain
that Q-Med will be able to meet our current or future supply requirements. Any
impairment of Q-Med's manufacturing capacities could significantly affect our
inventories and our supply of products available for sale.
IF Q-MED IS UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
WITH RESPECT TO OUR DERMAL AESTHETIC ENHANCEMENT PRODUCTS, OUR BUSINESS COULD
SUFFER.
RESTYLANE(R), PERLANE(TM) and RESTYLANE(R) Fine Lines currently have
patent protection in the U.S. until 2015 and the exclusivity period of the
license granted to us by Q-Med ends when the last patent covering the products
expires. If the validity or enforceability of these patents is challenged, the
cost to our company could be significant and our business may be harmed. If any
such challenge is successful, Q-Med may be unable to supply products to us, we
may be unable to market, distribute and commercialize the products or it may no
longer be profitable for us to do so.
WE DERIVE A MAJORITY OF OUR PRESCRIPTION VOLUME FROM OUR CORE BRANDED PRODUCTS,
AND ANY FACTOR ADVERSELY AFFECTING THE PRESCRIPTION VOLUME RELATED TO THESE
PRODUCTS COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We derive a majority of our prescription volume from our core branded
products. We believe that the prescription volume of our core branded products
will constitute the majority of our prescription volume for the foreseeable
future. Accordingly, any factor adversely affecting our prescription volume
related to our core products, individually or collectively, could harm our
business, financial condition and results of operations. Many of our core
branded products are subject to generic competition or may be in the near
future. Each of our core branded products could be rendered obsolete or
uneconomical by regulatory or competitive changes. Prescription volume related
to our core branded products could also be adversely affected by other factors,
including:
- manufacturing or supply interruptions;
- the development of new competitive pharmaceuticals and technological
advances to treat the conditions addressed by our core branded
products;
- marketing or pricing actions by one or more of our competitors;
- regulatory action by the FDA and other government regulatory
agencies;
- changes in the prescribing practices of dermatologists,
pediatricians and/or podiatrists;
- restrictions on travel affecting the ability of our sales force to
market to prescribing physicians in person;
- changes in the reimbursement or substitution policies of third-party
payors or retail pharmacies;
- product liability claims; and
- the outcome of disputes relating to trademarks, patents, license
agreements and other rights.
16
OUR OPERATING RESULTS AND FINANCIAL CONDITION MAY FLUCTUATE.
Our operating results and financial condition may fluctuate from quarter
to quarter and year to year depending upon the relative timing of events or
uncertainties which may arise. The following events or occurrences, among
others, could cause fluctuations in our financial performance from period to
period:
- changes in the amount we spend to develop, acquire or license new
products, technologies or businesses;
- untimely contingent research and development payments under our
third-party product development agreements;
- changes in the amount we spend to promote our products;
- delays between our expenditures to acquire new products,
technologies or businesses and the generation of revenues from those
acquired products, technologies or businesses;
- changes in treatment practices of physicians that currently
prescribe our products;
- changes in reimbursement policies of health plans and other similar
health insurers, including changes that affect newly developed or
newly acquired products;
- increases in the cost of raw materials used to manufacture our
products;
- manufacturing and supply interruptions, including failure to comply
with manufacturing specifications;
- development of new competitive products by others;
- the mix of products that we sell during any time period;
- our responses to price competition;
- expenditures as the result of legal actions;
- market acceptance of our products;
- the impairment and write-down of goodwill or other intangible
assets;
- implementation of new or revised accounting or tax rules or
policies;
- disposition of non-core products, technologies and other rights;
- termination or expiration of, or the outcome of disputes relating
to, trademarks, patents, license agreements and other rights;
- increases in insurance rates for existing products and the cost of
insurance for new products;
- general economic and industry conditions, including changes in
interest rates affecting returns on cash balances and investments,
that affect customer demand;
- seasonality of demand for our products;
- our level of research and development activities; and
- the election to expense stock options, if approved by our board of
directors.
WE DEPEND UPON OUR KEY PERSONNEL AND OUR ABILITY TO ATTRACT, TRAIN AND RETAIN
EMPLOYEES.
Our success depends significantly on the continued individual and
collective contributions of our senior management team. We have not entered into
employment agreements with any of our key managers, with the exception of our
Chairman and Chief Executive Officer. The loss of the services of any member of
our senior management or the inability to hire and retain experienced management
personnel could harm our operating results. In addition, our future success
depends
17
on our ability to hire, train and retain skilled employees. Competition for
these employees is intense.
WE MAY NOT BE ABLE TO IDENTIFY AND ACQUIRE PRODUCTS, TECHNOLOGIES AND BUSINESSES
ON ACCEPTABLE TERMS, IF AT ALL, WHICH MAY CONSTRAIN OUR GROWTH.
Our strategy for continued growth includes the acquisition of products,
technologies and businesses. These acquisitions could involve acquiring other
pharmaceutical companies' assets, products or technologies. In addition, we may
seek to obtain licenses or other rights to develop, manufacture and distribute
products. We cannot be certain that we will be able to identify suitable
acquisition or licensing candidates or if any will be available on acceptable
terms. Other pharmaceutical companies, with greater financial, marketing and
sales resources than we have, have also tried to grow through similar
acquisition and licensing strategies. Because of their greater resources, our
competitors may be able to offer better terms for an acquisition or license than
we can offer, or they may be able to demonstrate a greater ability to market
licensed products.
OUR CONTINUED GROWTH DEPENDS UPON OUR ABILITY TO DEVELOP NEW PRODUCTS.
We have internally developed potential pharmaceutical compounds and
agents. We also have acquired the rights to certain potential compounds and
agents in various stages of development. We currently have a variety of new
products in various stages of research and development and are working on
possible improvements, extensions and reformulations of some existing products.
These research and development activities, as well as the clinical testing and
regulatory approval process, which must be completed before commercial
quantities of these products can be sold, will require significant commitments
of personnel and financial resources. Due to the limited financial resources
available for research and development, we cannot assure you that we will be
able to develop a product or technology in a timely manner, or at all. Delays in
the research, development, testing or approval processes will cause a
corresponding delay in revenue generation from those products. Regardless of
whether these products are ever released to the market, the expense of such
processes will have already been incurred.
We reevaluate our research and development efforts regularly to assess
whether our efforts to develop a particular product or technology are
progressing at a rate that justifies our continued expenditures. On the basis of
these reevaluations, we have abandoned in the past, and may abandon in the
future, our efforts on a particular product or technology. We cannot assure you
that any product we are researching or developing will ever be successfully
released to the market. If we fail to take a product or technology from the
development stage to market on a timely basis, we may incur significant expenses
without a near-term financial return.
We have in the past, and may in the future, supplement our internal
research and development by entering into research and development agreements
with other pharmaceutical companies. We may, upon entering into such agreements,
be required to make significant upfront payments to fund the project. We cannot
be sure, however, that we will be able to locate adequate research partners or
that supplemental research will be available on terms acceptable to us in the
future. If we are unable to enter into additional research partnership
arrangements, we may incur additional costs to continue research and development
internally or abandon certain projects. Even if we are able to enter into
collaborations, we cannot assure you that these arrangements will result in
successful product development or commercialization.
WE DEPEND ON LICENSES FROM OTHERS, AND ANY LOSS OF SUCH LICENSES COULD HARM OUR
BUSINESS, MARKET SHARE AND PROFITABILITY.
We have acquired the rights to manufacture, use and/or market certain
products, including certain of our core products. We also expect to continue to
obtain licenses for other products and technologies in the future. Our license
agreements generally require us to develop a market for the
18
licensed products. If we do not develop these markets, the licensors may be
entitled to terminate these license agreements.
We cannot be certain that we will fulfill all of our obligations under any
particular license agreement for any variety of reasons, including insufficient
resources to adequately develop and market a product, and lack of market
development despite our diligence and lack of product acceptance. Our failure to
fulfill our obligations could result in the loss of our rights under a license
agreement.
Our inability to continue the distribution of any particular licensed
product could harm our business, market share and profitability. Also, certain
products we license are used in connection with other products we own or
license. A loss of a license in such circumstances could materially harm our
ability to market and distribute these other products.
Our growth and acquisition strategy depends upon the successful
integration of licensed products with our existing products. Therefore, any
loss, limitation or flaw in a licensed product could impair our ability to
market and sell our products, delay new product development and introduction,
and/or harm our reputation. These problems, individually or together, could harm
our business and results of operation.
WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS, AND IF WE LOSE ANY OF THEM, OUR
BUSINESS COULD BE HARMED.
Our customers include some of the nation's leading wholesale
pharmaceutical distributors, such as AmerisourceBergen Corporation, Cardinal
Health, Inc., McKesson Corporation, Quality King Distributors, and major drug
chains. During fiscal year 2002, Quality King, Cardinal Health, McKesson and
AmerisourceBergen accounted for 26.7%, 22.4%, 19.4% and 11.1%, respectively, of
our net revenues. The loss of any of these customers' accounts or a reduction in
their purchases could harm our business, financial condition or results of
operations. In addition, we may face pricing pressure from our larger customers.
The distribution network for pharmaceutical products has, in recent years,
been subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the number
of independent drug stores and small chains has decreased as retail
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses which may result in product returns to our company,
cause a reduction in the inventory levels of distributors and retailers, or
otherwise result in reductions in purchases of our products, any of which could
harm our business, financial condition and results of operations.
WE RELY ON OTHERS TO MANUFACTURE OUR PRODUCTS.
Currently, we outsource all of our product manufacturing needs and do not
manufacture any of our products. Typically, our manufacturing contracts are
short-term. We are dependent upon renewing agreements with our existing
manufacturers or finding replacement manufacturers to satisfy our requirements.
As a result, we cannot be certain that manufacturing sources will continue to be
available or that we can continue to outsource the manufacturing of our products
on reasonable or acceptable terms.
The underlying cost to us for manufacturing our products is established in
our agreements with these outside manufacturers. Because of the short-term
nature of these agreements, our expenses for manufacturing are not fixed and
could change from contract to contract. If the cost of production increases, our
gross margins could be negatively affected.
In addition, we rely on outside suppliers to provide us with an adequate
and reliable supply of our products on a timely basis. Any loss of a supplier or
any difficulties that arise in the supply chain could significantly affect our
inventories and supply of products available for sale. In some cases, we do not
have alternative sources of supply for our products. In the event our primary
suppliers are unable to fulfill our requirements for any reason, it could reduce
our sales, margins
19
and market share, as well as harm our overall business and financial results. If
we are unable to supply sufficient amounts of our products on a timely basis,
our revenues and market share could decrease and, correspondingly, our
profitability could decrease.
Under several exclusive supply agreements, with certain exceptions, we
must purchase most of our product supply from specific manufacturers. If any of
these exclusive manufacturer or supplier relationships were terminated, we would
be forced to find a replacement manufacturer or supplier. The FDA requires that
all manufacturers used by pharmaceutical companies comply with the FDA's
regulations, including the current Good Manufacturing Practices, or cGMP,
regulations applicable to manufacturing processes. The cGMP validation of a new
facility and the approval of that manufacturer for a new drug product may take a
year or more before manufacture can begin at the facility. Delays in obtaining
FDA validation of a replacement manufacturing facility could cause an
interruption in the supply of our products. Although we have business
interruption insurance covering the loss of income for up to 12 months, which
may mitigate the harm to us from the interruption of the manufacturing or
selling of our largest selling products caused by certain events, the loss of a
manufacturer could still cause a significant reduction in our sales, margins and
market share, as well as harm our overall business and financial results.
OUR RELIANCE ON THIRD-PARTY MANUFACTURERS AND SUPPLIERS CAN BE DISRUPTIVE TO OUR
INVENTORY SUPPLY.
We and the manufacturers of our products rely on suppliers of raw
materials used in the production of our products. Some of these materials are
available from only one source and others may become available from only one
source. Any disruption in the supply of raw materials or an increase in the cost
of raw materials to our manufacturers could have a significant effect on their
ability to supply us with our products.
We try to maintain inventory levels that are no greater than necessary to
meet our current projections. Any interruption in the supply of finished
products could hinder our ability to timely distribute finished products. If we
are unable to obtain adequate product supplies to satisfy our customers' orders,
we may lose those orders and our customers may cancel other orders and stock and
sell competing products. This in turn could cause a loss of our market share and
reduce our revenues.
WE CANNOT BE CERTAIN THAT SUPPLY INTERRUPTIONS WILL NOT OCCUR OR THAT OUR
INVENTORY WILL ALWAYS BE ADEQUATE.
Numerous factors could cause interruptions in the supply of our finished
products including:
- timing, scheduling and prioritization of production by our contract
manufacturers;
- labor interruptions;
- changes in our sources for manufacturing;
- the timing and delivery of domestic and international shipments;
- our failure to locate and obtain replacement manufacturers as needed
on a timely basis; and
- conditions affecting the cost and availability of raw materials.
FLUCTUATIONS IN DEMAND FOR OUR PRODUCTS CREATE INVENTORY MAINTENANCE
UNCERTAINTIES.
We typically experience greater revenues and, correspondingly, greater
income during the last month of each fiscal quarter. We attempt to match our
expenditures for inventory with these historical fluctuations in demand.
However, if these demand patterns change or we experience even a short delay in
delivery of inventory, revenue could be deferred or even lost if products are
unavailable to meet peak demand. A deferral of revenue to a later period, or the
loss of revenue completely, could cause significant period to period
fluctuations in our operating results, as a
20
significant portion of our operating expenses are fixed in the short term. These
fluctuations could result in our not meeting earnings expectations or result in
operating losses for a particular period.
OUR SUCCESS DEPENDS ON OUR ABILITY TO MANAGE OUR GROWTH.
We recently experienced a period of rapid growth from both acquisitions
and internal expansion of our operations. This growth has placed significant
demands on our human and financial resources. We must continue to improve our
operational, financial and management information controls and systems and
effectively motivate, train and manage our employees to properly manage this
growth. Even if these steps are taken, we cannot be sure that our recent
acquisitions will be assimilated successfully into our business operations. If
we do not manage this growth effectively, maintain the quality of our products
despite the demands on our resources and retain key personnel, our business
could be harmed.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS,
OUR BUSINESS COULD SUFFER.
We believe that the protection of our trademarks and service marks is an
important factor in product recognition and in our ability to maintain or
increase market share. If we do not adequately protect our rights in our various
trademarks and service marks from infringement, their value to us could be lost
or diminished. If the marks we use are found to infringe upon the trademark or
service mark of another company, we could be forced to stop using those marks
and, as a result, we could lose the value of those marks and could be liable for
damages caused by an infringement.
The patents and patent applications in which we have an interest may be
challenged as to their validity or enforceability. Challenges may result in
potentially significant harm to our business. The cost of responding to these
challenges and the inherent costs to defend the validity of our patents,
including the prosecution of infringements and the related litigation, could be
substantial. Such litigation also could require a substantial commitment of our
management's time.
We are pursuing several U.S. patent applications, although we cannot be
sure that any of these patents will ever be issued. We also have acquired rights
under certain patents and patent applications in connection with our licenses to
distribute products and by assignment of rights to patents and patent
applications from certain of our consultants and officers. These patents and
patent applications may be subject to claims of rights by third parties. If
there are conflicting claims to the same patent or patent application, we may
not prevail and, even if we do have some rights in a patent or application,
those rights may not be sufficient for the marketing and distribution of
products covered by the patent or patent application.
The ownership of a patent or an interest in a patent does not always
provide significant protection. Others may independently develop similar
technologies or design around the patented aspects of our technology. We only
conduct patent searches to determine whether our products infringe upon any
existing patents when we think such searches are appropriate. As a result, the
products and technologies we currently market, and those we may market in the
future, may infringe on patents and other rights owned by others. If we are
unsuccessful in any challenge to the marketing and sale of our products or
technologies, we may be required to license the disputed rights, if the holder
of those rights is willing, or to cease marketing the challenged products, or to
modify our products to avoid infringing upon those rights. A claim or finding of
infringement regarding one of our products could harm our business, financial
condition and results of operations. The costs of responding to infringement
claims could be substantial and could require a substantial commitment of our
management's time.
The expiration of patents may expose our products to additional
competition. For example, our patent covering BUPHENYL(R) expires in 2004.
We also rely upon trade secrets, unpatented proprietary know-how and
continuing technological innovation in developing and manufacturing many of our
core products. We require
21
all of our employees, consultants and advisors to enter into confidentiality
agreements prohibiting them from taking or disclosing our proprietary
information and technology. Nevertheless, these agreements may not provide
meaningful protection for our trade secrets and proprietary know-how if they are
used or disclosed. Despite all of the precautions we may take, people who are
not parties to confidentiality agreements may obtain access to our trade secrets
or know-how. In addition, others may independently develop similar or equivalent
trade secrets or know-how.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, OUR EARNINGS AND FINANCIAL
CONDITION COULD SUFFER.
We are exposed to risks of product liability claims from allegations that
our products resulted in adverse effects to the patient or others. These risks
exist even with respect to those products that are approved for commercial sale
by the FDA and manufactured in facilities licensed and regulated by the FDA.
In addition to our desire to reduce the scope of our potential exposure to
these types of claims, many of our customers require us to maintain product
liability insurance as a condition of conducting business with us. We currently
carry product liability insurance in the amount of $50 million per claim and $50
million in the aggregate on a claims-made basis. Nevertheless, this insurance
may not be sufficient to cover all claims made against us. We also cannot be
certain that our current coverage will continue to be available in the future on
reasonable terms, if at all. If we are liable for any product liability claims
in excess of our coverage or outside of our coverage, the cost and expense of
such liability could cause our earnings and financial condition to suffer.
We selectively outsource certain non-sales and non-marketing services, and
cannot assure you that we will be able to obtain adequate supplies of such
services on acceptable terms.
To enable us to focus on our core marketing and sales activities, we
selectively outsource certain non-sales and non-marketing functions, such as
laboratory research, manufacturing and warehousing. As we expand our activities
in these areas, additional financial resources are expected to be utilized. We
typically do not enter into long-term manufacturing contracts with third party
manufacturers. Whether or not such contracts exist, we cannot assure you that we
will be able to obtain adequate supplies of such services or products in a
timely fashion, on acceptable terms, or at all.
RISKS RELATED TO OUR INDUSTRY
THE GROWTH OF MANAGED CARE ORGANIZATIONS, OTHER THIRD PARTY REIMBURSEMENT
POLICIES, STATE REGULATORY AGENCIES AND RETAILER FULFILLMENT POLICIES MAY HARM
OUR PRICING, WHICH MAY REDUCE OUR MARKET SHARE AND MARGINS.
Our operating results and business success depend in large part on the
availability of adequate third party payor reimbursement to patients for our
prescription-brand products. These third party payors include government
entities such as Medicaid, private health insurers and managed care
organizations. Because of the size of the patient population covered by managed
care organizations, marketing of prescription drugs to them and the pharmacy
benefit managers that serve many of these organizations has become important to
our business.
Managed care organizations and other third party payors try to negotiate
the pricing of medical services and products to control their costs. Managed
care organizations and pharmacy benefit managers typically develop formularies
to reduce their cost for medications. Formularies can be based on the prices and
therapeutic benefits of the available products. Due to their lower costs,
generic products are often favored. The breadth of the products covered by
formularies varies considerably from one managed care organization to another,
and many formularies include alternative and competitive products for treatment
of particular medical conditions. Exclusion of a product from a formulary can
lead to its sharply reduced usage in the managed care organization patient
population. Payment or reimbursement of only a portion of the cost of our
prescription
22
products could make our products less attractive, from a net-cost perspective,
to patients, suppliers and prescribing physicians. We cannot be certain that the
reimbursement policies of these entities will be adequate for our branded
pharmaceutical products to compete on a price basis. If our products are not
included within an adequate number of formularies or adequate reimbursement
levels are not provided, or if those policies increasingly favor generic
products, our market share and gross margins could be harmed, as could our
overall business and financial condition.
Some of our products are not of a type generally eligible for
reimbursement. It is possible that products manufactured by others could address
the same effects as our products and be subject to reimbursement. If this were
the case, some of our products may be unable to compete on a price basis. In
addition, decisions by state regulatory agencies, including state pharmacy
boards, and/or retail pharmacies may require substitution of generic for branded
products, may prefer competitors' products over our own, and may impair our
pricing and thereby constrain our market share and growth.
Managed care initiatives to control costs have influenced primary-care
physicians to refer fewer patients to dermatologists and other specialists.
Further reductions in these referrals could reduce the size of our potential
market and harm our business, financial condition and results of operation.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION.
Pharmaceutical companies are subject to significant regulation by a number
of national, state and local agencies. The FDA has jurisdiction over all of our
business and administers requirements covering testing, manufacturing, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our products. In addition, the FTC and state and local authorities
regulate the advertising of over-the-counter drugs and cosmetics. Failure to
comply with applicable regulatory requirements could, among other things, result
in:
- fines;
- changes to advertising;
- suspensions of regulatory approvals of products;
- product recalls;
- delays in product distribution, marketing and sale; and
- civil or criminal sanctions.
Our prescription and over-the-counter products receive FDA review
regarding their safety and effectiveness. However, the FDA is permitted to
revisit and change its prior determinations. We cannot be sure that the FDA will
not change its position with regard to the safety or effectiveness of our
products. If the FDA's position changes, we may be required to change our
labeling or formulations or cease to manufacture and market the challenged
products. Even prior to any formal regulatory action, we could voluntarily
decide to cease distribution and sale or recall any of our products if concerns
about the safety or effectiveness develop.
Before marketing any drug that is considered a "new drug" by the FDA, the
FDA must provide its approval of the product. All products which are considered
drugs which are not "new drugs" and that generally are recognized by the FDA as
safe and effective for use do not require the FDA's approval. We believe that
some of our products, as they are promoted and intended for use, are exempt from
treatment as "new drugs' and are not subject to approval by the FDA. The FDA,
however, could take a contrary position and we could be required to seek FDA
approval of those products and the marketing of those products. We could also be
required to withdraw those products from the market.
23
OBTAINING FDA AND OTHER REGULATORY APPROVALS IS TIME CONSUMING AND EXPENSIVE.
The process of obtaining FDA and other regulatory approvals is time
consuming and expensive. Clinical trials are required and the marketing and
manufacturing of pharmaceutical products are subject to rigorous testing
procedures. We may not be able to obtain FDA approval to conduct clinical trials
or to manufacture or market any of the products we develop, acquire or license
(including RESTYLANE(R)) on a timely basis or at all. Moreover, the costs to
obtain approvals could be considerable and the failure to obtain or delays in
obtaining an approval could significantly harm our business performance and
financial results. Even if pre-marketing approval from the FDA is received, the
FDA is authorized to impose post-marketing requirements such as:
- testing and surveillance to monitor the product and its continued
compliance with regulatory requirements;
- submitting products for inspection and, if any inspection reveals
that the product is not in compliance, prohibiting the sale of all
products from the same lot;
- suspending manufacturing;
- switching status from prescription to over-the-counter drug;
- recalling products; and
- withdrawing marketing clearance.
In their regulation of advertising, the FDA and FTC from time to time
issue correspondence to pharmaceutical companies alleging that some advertising
or promotional practices are false, misleading or deceptive. The FDA has the
power to impose a wide array of sanctions on companies for such advertising
practices, and the receipt of correspondence from the FDA alleging these
practices could result in the following:
- incurring substantial expenses, including fines, penalties, legal
fees and costs to comply with the FDA's requirements;
- changes in the methods of marketing and selling products;
- taking FDA-mandated corrective action, which may include placing
advertisements or sending letters to physicians rescinding previous
advertisements or promotion; and
- disruption in the distribution of products and loss of sales until
compliance with the FDA's position is obtained.
In recent years, various legislative proposals have been offered in
Congress and in some state legislatures that include major changes in the health
care system. These proposals have included price or patient reimbursement
constraints on medicines, restrictions on access to certain products and
mandatory substitution of generic for branded products. We cannot predict the
outcome of such initiatives, and it is difficult to predict the future impact of
the broad and expanding legislative and regulatory requirements affecting us.
WE FACE SIGNIFICANT COMPETITION WITHIN OUR INDUSTRY.
The pharmaceutical industry is highly competitive. Competition in our
industry occurs on a variety of fronts, including:
- developing and bringing new products to market before others;
- developing new technologies to improve existing products;
- developing new products to provide the same benefits as existing
products at less cost; and
- developing new products to provide benefits superior to those of
existing products.
24
Many of our competitors are large, well-established companies in the
fields of pharmaceuticals, chemicals, cosmetics and health care. Our competitors
include Aventis, Bristol-Myers Squibb, Elan, Galderma, GlaxoSmithKline, ICN
Pharmaceuticals, Johnson & Johnson, Pfizer, Schering-Plough, Wyeth and others.
Many of these companies have greater resources than we do to devote to
marketing, sales, research and development and acquisitions. As a result, they
have a greater ability to undertake more extensive research and development,
marketing and pricing policy programs. It is possible that our competitors may
develop new or improved products to treat the same conditions as our products or
make technological advances reducing their cost of production so that they may
engage in price competition through aggressive pricing policies to secure a
greater market share to our detriment. These competitors also may develop
products which make our current or future products obsolete. Any of these events
could significantly harm our business and financial results, including reducing
our market share and gross margins.
We sell and distribute both prescription brands and over-the-counter
products. Each of these products competes with products produced by others to
treat the same conditions. Several of our prescription products compete with
generic pharmaceuticals, which claim to offer equivalent benefits at a lower
cost. In some cases, insurers and other health care payment organizations try to
encourage the use of these less expensive generic brands through their
prescription benefits coverage and reimbursement policies. These organizations
may make the generic alternative more attractive to the patient by providing
different amounts of reimbursement so that the net cost of the generic product
to the patient is less than the net cost of our prescription brand product.
Aggressive pricing policies by our generic product competitors and the
prescription benefits policies of third party payors could cause us to lose
market share or force us to reduce our gross margins in response.
RISKS RELATED TO THE NEW NOTES
WE MAY NOT BE ABLE TO REPURCHASE THE NEW NOTES WHEN REQUIRED TO.
On June 4, 2008, 2013 and 2018 or upon the occurrence of a change in
control, holders of the New Notes may require us to offer to repurchase their
New Notes for cash. We may not have sufficient funds at the time of any such
events to make the required repurchases.
The source of funds for any repurchase required as a result of any such
events will be our available cash or cash generated from operating activities or
other sources, including borrowings, sales of assets, sales of equity or funds
provided by a new controlling entity. We cannot assure you, however, that
sufficient funds will be available at the time of any such events to make any
required repurchases of the New Notes tendered. Furthermore, the use of
available cash to fund the repurchase of the New Notes may impair our ability to
obtain additional financing in the future.
YOU SHOULD CONSIDER THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF OWNING NEW
NOTES.
We intend to treat the New Notes as contingent payment debt instruments
for U.S. federal income tax purposes. As a result of this treatment, if you
acquire a New Note, you will be required to include amounts in income, as
ordinary income, in advance of the receipt of cash or other property
attributable to them. For example, the amount of interest income you are
required to include each year will exceed the stated interest that is payable on
the New Notes each year. You will recognize gain or loss on a sale, purchase by
us at your option, exchange, conversion or redemption of a New Note in an amount
equal to the difference between the amount realized on the sale, purchase by us
at your option, exchange, conversion or redemption, including the fair market
value of any of our common stock received upon conversion, and your adjusted tax
basis in the New Note. Any gain you recognize generally will be ordinary
interest income; any loss will be ordinary loss to the extent of interest on the
New Notes previously included in income and, thereafter, capital loss. There is
some uncertainty as to the proper application of the Treasury regulations
governing contingent payment debt instruments, and if our treatment were
successfully challenged by the Internal Revenue Service, it might be determined
that, among other things, you
25
should have accrued interest income at a lower rate, should not have recognized
ordinary income upon conversion and should have recognized capital gain or loss,
rather than ordinary income or loss upon a taxable disposition of the New Notes.
See "Material United States Federal Income Tax Considerations."
WE EXPECT THAT THE TRADING VALUE OF THE NEW NOTES WILL BE SIGNIFICANTLY AFFECTED
BY THE PRICE OF OUR CLASS A COMMON STOCK AND OTHER FACTORS.
The market price of the New Notes is expected to be significantly affected
by the market price of our Class A common stock. This may result in greater
volatility in the trading value of the New Notes than would be expected for
nonconvertible debt securities. In addition, the New Notes have a number of
features, including conditions to conversion, which, if not met, could result in
a holder receiving less than the value of our Class A common stock into which a
New Note would otherwise be convertible. These features could adversely affect
the value and the trading prices for the New Notes.
WE MAY BE UNABLE TO RAISE ADDITIONAL FINANCING NECESSARY TO CONDUCT OUR
BUSINESS, MAKE PAYMENTS WHEN DUE OR REFINANCE OUR DEBT.
We may need to raise additional funds in the future in order to implement
our business plan, to refinance our debt or to acquire complementary businesses
or products. Any required additional financing may be unavailable on terms
favorable to us, or at all. If we raise additional funds by issuing equity
securities, holders of our Class A common stock may experience significant
dilution of their ownership interest and these securities may have rights senior
to those of the holders of our Class A common stock.
OUR INDEBTEDNESS AND INTEREST EXPENSE WILL LIMIT OUR CASH FLOW AND COULD
ADVERSELY AFFECT OUR OPERATIONS AND OUR ABILITY TO MAKE FULL PAYMENT ON YOUR NEW
NOTES.
Upon consummation of the exchange offer contemplated hereby, we will have
an increased level of debt. Our indebtedness poses risks to our business,
including the risks that:
- we could use a substantial portion of our consolidated cash flow
from operations to pay principal and interest on our debt, thereby
reducing the funds available for working capital, capital
expenditures, acquisitions, product development and other general
corporate purposes;
- insufficient cash flow from operations may force us to sell assets,
or seek additional capital, which we may be unable to do at all or
on terms favorable to us; and
- our level of indebtedness may make us vulnerable to economic or
industry downturns.
THE NEW NOTES ARE UNSECURED OBLIGATIONS OF OUR COMPANY AND WILL BE EFFECTIVELY
SUBORDINATED TO ANY PRESENT OR FUTURE OBLIGATIONS TO SECURED CREDITORS AND
LIABILITIES OF OUR SUBSIDIARIES.
The New Notes are unsecured obligations of our company and will be
effectively subordinated to any present or future secured debt. In the event of
our insolvency, the assets securing any future secured facilities would be
available to satisfy the claims of our secured lenders prior to any application
of those assets to payment of other creditors, including the holders of the New
Notes. In addition, the Old Notes are, and the New Notes will be, structurally
subordinated to all liabilities of our subsidiaries. Further, the Indenture
governing the New Notes does not limit the incurrence of senior debt or the
incurrence of other debt and liabilities by us or our subsidiaries. The
incurrence of additional debt and other liabilities could impede our ability to
pay obligations on our New Notes.
26
RISKS RELATED TO OUR CLASS A COMMON STOCK
THE PRICE OF OUR CLASS A COMMON STOCK HAS FLUCTUATED SIGNIFICANTLY DURING THE
PAST SEVERAL YEARS AND MAY FLUCTUATE SIGNIFICANTLY IN THE FUTURE, WHICH MAY MAKE
IT DIFFICULT FOR YOU TO RESELL THE NEW NOTES OR THE SHARES OF OUR CLASS A COMMON
STOCK INTO WHICH THE NEW NOTES MAY BE CONVERTED AT PRICES YOU FIND ATTRACTIVE.
Our Class A common stock is traded on the NYSE and has experienced and may
continue to experience significant price and volume fluctuations that could
adversely affect the market price of our Class A common stock without regard to
our operating performance. In addition, we believe that factors such as
quarterly fluctuations in financial results, earnings below analysts' estimates
and financial performance and other activities of other publicly traded
companies in the pharmaceutical and dermatological product industries could
cause the price of our Class A common stock to fluctuate substantially. The
price of the New Notes may be significantly affected by changes in the price of
our Class A common stock. Any similar fluctuations in the future could adversely
affect the market price of our Class A common stock. See "Price Range of Class A
Common Stock and Old Notes."
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR CLASS A COMMON STOCK
PRICE.
As of June 30, 2003, an aggregate of 6,390,596 shares of our Class A
common stock were issuable upon exercise of outstanding stock options under our
stock option plans, and an additional 2,835,224 shares of our Class A common
stock were reserved for the issuance of additional options and shares under
these plans.
Future sales of our Class A common stock and instruments convertible or
exchangeable into our Class A common stock and transactions involving equity
derivatives relating to our Class A common stock, or the perception that such
sales or transactions could occur, could adversely affect the market price of
our Class A common stock. This could, in turn, have an adverse effect on the
trading price of the New Notes resulting from, among other things, a delay in
the ability of holders to convert their New Notes into our Class A common stock.
OUR CHARTER PROVISIONS, RIGHTS PLAN, STOCK OPTION VESTING, EMPLOYMENT AGREEMENT
AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER EFFECTS.
Our certificate of incorporation and bylaws authorize the board of
directors to designate and issue, without stockholder approval, preferred stock
with voting, conversion and other rights and preferences that could
differentially and adversely affect the voting power or other rights of the
holders of our common stock. The issuance of preferred stock or of rights to
purchase preferred stock could be used to discourage an unsolicited acquisition
proposal. Moreover, we have granted a dividend of one preference stock purchase
right on each outstanding share of our Class A common stock and Class B common
stock. Under certain circumstances, after a person has acquired beneficial
ownership of a certain percentage of our common stock, each right will entitle
the holder to purchase, at the right's then-current exercise price, stock of our
company or our successor at a discount. In addition, certain provisions of
Delaware law applicable to our company and certain provisions of our certificate
of incorporation and bylaws could also delay or make more difficult a merger,
tender offer or proxy contest involving our company, including Section 203 of
the Delaware General Corporation Law, which prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years unless certain conditions are met. Our senior management
is entitled to certain payments upon a change in control. All of our stock
option plans provide for the acceleration of vesting in the event of a change in
control in our company.
The possible issuance of preferred stock, the rights granted to
stockholders under our rights plan, Delaware law, provisions of our certificate
of incorporation and bylaws and our stock option plans and change of control
payments could each have the effect of delaying, deferring or preventing a
change in control of our company, including, without limitation, discouraging a
proxy
27
contest, making more difficult the acquisition of a substantial block of our
common stock and limiting the price that investors might in the future be
willing to pay for shares of our common stock. Under certain circumstances, our
obligations in a change of control may require us to make payments that would
constitute excess parachute payments under the Internal Revenue Code of 1986, as
amended. In the event that we were required to make payments constituting excess
parachute payments, these payments would not be tax deductible for us. See
"Description of Capital Stock."
28
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange offer. All Old
Notes that are properly tendered and not withdrawn in the exchange offer will be
retired and cancelled.
RATIOS OF EARNINGS TO FIXED CHARGES
NINE
MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
------------------------------------ ---------
1998 1999 2000 2001 2002 2003
---- ----- ----- ----- ----- ---------
Ratios of earnings to fixed charges....... 5.3x 26.9x 21.0x 22.2x 27.6x 6.4x
For purposes of computing the ratios of earnings to fixed charges,
earnings represent pre-tax income from continuing operations plus fixed charges.
Fixed charges represent interest expense and the portion of rents representative
of interest related to continuing operations.
29
BOOK VALUE PER SHARE
At March 31, 2003, our book value per share was $16.28.
PRICE RANGE OF CLASS A COMMON STOCK AND OLD NOTES
Our Class A common stock currently trades on the NYSE under the symbol
"MRX". The closing sale price of our Class A common stock on the NYSE on July
15, 2003 was $57.00 per share. The last reported price per $1,000 in principal
amount of Old Notes on The Portal(SM) Market of the National Association of
Securities Dealers, Inc. on July 15, 2003 was $1,172.50. As of June 30, 2003,
there were 27,238,123 shares of Class A common stock issued and outstanding and
there was $400,000,000 in principal amount of the Old Notes outstanding.
OUR CLASS A COMMON STOCK
The following table sets forth the high and low sale prices per share of
our Class A common stock on the NYSE for the periods indicated. For current
price information, you should consult publicly available sources.
HIGH LOW
------ ------
FISCAL 2002
First Quarter............................................ $54.95 $41.80
Second Quarter........................................... 64.60 48.60
Third Quarter............................................ 64.59 52.40
Fourth Quarter........................................... 55.75 40.27
FISCAL 2003
First Quarter............................................ $47.40 $33.85
Second Quarter........................................... 50.14 37.95
Third Quarter............................................ 56.60 45.21
Fourth Quarter........................................... 61.88 50.28
FISCAL 2004
First Quarter (through July 15, 2003).................... $58.00 $54.71
OUR OLD NOTES
The following table sets forth the high and low sale prices paid for the
Old Notes for the periods indicated. For current price information, you should
consult publicly available sources.
HIGH LOW
--------- ---------
FISCAL 2002
Fourth Quarter..................................... $1,017.50 $ 946.50
FISCAL 2003
First Quarter...................................... $1,029.20 $ 873.80
Second Quarter..................................... 1,120.30 953.30
Third Quarter...................................... 1,201.70 1,078.80
Fourth Quarter..................................... 1,243.90 1,142.10
FISCAL 2004
First Quarter (through July 15, 2003).............. $1,186.20 $1,160.30
30
DIVIDEND POLICY
On June 12, 2003, we declared a quarter-end cash dividend of $0.05 per
issued and outstanding share of common stock payable on July 31, 2003 to our
stockholders of record at the close of business on July 1, 2003. However, we
have not adopted a dividend policy. Any future determinations to pay cash
dividends will be at the discretion of our board of directors and will be
dependent upon our financial condition, operating results, capital requirements
and other factors that our board of directors deems relevant.
31
CAPITALIZATION
The following table sets forth our (i) cash, cash equivalents and
short-term investments and (ii) capitalization, in each case as of March 31,
2003 and as adjusted to give effect to the exchange offer, assuming all Old
Notes are exchanged for New Notes. You should read this table in conjunction
with the selected consolidated financial data provided on page 33 of this
prospectus, our financial statements and accompanying notes included in our 2002
Annual Report on Form 10-K, the management's discussion and analysis and results
of operations section included in our 2002 Annual Report on Form 10-K and the
consolidated financial statements and accompanying notes included in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, all
incorporated into this prospectus by reference.
AS OF MARCH 31, 2003
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS........... $ 538,568 $ 538,568
========= =========
LONG-TERM DEBT OBLIGATIONS:
2.5% Contingent Convertible Senior Notes Due 2032......... $ 400,000 $ --
1.5% Contingent Convertible Senior Notes Due 2033......... -- $ 492,000
--------- ---------
STOCKHOLDERS' EQUITY:....................................... --
Preferred Stock, $0.01 par value; shares authorized:
5,000,000; no shares issued............................ -- --
Class A Common Stock, $0.014 par value; shares authorized:
50,000,000; issued and outstanding: 31,112,439......... 436 436
Class B Common Stock, $0.014 par value; shares authorized:
1,000,000; issued and outstanding: 379,016............. 5 5
Additional paid-in capital................................ 440,059 440,059
Accumulated other comprehensive income.................... 1,935 1,935
Deferred compensation..................................... (1,855) (1,855)
Accumulated earnings(a)................................... 192,328 115,463
Treasury stock, at cost; 4,340,734 shares actual.......... (190,908) (190,908)
--------- ---------
Total stockholders' equity............................. 442,000 365,135
--------- ---------
Total capitalization................................... $ 842,000 $ 857,135
========= =========
---------------
(a) Included in the "as adjusted" accumulated earnings is a special charge which
we will incur in the first quarter of fiscal 2004 equal to the par value of
the New Notes exchanged in excess of the par value of the Old Notes, plus
the unamortized debt issuance costs related to the Old Notes, net of taxes.
32
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data for the fiscal years
ended June 30, 1998, 1999, 2000, 2001 and 2002 are derived from our audited
financial statements and accompanying notes. The selected consolidated financial
data for the nine-month periods ended March 31, 2002 and 2003 and the selected
consolidated balance sheet data as of March 31, 2002 and 2003 are unaudited. You
should read the selected financial data set forth below in conjunction with our
financial statements and accompanying notes included in our 2002 Annual Report
on Form 10-K, the management's discussion and results of operations sections
included in our 2002 Annual Report on Form 10-K, and the consolidated financial
statements and accompanying notes included in our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003, all incorporated into this prospectus by
reference. Results for the nine months ended March 31, 2003 are not necessarily
representative of results for our fiscal year ending June 30, 2003.
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------- -------------------
1998 1999 2000 2001 2002 2002 2003
-------- -------- -------- -------- -------- -------- --------
STATEMENTS OF OPERATIONS DATA:
Net revenues................................ $ 77,571 $116,871 $139,099 $167,802 $212,807 $155,179 $180,834
Gross profit................................ 63,592 95,236 113,187 137,105 177,042 129,114 153,255
Operating expenses:
Selling, general and administrative....... 27,424 38,219 45,404 59,508 77,314 57,488 67,740
Research and development expenses......... 2,885 3,396 4,903 25,515(a) 15,132(b) 5,220 21,352(c)
Depreciation and amortization............. 2,903 5,810 7,374 8,261 7,928 5,892 6,746
In-process research and development....... 35,400 9,500 -- -- 6,217 6,217 --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.................... 68,612 56,925 57,681 93,284 106,591 74,817 95,838
-------- -------- -------- -------- -------- -------- --------
Operating (loss) income..................... (5,020) 38,311 55,506 43,821 70,451 54,297 57,417
Other:
Gain on sale of assets.................... -- 17,650 -- -- -- -- --
Interest income, net...................... 7,037 9,678 11,876 15,504 8,533 7,168 129
Income tax expense........................ (14,424) (24,202) (24,388) (18,905) (28,960) (23,178) (20,141)
-------- -------- -------- -------- -------- -------- --------
Net (loss) income........................... $(12,407) $ 41,437 $ 42,994 $ 40,420 $ 50,024 $ 38,287 $ 37,405
======== ======== ======== ======== ======== ======== ========
Basic net (loss) income per common share.... $ (0.51) $ 1.46 $ 1.48 $ 1.34 $ 1.65 $ 1.26 $ 1.38
======== ======== ======== ======== ======== ======== ========
Diluted net (loss) income per common share.. $ (0.51) $ 1.41 $ 1.41 $ 1.28 $ 1.59 $ 1.21 $ 1.33
======== ======== ======== ======== ======== ======== ========
Number of shares used in computing basic net
income (loss) per common share............ 24,102 28,414 29,029 30,134 30,268 30,423 27,194
======== ======== ======== ======== ======== ======== ========
Number of shares used in computing diluted
net income (loss) per common share........ 24,102 29,462 30,499 31,694 31,405 31,636 28,136
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Cash, cash equivalents and short term
investments............................... $237,921 $237,304 $285,737 $334,157 $577,576 $310,598 $538,568
Accounts receivable, net.................... 18,900 31,583 33,164 36,841 45,054 48,869 50,579
Inventories, net............................ 9,208 7,273 10,002 8,750 11,955 10,983 11,835
Other current assets........................ 12,101 59,432 22,385 19,131 23,888 26,258 25,393
-------- -------- -------- -------- -------- -------- --------
Total current assets...................... 278,130 335,592 351,288 398,879 658,473 396,708 626,375
Property and equipment, net................. 1,344 1,705 1,759 1,964 2,605 2,339 2,572
Intangible assets, net...................... 71,283 128,976 141,182 147,277 197,845 178,785 279,879
Other assets................................ 1,593 1,237 1,111 576 17,350 16,269 10,644
-------- -------- -------- -------- -------- -------- --------
Total assets.............................. $352,350 $467,510 $495,340 $548,696 $876,273 $594,101 $919,470
======== ======== ======== ======== ======== ======== ========
Current liabilities......................... $ 15,174 $ 56,980 $ 38,987 $ 40,410 $ 47,214 $ 36,977 $ 75,336
Deferred tax liabilities.................... 10,502 1,935 4,000 4,832 -- -- 2,134
Noncurrent liabilities...................... 2,179 34,847 14,914 -- 400,000 -- 400,000
Stockholders' equity........................ 324,495 373,748 437,439 503,454 429,059 557,124 442,000
-------- -------- -------- -------- -------- -------- --------
Total liabilities and stockholders'
equity.................................. $352,350 $467,510 $495,340 $548,696 $876,273 $594,101 $919,470
======== ======== ======== ======== ======== ======== ========
Working capital........................... $262,956 $278,612 $312,301 $358,469 $611,259 $359,731 $551,039
======== ======== ======== ======== ======== ======== ========
---------------
(a) Includes $17.0 million paid to Corixa for a development, commercialization
and licensing agreement.
(b) Includes $7.7 million paid to aaiPharma for a research and development
collaboration.
(c) Includes $14.2 million paid to Dow for a research and development
collaboration.
33
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We believe, after consultation with our advisors, that it is in the best
interests of our company and our shareholders to take advantage of the favorable
current trends in the convertible bond market. The financial terms of the
exchange offer, if successful, with respect to the interest rate, conversion
price, contingent trigger events and the reduction in the number of underlying
shares into which the New Notes will be convertible will have a favorable impact
on our company's financial condition and operating results.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of Old Notes in any jurisdiction in which the exchange
offer or the acceptance of it would not be in compliance with the securities or
blue sky laws of such jurisdiction.
Our board of directors and officers do not make any recommendation to the
holders of Old Notes as to whether or not to tender all or any portion of their
Old Notes. In addition, we have not authorized anyone to make any
recommendation. You must make your own decision whether to tender your Old Notes
and, if so, the amount of Old Notes to tender.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions included in this prospectus and in the accompanying letter of
transmittal, which together are the exchange offer, we will accept for exchange
Old Notes which are properly tendered prior to the expiration date, unless you
have previously withdrawn them.
- When you tender to us Old Notes as provided below, our acceptance of
the Old Notes will constitute a binding agreement between you and us
upon the terms and subject to the conditions in this prospectus and
in the accompanying letter of transmittal.
- For each $1,000 principal amount of Old Notes you tender and that is
accepted by us in the exchange offer, we will give you $1,230
principal amount of New Notes. Upon completion of the exchange
offer, we will also pay accrued and unpaid interest up to the date
of acceptance of Old Notes that we accept for exchange.
- You may tender all, some or none of your existing Old Notes.
- The exchange offer is conditioned on the effectiveness of the
registration statement of which this prospectus is a part and on at
least $200 million in aggregate principal amount of the Old Notes
having been tendered and not withdrawn at the expiration of the
exchange offer. Our obligation to accept Old Notes for exchange in
the exchange offer is also subject to the conditions described under
"--Conditions to the Exchange Offer."
- The exchange offer expires at 5:00 p.m., New York City time, on
August 13, 2003. We may, however, in our sole discretion, extend the
period of time for which the exchange offer is open. References in
this prospectus to the expiration date mean 5:00 p.m., New York City
time, on August 13, 2003 or, if extended by us, the latest date to
which the exchange offer is extended by us.
- We will keep the exchange offer open for at least 20 business days,
or longer if required by applicable law, after the date that we
first mail notice of the exchange offer to the holders of the Old
Notes. We are sending this prospectus, together with the letter of
transmittal, on or about the date of this prospectus to all of the
registered holders of Old Notes at their addresses listed in the
trustee's security register with respect to the Old Notes.
34
- We expressly reserve the right, at any time, to extend the period of
time during which the exchange offer is open, and thereby delay
acceptance of any Old Notes, by giving oral or written notice of an
extension to the Exchange Agent and notice of that extension to the
holders as described below. During any extension, all Old Notes
previously tendered will remain subject to the exchange offer unless
withdrawal rights are exercised. Any Old Notes not accepted for
exchange for any reason will be returned without expense to the
tendering holder promptly after the expiration or termination of the
exchange offer.
- We expressly reserve the right to amend or terminate the exchange
offer at any time prior to the expiration date, and not to accept
for exchange any Old Notes that we have not yet accepted for
exchange, if any of the conditions of the exchange offer specified
below under "--Conditions to the Exchange Offer" are not satisfied.
- We will give oral or written notice of any extension, amendment,
waiver, termination or non-acceptance described above to holders of
the Old Notes promptly. If we amend this exchange offer in any
respect or waive any condition to the exchange offer, we will give
written notice of the amendment or waiver to the Exchange Agent and
will make a public announcement of the amendment or waiver promptly
afterward. If we extend the expiration date, we will give notice by
means of a press release or other public announcement no later than
9:00 a.m., New York City time, on the business day after the
previously scheduled expiration date. Without limiting the manner in
which we may choose to make any public announcement and subject to
applicable law, we will have no obligation to publish, advertise or
otherwise communicate any public announcements other than by issuing
a release to the Dow Jones News Service.
- If we consider an amendment to the exchange offer to be material, or
if we waive a material condition of the exchange offer, we will
promptly disclose the amendment in a prospectus supplement, and if
required by law, we will extend the exchange offer for a period of
five to ten business days.
- Holders of Old Notes do not have any appraisal or dissenters' rights
in connection with the exchange offer.
- We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the applicable rules
and regulations of the SEC.
IMPORTANT RESERVATION OF RIGHTS REGARDING THE EXCHANGE OFFER
You should note that:
- All questions as to the validity, form, eligibility, time of receipt
and acceptance of Old Notes tendered for exchange will be determined
by our company in our sole discretion and our determination shall be
final and binding.
- We reserve the absolute right to reject any and all tenders of any
particular Old Notes not properly tendered or to not accept any
particular Old Notes the acceptance of which might, in our judgment
or the judgment of our counsel, be unlawful.
- We also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any
particular Old Notes either before or after the expiration date,
including the right to waive the ineligibility of any holder who
seeks to tender Old Notes in the exchange offer. If we waive a
condition with respect to any particular noteholder, we will waive
it for all noteholders. Unless we agree to waive any defect or
irregularity in connection with the tender of Old Notes
35
for exchange, you must cure any defect or irregularity within any
reasonable period of time as we shall determine.
- Our interpretation of the terms and conditions of the exchange offer
as to any particular Old Note either before or after the expiration
date, including the letter of transmittal and the instructions to
such letter of transmittal, shall be final and binding on all
parties.
- Neither our company, the exchange agent nor any other person shall
be under any duty to give notification of any defect or irregularity
with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give any notification.
CONDITIONS TO THE EXCHANGE OFFER
We will not accept Old Notes for exchange and may terminate or not
complete the exchange offer if, prior to expiration date:
- the registration statement and any post-effective amendment to the
registration statement covering the New Notes is not effective under
the Securities Act; or
- less than $200 million in aggregate principal amount of the Old
Notes is validly tendered without being withdrawn at the expiration
of the exchange offer;
We may not accept Old Notes for exchange and may terminate or not complete
the exchange offer if, prior to expiration date:
- any action, proceeding or litigation seeking to enjoin, make illegal
or delay completion of the exchange offer or otherwise relating in
any manner to the exchange offer is instituted or threatened;
- any order, stay, judgment or decree is issued by any court,
government, governmental authority or other regulatory or
administrative authority and is in effect, or any statute, rule,
regulation, governmental order or injunction shall have been
proposed, enacted, enforced or deemed applicable to the exchange
offer, any of which would or might restrain, prohibit or delay
completion of the exchange offer or impair the contemplated benefits
of the exchange offer to us. See "-- Purpose of the Exchange Offer";
- any of the following occurs and the adverse effect of such
occurrence shall, in our reasonable judgment, be continuing:
- any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the
over-the-counter market in the U.S.
- any extraordinary or material adverse change in U.S. financial
markets generally, including, without limitation, a decline of at
least 5% in either the Dow Jones Industrial Average or the
Standard & Poor's 500 Index from July 16, 2003.
- a declaration of a banking moratorium or any suspension of
payments in respect of banks in the U.S.
- any limitation, whether or not mandatory, by any governmental
entity on, or any other event that would reasonably be expected
to materially adversely affect, the extension of credit by banks
or other lending institutions.
- a commencement of a war or other national or international
calamity directly or indirectly involving the U.S., which would
reasonably be expected to affect materially and adversely, or to
delay materially, the completion of the exchange offer.
36
- any of the situations described above existed at the time of
commencement of the exchange offer and that situation deteriorates
materially after commencement of the exchange offer;
- any tender or exchange offer, other than this exchange offer by us,
with respect to some or all of our outstanding Class A common stock
or any merger, acquisition or other business combination proposal
involving us shall have been proposed, announced or made by any
person or entity;
- any event or events occur that have resulted or may result, in our
reasonable judgment, in an actual or threatened change in the
business condition, income, operations, stock ownership or prospects
of us and our subsidiaries, taken as a whole that, in our reasonable
judgment, would have a material adverse effect on our company; or
- as the term "group" is used in Section 13(d)(3) of the Exchange Act:
- any person, entity or group acquires more than 5% of our
outstanding shares of Class A common stock, other than a person,
entity or group that had publicly disclosed such ownership with
the SEC, prior to July 16, 2003;
- any such person, entity or group that had publicly disclosed such
ownership prior to such date shall acquire additional common
stock constituting more than 2% of our outstanding shares of
Class A common stock; or
- any new group shall have been formed that beneficially owns more
than 5% of our outstanding shares of Class A common stock, that
in our judgment in any such case, and regardless of the
circumstances, makes it inadvisable to proceed with the exchange
offer or with such acceptance for exchange of Old Notes.
If any of the above events occur, we may:
- terminate the exchange offer and promptly return all tendered Old
Notes to tendering security holders;
- extend the exchange offer and, subject to the withdrawal rights
described in "The Exchange Offer--Withdrawal Rights" herein, retain
all tendered Old Notes until the extended exchange offer expires;
- amend the terms of the exchange offer, which may result in an
extension of the period of time for which the exchange offer is kept
open; or
- waive the unsatisfied condition and, subject to any requirement to
extend the period of time during which the exchange offer is open,
complete the exchange offer.
LEGAL LIMITATION
The above conditions are for our sole benefit. We may assert these
conditions with respect to all or any portion of the exchange offer regardless
of the circumstances giving rise to them. We may waive, in our discretion, any
condition, in whole or in part, at any time prior to the expiration date of the
exchange offer. Our failure at any time to exercise our rights under any of the
above conditions does not represent a waiver of these rights. Each right is an
ongoing right that may be asserted at any time prior to the expiration date of
the exchange offer. Any determination by us concerning the conditions described
above will be final and binding upon all parties.
If a stop order issued by the SEC is threatened or in effect with respect
to the registration statement of which this prospectus is a part, or with
respect to the qualification of the Indenture governing the New Notes under the
Trust Indenture Act, we will not:
- accept for exchange any Old Notes tendered; or
- issue any New Notes in exchange for any Old Notes.
37
PROCEDURES FOR TENDERING
TENDER OF OLD NOTES HELD THROUGH A CUSTODIAN
If you are a beneficial owner of Old Notes that are held of record by a
custodian bank, depository institution, broker, dealer, trust company or other
nominee, you must instruct the custodian to tender the Old Notes on your behalf.
Your custodian will provide you with their instruction letter which you must use
to give these instructions.
TENDER OF OLD NOTES HELD THROUGH DTC
To effectively tender Old Notes that are held through DTC, DTC
participants should transmit their acceptance through the Automated Tender Offer
Program, or ATOP, for which the transaction will be eligible, and DTC will then
edit and verify the acceptance and send an agent's message to the exchange agent
for its acceptance. Delivery of tendered Old Notes must be made to the exchange
agent pursuant to the book-entry delivery procedures set forth below or the
tendering DTC participant must comply with the guaranteed delivery procedures
set forth below. No letters of transmittal will be required to tender Old Notes
through ATOP.
In addition, the exchange agent must receive:
- an electronic confirmation pursuant to DTC's ATOP system indicating
the aggregate principal amount of Old Notes to be tendered and any
other documents, if any, required by the letter of transmittal; and
- prior to the expiration date, a confirmation of book-entry transfer
of such Old Notes into the exchange agent's account at DTC, in
accordance with the procedure for book-entry transfer described
below; or
- the holder must comply with the guaranteed delivery procedures
described below.
Your Old Notes must be tendered by book-entry transfer. The exchange agent
will establish an account with respect to the Old Notes at DTC for purposes of
the exchange offer within two business days after the commencement of the
exchange offer. Any financial institution that is a participant in DTC must make
book-entry delivery of the Old Notes by having DTC transfer such Old Notes into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer. Although your Old Notes will be tendered through the DTC facility, the
letter of transmittal, or facsimile, or an electronic confirmation pursuant to
DTC's ATOP system, with any required signature guarantees and any other required
documents, if any, must be transmitted to and received or confirmed by the
exchange agent at its address set forth on page 67 of this prospectus, prior to
5:00 p.m., New York City time, on the expiration date.
You or your broker must ensure that the exchange agent receives an agent's
message from DTC confirming the book-entry transfer of your Old Notes. An
agent's message is a message transmitted by DTC and received by the exchange
agent that forms a part of the book-entry confirmation that states that DTC has
received an express acknowledgment from the DTC participant tendering the Old
Notes that such participant agrees to be bound by the terms of the letter of
transmittal.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
If you are an institution that is a participant in DTC's book-entry
transfer facility, you should follow the same procedures that are applicable to
persons holding Old Notes through a financial institution.
Do not send letters of transmittal or other exchange offer documents to
us, the dealer managers or the information agent.
38
It is your responsibility to provide all necessary materials to the
exchange agent before the expiration date. If the exchange agent does not
receive all of the required materials before the expiration date, your Old Notes
will not be validly tendered.
We will have accepted the validity of tendered Old Notes if and when we
give oral or written notice to the exchange agent. The exchange agent will act
as the new trust's agent for purposes of receiving the New Notes from us. If we
do not accept any tendered Old Notes for exchange because of an invalid tender
or the occurrence of any other event, the exchange agent will return those Old
Notes to you, without expense, promptly after the expiration date via book-
entry transfer through DTC.
GUARANTEED DELIVERY PROCEDURES
If you desire to tender your Old Notes and you cannot complete the
procedures for book-entry transfer set forth above on a timely basis, you may
still tender your Old Notes if:
- your tender is made through an eligible institution;
- prior to the expiration date, the exchange agent received from the
eligible institution a properly completed and duly executed letter
of transmittal, or a facsimile of such letter of transmittal or an
electronic confirmation pursuant to DTC's ATOP system, and notice of
guaranteed delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery, that:
- sets forth the name and address of the holder of Old Notes and
the principal amount of Old Notes tendered;
- states that the tender is being made thereby; and
- guarantees that within three NYSE trading days after the
expiration date a book-entry confirmation and any other documents
required by the letter of transmittal, if any, will be deposited
by the eligible institution with the exchange agent.
ACCEPTANCE OF OLD NOTES AND DELIVERY OF NEW NOTES
If all of the conditions to the exchange offer are satisfied or waived
prior to the expiration date, we will accept all Old Notes properly tendered and
not withdrawn as of the expiration date and will issue the New Notes promptly
after the expiration date. See "--Conditions to the Exchange Offer". For
purposes of the exchange offer, our giving of oral or written notice of our
acceptance to the exchange agent will be considered our acceptance of the
exchange offer.
In all cases, we will issue New Notes in exchange for Old Notes that are
accepted for exchange only after timely receipt by the exchange agent of:
- a timely book-entry confirmation of transfer of Old Notes into the
exchange agent's account at DTC using the book-entry transfer
procedures described above;
- a properly completed and duly executed letter of transmittal or an
electronic confirmation of the submitting holder's acceptance
through DTC's ATOP system; and
- all other required documents, if any.
We will have accepted validly tendered Old Notes if and when we have given
oral or written notice to the exchange agent. The exchange agent will act as
agent for the tendering holders for the purposes of receiving the New Notes from
us, and will make the exchange on, or promptly after, the expiration date.
Following this exchange the holders in whose names the New Notes will be
issuable upon exchange will be deemed the holders of record of the New Notes.
39
The reasons we may not accept tendered Old Notes are:
- the Old Notes were not validly tendered pursuant to the procedures
for tendering; see "--Procedures for Tendering";
- we determine in our reasonable discretion that any of the conditions
to the exchange offer have not been satisfied prior to the
expiration date; see "--Conditions to the Exchange Offer";
- a holder has validly withdrawn a tender of Old Notes as described
under, see "--Withdrawal Rights"; or
- we have prior to the expiration date of the exchange offer, delayed
or terminated the exchange offer; see "--Terms of the Exchange
offer; Period for Tendering".
If we do not accept any tendered Old Notes for any reason included in the
terms and conditions of the exchange offer, we will return any unaccepted or
non-exchanged Old Notes tendered by book-entry transfer into the exchange
agent's account at DTC using the book-entry transfer procedures described above,
non-exchanged Old Notes will be credited to an account maintained with DTC
promptly after the expiration or termination of the exchange offer.
Old Notes which are not tendered for exchange or are tendered but not
accepted in connection with the exchange offer will remain outstanding and
remain subject to the Old Indenture.
Any validly tendered Old Notes acquired in the exchange offer will be
retired and will not be reissuable.
The New Notes will bear interest from the issue date. Old Notes accepted
for exchange will cease to accrue interest from and after the date of
consummation of the exchange offer.
WITHDRAWAL RIGHTS
You may withdraw your tender of Old Notes at any time prior to 5:00 p.m.,
New York City time, on the expiration date. You may also withdraw a tender of
your Old Notes after the expiration of 40 business days from the commencement
date of the exchange offer if your tender has not yet been accepted for
exchange.
For a withdrawal to be effective, the exchange agent must receive a
written notice of withdrawal at the address or, in the case of eligible
institutions, at the facsimile number, set forth below, prior to 5:00 p.m., New
York City time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person who tendered the Old Notes to be
withdrawn;
- specify the aggregate amount of Old Notes to be withdrawn, if not
all of the Old Notes are tendered by the holder;
- contain a statement that you are withdrawing your election to have
your Old Notes exchanged;
- be signed by the holder in the same manner as the original signature
on the letter of transmittal by which the Old Notes were tendered,
including any required signature guarantees; and
- specify, on the notice of withdrawal, the name and number of the
account at DTC to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility, if you
tendered your Old Notes in accordance with the procedure for
book-entry transfer described above.
Any Old Notes that have been tendered for exchange, but which are not
exchanged for any reason, will be credited to an account maintained with DTC, as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn Old Notes
40
may be retendered by following the procedures described under "Procedures for
Tendering" above at any time on or prior to 5:00 p.m., New York City time, on
the expiration date.
CONSEQUENCES OF EXCHANGING OLD NOTES
If the exchange offer is consummated, Old Notes that are not tendered, or
are tendered but not accepted in the exchange offer, will remain outstanding.
Accordingly, interest thereon will continue to accrue in accordance with their
terms, and the Old Notes will continue to have the benefit of the Indenture
governing the unexchanged Old Notes but not the benefit of the Indenture
governing the New Notes. However, the trading market for unexchanged Old Notes
could become significantly limited due to the reduction in the amount of Old
Notes outstanding after completion of the exchange offer, which may adversely
affect the market price and price volatility of the Old Notes. See "Risk
factors--Risks Related to the Exchange Offer".
DEALER MANAGERS
Deutsche Bank Securities Inc. and Thomas Weisel Partners LLC are acting as
co-dealer managers in connection with the exchange offer and will receive an
aggregate fee that would range between 1.5% to 1.575% of the aggregate principal
amount of the New Notes issued pursuant to the exchange offer.
We have agreed to indemnify Deutsche Bank Securities Inc. and Thomas
Weisel Partners LLC against specified liabilities relating to or arising out of
the exchange offer, including civil liabilities under the federal securities
laws, and to contribute to payments that Deutsche Bank Securities Inc. and
Thomas Weisel Partners LLC, as the case may be, may be required to make in
respect thereof. However, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. Deutsche Bank Securities Inc. and/or Thomas Weisel Partners LLC
may, from time to time, hold Old Notes and our Class A common stock in their
respective proprietary accounts, and to the extent they own Old Notes in their
respective accounts at the time of the exchange offer, Deutsche Bank Securities
Inc. and/or Thomas Weisel Partners LLC may tender these Old Notes. As of the
date of this prospectus, Deutsche Bank Securities Inc. holds a substantial
position in the Old Notes.
EXCHANGE AGENT
Deutsche Bank Trust Company Americas has been appointed to act as the
exchange agent for the exchange offer. All executed letters of transmittal
should be directed to the exchange agent at one of the addresses set forth
below. Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent, addressed as
follows:
To: DEUTSCHE BANK TRUST COMPANY AMERICAS
BY HAND: BY MAIL: BY OVERNIGHT MAIL OR COURIER:
Deutsche Bank Trust Company DB Services Tennessee, Inc. DB Services Tennessee, Inc.
Americas Reorganization Unit Corporate Trust & Agency
C/O The Depository Trust P.O. Box 292737 Services
Clearing Corporation Nashville, TN 37229-2737 Reorganization Unit
55 Water Street, 1st floor Fax: (615) 835-3701 648 Grassmere Park Road
Jeanette Park Entrance Nashville, TN 37211
New York, NY 10041 Attn: Karl Shepherd
Confirm by Telephone
(615) 835-3572
Information (800) 735-7777
DELIVERY OF A LETTER OF TRANSMITTAL OR AGENT'S MESSAGE TO AN ADDRESS OTHER
THAN THE ADDRESSES LISTED ABOVE OR TRANSMISSION OF INSTRUCTIONS BY FACSIMILE
OTHER THAN AS SET FORTH ABOVE IS NOT VALID DELIVERY OF THE LETTER OF TRANSMITTAL
OR AGENT'S MESSAGE.
41
Deutsche Bank Trust Company Americas will assist us with the distribution
of this prospectus and the other exchange materials. The exchange agent will
receive reasonable compensation for its services, will be reimbursed for
reasonable out-of-pocket expenses and will be indemnified against liabilities in
connection with its services, including liabilities under the federal securities
laws. The exchange agent has not been retained to make solicitations or
recommendations. The fees received by the exchange agent will not be based on
the aggregate principal amount of Old Notes tendered in the exchange offer.
INFORMATION AGENT
D.F. King & Co., Inc. has been appointed to act as the information agent
in connection with the exchange offer. The information agent may contact holders
of Old Notes by mail, telephone, facsimile transmission and personal interviews
and may request brokers, dealers and other nominee stockholders to forward
materials relating to the exchange offer to beneficial owners. The information
agent will receive reasonable compensation for its services, will be reimbursed
for reasonable out-of-pocket expenses and will be indemnified against
liabilities in connection with their services, including liabilities under the
federal securities laws. The information agent has not been retained to make
solicitations or recommendations. The fees received by the information agent
will not be based on the aggregate principal amount of Old Notes tendered in the
exchange offer.
SOLICITING DEALERS
We will not pay any fees or commissions to any broker or dealer or any
other person, other than Deutsche Bank Securities Inc. and Thomas Weisel
Partners LLC for soliciting tenders of Old Notes under the exchange offer.
Brokers, dealers, commercial banks and trust companies will, upon request, be
reimbursed by us for reasonable and necessary costs and expenses incurred by
them in forwarding materials to their customers.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes, except that holders who instruct us to register New
Notes in the name of, or request that Old Notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder, will be responsible for the payment of any applicable transfer tax.
42
DESCRIPTION OF THE NEW NOTES
The New Notes will be issued under a new Indenture between Medicis
Pharmaceutical Corporation and Deutsche Bank Trust Company Americas, as trustee,
such new indenture referenced hereinafter as "New Indenture." The following
description is only a summary of the material provisions of the New Notes and
the related New Indenture. We urge you to read the New Indenture and the New
Notes in their entirety because they, and not this description, define your
rights as holders of the New Notes. You may request copies of these documents at
our address shown under the caption "Incorporation by Reference." The terms of
the New Notes include those stated in the New Indenture and those made part of
the New Indenture by reference to the Trust Indenture Act of 1939, as amended.
For purposes of this section, references to "we," "us," "our" and "Medicis"
include only Medicis Pharmaceutical Corporation and not its subsidiaries.
GENERAL
We will issue the New Notes in an aggregate principal amount limited to
$492 million. The New Notes will be our unsecured senior obligations and will
mature on June 4, 2033, unless earlier redeemed at our option as described under
"--Optional Redemption of the New Notes," repurchased by us at a holder's option
on certain dates as described under "--Repurchase of New Notes at the Option of
the Holder" or repurchased by us at a holder's option upon a change in control
of Medicis as described under "--Right to Require Purchase of New Notes upon a
Change in Control." The New Notes are convertible into shares of our Class A
common stock as described under "--Conversion Rights."
Interest on the New Notes will accrue at the rate per annum shown on the
cover page of this prospectus and will be payable semi-annually in arrears on
June 4 and December 4 of each year, commencing on December 4, 2003. Interest on
the New Notes will accrue from and including the first day after expiration of
the exchange offer or, if interest has already been paid, from the date it was
most recently paid. We will make each interest payment to the holders of record
of the New Notes on the immediately preceding May 15 and November 15, whether or
not this day is a business day. Interest payable upon redemption will be paid to
the person to whom principal is payable. Interest on the New Notes will be
computed on the basis of a 360-day year comprised of twelve 30-day months. We
will pay the principal of, and interest (including contingent interest, if any)
on, the New Notes at the office or agency maintained by us in the Borough of
Manhattan in New York City. Holders may register the transfer of their New Notes
at the same location. We reserve the right to pay interest to holders of the New
Notes by check mailed to the holders at their registered addresses. However, a
holder of New Notes with an aggregate principal amount in excess of $1,000,000
will be paid by wire transfer in immediately available funds. Except under the
limited circumstances described below, the New Notes will be issued only in
fully registered book-entry form, without coupons, and will be represented by
one or more Global Notes. There will be no service charge for any registration
of transfer or exchange of New Notes. We may, however, require holders to pay a
sum sufficient to cover any tax or other governmental charge payable in
connection with any transfer or exchange.
The New Indenture does not contain any restriction on the payment of
dividends, the incurrence of indebtedness or the repurchase of our securities,
and does not contain any financial covenants. Other than as described under
"--Right to Require Purchase of New Notes upon a Change in Control," the New
Indenture contains no covenants or other provisions that afford protection to
holders of New Notes in the event of a highly leveraged transaction.
CONTINGENT INTEREST
We will pay contingent interest during any six-month period, from June 4
to December 3 and from December 4 to June 3, with the initial six-month period
commencing June 4, 2008, if the average trading price of the New Notes per
$1,000 principal amount for the five trading day period ending on the third
trading day immediately preceding the first day of the applicable six-
43
month period equals $1,200 or more. The average trading price of the New Notes
shall be determined no later than the second trading day immediately preceding
the first day of the applicable six-month period by the conversion agent acting
as calculation agent in the manner set forth in the definition of "trading
price" under "--Conversion Rights of the Old Notes; Conversion Upon Satisfaction
of Trading Price Condition." During any period when contingent interest is
payable, it will be payable at a rate equal to 0.5% per annum. We will pay
contingent interest, if any, in the same manner as we will pay interest as
described above under "--General."
CONVERSION RIGHTS
A holder may convert any outstanding New Notes into shares of our Class A
common stock at an initial conversion price $77.52 per share. The conversion
price (and resulting conversion rate) is, however, subject to adjustment as
described below. A holder may convert New Notes only in denominations of $1,000
and integral multiples of $1,000.
GENERAL
Holders may surrender New Notes for conversion into shares of our Class A
common stock prior to the maturity date in the following circumstances:
- during any quarter commencing after September 30, 2003, if the
closing sale price per share of our Class A common stock for at
least 20 trading days in the period of 30 consecutive trading days
ending on the last trading day of the preceding quarter exceeds 120%
of the conversion price per share on that 30th trading day;
- if we have called the New Notes for redemption;
- during the five trading-day period immediately following any nine
consecutive trading day period in which the trading price per $1,000
principal amount of the New Notes for each day of such period was
less than 95% of the product of the closing sale price per share of
our Class A common stock on that day multiplied by the number of
shares issuable upon conversion of $1,000 principal amount of the
New Notes; or
- upon the occurrence of specified corporate transactions.
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITION
A holder may surrender any of its New Notes for conversion into shares of
our Class A common stock during any quarter commencing after September 30, 2003
if the closing sale price of our Class A common stock for at least 20 trading
days in the period of 30 consecutive trading days ending on the last trading day
of the preceding quarter, exceeds 120% of the conversion price per share on that
30th trading day. The conversion agent, which will initially be the trustee,
will determine on our behalf at the end of each quarter whether the New Notes
are convertible as a result of the market price of our Class A common stock.
CONVERSION UPON NOTICE OF REDEMPTION
A holder may surrender for conversion any New Note called for redemption
at any time prior to the close of business on the day that is two business days
prior to the redemption date, even if the New Notes are not otherwise
convertible at such time.
CONVERSION UPON SATISFACTION OF TRADING PRICE CONDITION
A holder may surrender any of its New Notes for conversion into shares of
Class A common stock during the five trading day period immediately following
any nine consecutive trading day period in which the trading price per $1,000
principal amount of the New Notes (as determined following a request by a holder
of the New Notes in accordance with the procedures described below) for each day
of such period was less than 95% of the product of the closing
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sale price per share of our Class A common stock on that day multiplied by the
number of shares issuable upon conversion of $1,000 principal amount of the New
Notes; provided, however, that if, on the date of any conversion pursuant to
this 95% price condition, the closing sale price per share of our Class A common
stock is greater than the conversion price, then a holder surrendering New Notes
for such conversion will receive, in lieu of a number of shares of our Class A
common stock based on the conversion price, cash or Class A common stock or a
combination of both, at our option, with a value equal to the principal amount
of such holder's New Notes so surrendered as of the conversion date (which we
refer to as a principal value conversion). If a holder surrenders its New Notes
for such conversion, we will notify such holder by the second trading day
following the date of conversion whether we will pay such holder in cash, our
Class A common stock or a combination of cash and our Class A common stock, and
in what percentage. Any shares of our Class A common stock delivered will be
valued at the greater of (x) the conversion price on the conversion date and (y)
the closing sale price of our Class A common stock on the third trading day
after the conversion date. We will pay such holder any portion of the principal
amount of such holder's New Notes so surrendered to be paid in cash on the third
trading day after the conversion date. With respect to any portion of the sum of
the principal amount of such holder's New Notes so surrendered to be paid in
shares of our Class A common stock, we will deliver the shares to such holder on
the fourth trading day following the conversion date.
The "trading price" of the New Notes on any date of determination means
the average of the secondary market bid quotations per $1,000 principal amount
of New Notes obtained by the conversion agent for $5,000,000 principal amount of
the New Notes at approximately 3:30 p.m., New York City time, on such
determination date from three independent nationally recognized securities
dealers we select, provided that if at least three such bids cannot reasonably
be obtained by the conversion agent, but two such bids are obtained, then the
average of the two bids shall be used, and if only one such bid can reasonably
be obtained by the conversion agent, this one bid shall be used. If the
conversion agent cannot reasonably obtain at least one bid for $5,000,000
principal amount of the New Notes from a nationally recognized securities dealer
or, in our reasonable judgment, the bid quotations are not indicative of the
secondary market value of the New Notes, then the trading price of the New Notes
will be determined in good faith by the conversion agent acting as calculation
agent taking into account in such determination such factors as it, in its sole
discretion after consultation with us, deems appropriate. Other than in
connection with a determination of whether contingent interest shall be payable,
the conversion agent shall have no obligation to determine the trading price of
the New Notes unless we have requested such determination; and we shall have no
obligation to make such request unless a holder provides us with reasonable
evidence that the trading price of the New Notes is less than 95% of the product
of the closing sale price of our Class A common stock and the number of shares
issuable upon conversion of $1,000 principal amount of the New Notes; at which
time, we shall instruct the conversion agent to determine the trading price of
the New Notes beginning on the next trading day and on each successive trading
day until the trading price is greater than or equal to 95% of the product of
the closing sale price of our Class A common stock and the number of shares of
our Class A common stock issuable upon conversion of $1,000 principal amount of
the New Notes.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
If we elect to:
- distribute to all holders of our Class A common stock rights,
warrants or options entitling them to subscribe for or purchase, for
a period expiring within 60 days of the date of distribution, shares
of our common stock at less than the then current market price; or
- distribute to all holders of shares of our Class A common stock any
assets, debt securities or certain rights to purchase our
securities, which distribution has a per
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share value exceeding 10% of the closing price of our Class A common stock on
the day preceding the declaration date for such distribution,
we must notify the holders of New Notes at least 20 days prior to the
ex-dividend date for such distribution. Once we have given such notice, holders
may surrender their New Notes for conversion until the earlier of the close of
business on the business day prior to the ex-dividend date or our announcement
that such distribution will not take place. This provision shall not apply if
the holder of a New Note otherwise participates in the distribution without
conversion.
In addition, if we are a party to a consolidation, merger, share exchange,
sale of all or substantially all of our assets or other similar transaction, in
each case pursuant to which the shares of our Class A common stock would be
converted into cash, securities or other property, a holder may surrender its
New Notes for conversion at any time from and after the date which is 15 days
prior to the anticipated effective date of such transaction until and including
the date which is 15 days after the actual date of such transaction. If we are a
party to a consolidation, merger, share exchange, sale of all or substantially
all of our assets or other similar transaction, in each case pursuant to which
the shares of our Class A common stock are converted into cash, securities, or
other property, then at the effective time of the transaction, a holder's right
to convert its New Notes into shares of our Class A common stock will be changed
into a right to convert such New Notes into the kind and amount of cash,
securities and other property which such holder would have received if such
holder had converted such New Notes immediately prior to the transaction. If the
transaction also constitutes a change in control, such holder can require us to
repurchase all or a portion of its New Notes as described under "--Right to
Require Purchase of New Notes upon a Change in Control."
If a holder of a New Note has delivered notice of its election to have
such New Note repurchased at the option of such holder or as a result of a
change in control, such New Note may be converted only if the notice of election
is withdrawn as described, respectively, under "--Repurchase of New Notes at the
Option of the Holder" or "--Right to Require Purchase of New Notes upon a Change
in Control."
CONVERSION RATE ADJUSTMENT
We will adjust the conversion price if (without duplication):
(1) we issue to all holders of shares of our Class A common stock or
other capital stock as a dividend or distribution on our common
stock;
(2) we subdivide, combine or reclassify our common stock;
(3) we issue to all holders of our Class A common stock rights, warrants
or options entitling them to subscribe for or purchase shares of our
common stock at less than the then current market price;
(4) we distribute to all holders of our Class A common stock evidences of
our indebtedness, shares of capital stock (other than shares of our
common stock), securities, cash, property, rights, warrants or
options, excluding:
- those rights, warrants or options referred to in clause (3) above;
- any dividend or distribution paid exclusively in cash not referred
to below; and
- any dividend or distribution referred to in clause (1) above.
(5) we declare a dividend or distribution to all or substantially all of
the holders of our Class A common stock, to the extent that such
dividend or distribution is payable in cash and exceeds, (i) prior to
June 11, 2008, $0.05 per issued and outstanding share of Class A
common stock per fiscal quarter, subject to adjustment for
subdivisions, combinations, stock dividends and stock splits and (ii)
after June 11, 2008, together with all other all cash distributions
and consideration payable in respect of any tender or exchange offer
by us or one of our subsidiaries for shares
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made within the preceding twelve months, 5% of our aggregate market
capitalization on the date of the declaration of the distribution.
If an adjustment is required under this clause (5) as a result of a
distribution that is a quarterly dividend, the adjustment would be
based upon the amount by which the distribution exceeds the amount of
the current quarterly cash dividend. If an adjustment is required to
be made under this clause (5) as a result of a distribution that is
not a quarterly dividend, the adjustment would be based upon the full
amount of the distribution.
(6) during any twelve-month period we or one of our subsidiaries complete
a repurchase (including by way of a tender offer, but excluding
shares purchased by us in connection with this offering) of shares of
our common stock which involves an aggregate consideration that,
together with:
- any cash and other consideration payable in respect of any tender
or exchange offer by us or one of our subsidiaries for shares of
our common stock concluded within the preceding 12 months; and
- the amount of any all-cash distributions to all holders of our
common stock made within the preceding 12 months;
exceeds 5% of our aggregate market capitalization on the expiration
of the tender or exchange offer.
(7) someone other than Medicis or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of the
closing date of the offer, Medicis' board of directors is not
recommending rejection of the offer. The adjustment referred to in
this clause will only be made if:
- the tender offer or exchange offer is for an amount that increases
the offeror's ownership of common stock to more than 25% of the
total shares of Medicis common stock outstanding; and
- the cash and value of any other consideration included in the
payment per share of common stock exceeds the current market price
per share of common stock on the next business day succeeding the
last date on which tenders or exchanges may be made pursuant to
the tender or exchange offer.
However, the adjustment referred to in this clause (7) will not be made if
as of the closing of the offer, the offering documents disclose a plan or an
intention to cause Medicis to engage in a consolidation or merger of Medicis or
a sale of all or substantially all of Medicis' assets.
For purposes of the foregoing, the term "market capitalization" as of any
date of calculation means the closing sale price of our Class A common stock on
the trading day immediately prior to such date of calculation multiplied by the
aggregate number of shares of our Class A common stock and Class B common stock
outstanding on the trading day immediately prior to such date of calculation.
If the rights provided for in our rights agreement dated as of August 17,
1995, as amended, have separated from our Class A common stock in accordance
with the provisions of the rights agreement so that the holders of the New Notes
would not be entitled to receive any rights in respect of our Class A common
stock issuable upon conversion of the New Notes, the conversion price will be
adjusted as provided in clause (4) above, subject to readjustment in the event
of the expiration, termination or redemption of the rights. In lieu of any such
adjustment, we may amend our rights agreement to provide that upon conversion of
the New Notes the holders will receive, in addition to our Class A common stock
issuable upon such conversion, the rights which would have attached to such
shares of our Class A common stock if the rights had not become separated from
our Class A common stock under our rights agreement. See "Description of Capital
Stock--Preference Stock Purchase Rights." To the extent that we adopt any future
rights
47
plan, upon conversion of the New Notes into our Class A common stock, you will
receive, in addition to our Class A common stock, the rights under the future
rights plan whether or not the rights have separated from our Class A common
stock at the time of conversion and no adjustment to the conversion price will
be made in accordance with clause (4) above.
The conversion price will not be adjusted until adjustments amount to 1%
or more of the conversion price as last adjusted. We will carry forward any
adjustment we do not make and will include it in any future adjustment.
We will not issue fractional shares of Class A common stock to a holder
who converts a New Note. In lieu of issuing fractional shares, we will pay cash
based upon the closing sale price of our Class A common stock on the date of
conversion.
Except as described in this paragraph, no holder of New Notes will be
entitled, upon conversion of the New Notes, to any actual payment or adjustment
on account of accrued and unpaid interest, including contingent interest, if
any, or on account of dividends on shares issued in connection with the
conversion. If any holder surrenders a New Note for conversion between the close
of business on any record date for the payment of an installment of interest
(including any contingent interest, if any) and the opening of business on the
related interest payment date the holder must deliver payment to us of an amount
equal to the interest payable on the interest payment date (including any
contingent interest, if any) on the principal amount to be converted together
with the New Note being surrendered. The foregoing sentence shall not apply to
New Notes called for redemption on a redemption date within the period between
and including the record date and the interest payment date.
If we make a distribution of property to our stockholders which would be
taxable to them as a dividend for federal income tax purposes and the conversion
price of the New Notes is decreased, this decrease may be deemed to be the
receipt of taxable income by holders of the New Notes.
We may from time to time reduce the conversion price if our board of
directors determines that this reduction would be in the best interests of
Medicis. Any such determination by our board of directors will be conclusive.
Any such reduction in the conversion price must remain in effect for at least 20
trading days. In addition, we may from time to time reduce the conversion price
if our board of directors deems it advisable to avoid or diminish any income tax
to holders of our Class A common stock resulting from any stock or rights
distribution on our common stock.
OPTIONAL REDEMPTION OF THE NEW NOTES
Prior to June 11, 2008, we cannot redeem the New Notes at our option.
Beginning on June 11, 2008, we may redeem the New Notes, in whole at any time,
or in part from time to time, for cash at a price equal to 100% of the principal
amount of the New Notes plus accrued and unpaid interest (including contingent
interest, if any) up to but not including the date of redemption. We will give
not less than 30 days' nor more than 60 days' notice of redemption by mail to
holders of the New Notes. If we opt to redeem less than all of the New Notes at
any time, the trustee will select or cause to be selected the New Notes to be
redeemed by any method that it deems fair and appropriate. In the event of a
partial redemption, the trustee may provide for selection for redemption of
portions of the principal amount of any New Note of a denomination larger than
$1,000.
REPURCHASE OF NEW NOTES AT THE OPTION OF THE HOLDER
A holder has the right to require us to repurchase all or a portion of the
New Notes on June 4, 2008, 2013 and 2018. We will repurchase the New Notes for
an amount of cash equal to 100% of the principal amount of the New Notes on the
date of purchase, plus accrued and unpaid interest (including contingent
interest, if any) to the date of repurchase. To exercise the repurchase right,
the holder of a New Note must deliver, during the period beginning at any time
from the opening of business on the date that is 20 business days prior to the
repurchase date
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until the close of business on the business day before the repurchase date, a
written notice to us and the trustee of such holder's exercise of the repurchase
right. This notice must be accompanied by certificates evidencing the New Note
or New Notes with respect to which the right is being exercised, duly endorsed
for transfer. This notice of exercise may be withdrawn by the holder at any time
on or before the close of business on the business day preceding the repurchase
date. If the holders exercise their rights to require us to repurchase New
Notes, we intend to comply with applicable tender offers rules under the
Exchange Act with respect to any purchase.
MANDATORY REDEMPTION
Except as set forth under "--Right to Require Purchase of New Notes upon a
Change in Control" and "--Repurchase of New Notes at the Option of the Holder,"
we are not required to make mandatory redemption of, or sinking fund payments
with respect to, the New Notes.
RIGHT TO REQUIRE PURCHASE OF NEW NOTES UPON A CHANGE IN CONTROL
If a change in control (as defined below) occurs, each holder of New Notes
may require that we repurchase the holder's New Notes up to and including the
date fixed by us that is not less than 45 days nor more than 60 days after we
give notice of the change in control. We will repurchase the New Notes for an
amount of cash equal to 100% of the principal amount of the New Notes, plus
accrued and unpaid interest, including contingent interest, if any, to the date
of repurchase.
"Change in control" means the occurrence of one or more of the following
events:
- any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of our
assets, to any person or group of related persons, as defined in
Section 13(d) of the Exchange Act (a "Group");
- the approval by the holders of our capital stock of any plan or
proposal for our liquidation or dissolution, whether or not
otherwise in compliance with the provisions of the New Indenture;
- any person or Group shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by our issued and
outstanding voting stock of, or any successor to, all or
substantially all of our assets; or
- the first day on which a majority of the members of our board of
directors are not continuing directors.
The definition of "change in control" includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of our assets. Although there is a developing body of case law interpreting
the phrase "substantially all," there is no precise established definition of
the phrase under applicable law. Accordingly, the ability of a holder of New
Notes to require us to repurchase such New Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of our assets to
another person or Group may be uncertain.
"Continuing directors" means, as of any date of determination, any member
of our board of directors who
- was a member of such board of directors on the date of the original
issuance of the New Notes, or
- was nominated for election or elected to such board of directors with
the approval of a majority of the continuing directors who were members
of such board at the time of such nomination or election.
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On or prior to the date of repurchase, we will deposit with a paying agent
an amount of money sufficient to pay the aggregate repurchase price of the New
Notes which is to be paid on the date of repurchase.
On or before the 30th day after the change in control, we must mail to the
trustee and all holders of the New Notes a notice of the occurrence of the
change offer in control, stating:
- the repurchase date;
- the date by which the repurchase right must be exercised;
- the repurchase price for the New Notes; and
- the procedures which a holder of New Notes must follow to exercise the
repurchase right.
To exercise the repurchase right, the holder of a New Note must deliver,
on or before the third business day before the repurchase date, a written notice
to us and the trustee of the holder's exercise of the repurchase right. This
notice must be accompanied by certificates evidencing the New Note or New Notes
with respect to which the right is being exercised, duly endorsed for transfer.
This notice of exercise may be withdrawn by the holder at any time on or before
the close of business on the business day preceding the repurchase date.
The effect of these provisions granting the holders the right to require
us to repurchase the New Notes upon the occurrence of a change in control may
make it more difficult for any person or group to acquire control of us or to
effect a business combination with us. Our ability to pay cash to holders of New
Notes following the occurrence of a change in control may be limited by our then
existing financial resources. We cannot assure you that sufficient funds will be
available when necessary to make any required repurchases.
Our obligation to make a change in control will be satisfied if a third
party makes the change of control offer in the manner and at the times and
otherwise in compliance in all material respects with the requirements
applicable to a change in control offer made by us and purchases all New Notes
properly tendered and not withdrawn under the change in control offer.
If a change in control occurs and the holders exercise their rights to
require us to repurchase New Notes, we intend to comply with applicable tender
offer rules under the Exchange Act with respect to any repurchase.
The term "beneficial owner" will be determined in accordance with Rules
13d-3 and 13d-5 promulgated by the SEC under the Exchange Act or any successor
provision, except that a person shall be deemed to have "beneficial ownership"
of all shares of our common stock that the person has the right to acquire,
whether exercisable immediately or only after the passage of time.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may, without the consent of the holders of any of the New Notes,
consolidate with, or merge into any other person or convey, transfer or lease
our properties and assets substantially as an entirety to, any other person, if:
- we are the resulting or surviving corporation or the successor,
transferee or lessee, if other than us, is a corporation organized
under the laws of any U.S. jurisdiction and expressly assumes our
obligations under the New Indenture and the New Notes by means of a
supplemental indenture entered into with the trustee; and
- after giving effect to the transaction, no event of default and no
event which, with notice or lapse of time, or both, would constitute
an event of default, shall have occurred and be continuing.
Under any consolidation, merger or any conveyance, transfer or lease of
our properties and assets as described in the preceding paragraph, the successor
company will be our successor and shall succeed to, and be substituted for, and
may exercise every right and power of, Medicis
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under the New Indenture. If the predecessor is still in existence after the
transaction, it will be released from its obligations and covenants under the
New Indenture and the New Notes.
'MODIFICATION AND WAIVER
We and the trustee may enter into one or more supplemental indentures that
add, change or eliminate provisions of the New Indenture or modify the rights of
the holders of the New Notes with the written consent of the holders of at least
a majority in principal amount of the New Notes then outstanding. However,
without the consent of each holder of an outstanding New Note, no supplemental
indenture may, among other things:
- change the stated maturity of the principal of, or payment date of
any installment of interest (including contingent interest, if any)
on, any New Note;
- reduce the principal amount of, or the rate of interest (including
contingent interest, if any) on, any New Note;
- change the currency in which the principal of any New Note or
interest is payable;
- impair the right to institute suit for the enforcement of any
payment on or with respect to any New Note when due;
- adversely affect the right provided in the New Indenture to convert
any New Note;
- modify the provisions of the New Indenture relating to our
requirement to repurchase New Notes upon a change in control or to
repurchase the New Notes at the option of the holders pursuant to
the terms described herein, in any case in a manner adverse to the
holders of the New Notes;
- reduce the percentage in principal amount of the outstanding New
Notes necessary to modify or amend the New Indenture or to consent
to any waiver provided for in the New Indenture; or
- waive a default in the payment of principal of, or interest
(including contingent interest, if any) on, any New Note.
The holders of a majority in principal amount of the outstanding New Notes
may, on behalf of the holders of all New Notes:
- waive compliance by us with restrictive provisions of the New
Indenture other than as provided in the preceding paragraph; and
- waive any past default under the New Indenture and its consequences,
except a default in the payment of the principal of or any interest
(including contingent interest, if any) on any New Note or in
respect of a provision which under the New Indenture cannot be
modified or amended without the consent of the holder of each
outstanding New Note affected.
Without the consent of any holders of New Notes, we and the trustee may
enter into one or more supplemental indentures for any of the following
purposes:
- to cure any ambiguity, omission, defect or inconsistency in the New
Indenture;
- to evidence a successor to us and the assumption by the successor of
our obligations under the New Indenture and the New Notes;
- to make any change that does not adversely affect the rights of any
holder of the New Notes;
- to comply with any requirement in connection with the qualification
of the New Indenture under the Trust Indenture Act; or
- to complete or make provision for certain other matters contemplated
by the New Indenture.
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EVENTS OF DEFAULT
Each of the following is an "event of default":
(1) a default in the payment of any interest (including contingent
interest, if any) upon any of the New Notes when due and payable,
which continues for 30 days;
(2) a default in the payment of the principal of the New Notes when due,
including on a redemption or repurchase date;
(3) failure to pay when due the principal of indebtedness for money
borrowed by us or our subsidiaries in excess of $20 million, or the
acceleration of that indebtedness that is not withdrawn within 15
days after the date of written notice to us by the trustee or to us
and the trustee by the holders of at least 25% in principal amount of
the outstanding New Notes;
(4) a default by us in the performance, or breach, of any of our other
covenants in the New Indenture which are not remedied within 60 days
after written notice to us by the trustee or to us and the trustee by
the holders of at least 25% in principal amount of the outstanding
New Notes; or
(5) events of bankruptcy, insolvency or reorganization involving Medicis.
If an event of default described in clauses (1), (2), (3) or (4) occurs
and is continuing, either the trustee or the holders of at least 25% in
principal amount of the outstanding New Notes may declare the principal amount
of accrued and unpaid interest on all New Notes to be immediately due and
payable. This declaration may be rescinded if the conditions described in the
New Indenture are satisfied. If an event of default of the type referred to in
clause (5) occurs, the principal amount of and accrued and unpaid interest,
(including contingent interest, if any) on the outstanding New Notes will
automatically become immediately due and payable.
Within 90 days following a default, the trustee must give to the
registered holders of New Notes notice of all uncured defaults known to it. The
trustee will be protected in withholding the notice if it in good faith
determines that the withholding of the notice is in the best interests of the
registered holders, except in the case of a default in the payment of the
principal of, or interest, including contingent interest, if any, on, any of the
New Notes when due or in the payment of any redemption or repurchase obligation.
The holders of not less than a majority in principal amount of the
outstanding New Notes may direct the time, method and place of conducting any
proceedings for any remedy available to the trustee, or exercising any trust or
power conferred on the trustee. Subject to the provisions of the New Indenture
relating to the duties of the trustee, if an event of default occurs and is
continuing, the trustee will be under no obligation to exercise any of the
rights or powers under the New Indenture at the request or direction of any of
the holders of the New Notes unless the holders have offered to the trustee
reasonable indemnity or security against any loss, liability or expense. Except
to enforce the right to receive payment of principal, or interest, including
contingent interest, if any, when due or the right to convert a New Note in
accordance with the New Indenture, no holder may institute a proceeding or
pursue any remedy with respect to the New Indenture or the New Notes unless the
conditions provided in the New Indenture have been satisfied, including:
- holders of at least 25% in principal amount of the outstanding New
Notes have requested the trustee to pursue the remedy; and
- holders have offered the trustee security or indemnity satisfactory
to the trustee against any loss, liability or expense.
We are required to deliver to the trustee annually a certificate
indicating whether the officers signing the certificate know of any default by
us in the performance or observance of any of the terms of the New Indenture. If
the officers know of a default, the certificate must specify the status and
nature of all defaults.
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BOOK-ENTRY SYSTEM
The New Notes will be issued in the form of global securities held in
book-entry form. DTC or its nominee will be the sole registered holder of the
New Notes for all purposes under the New Indenture. Owners of beneficial
interests in the New Notes represented by the global securities will hold their
interests pursuant to the procedures and practices of DTC. As a result,
beneficial interests in any such securities will be shown on, and transfers will
be effected only through, records maintained by DTC and its direct and indirect
participants. Any such interests may not be exchanged for certificated
securities, except in limited circumstances. Owners of beneficial interests must
exercise any rights in respect of their interests, including any right to
convert or require repurchase of their interests in the New Notes, in accordance
with the procedures and practices of DTC. Beneficial owners will not be holders
and will not be entitled to any rights under the global securities or the New
Indenture. We and the trustee, and any of our respective agents, may treat DTC
as the sole holder and registered owner of the global securities.
EXCHANGE OF GLOBAL NOTES
The New Notes, represented by one or more global notes, will be
exchangeable for certificated securities with the same terms only if:
- DTC is unwilling or unable to continue as depositary or if DTC
ceases to be a clearing agency registered under the Exchange Act and
we do not appoint a successor depositary within 90 days;
- we decide to discontinue use of the system of book-entry transfer
through DTC or any successor depositary; or
- a default under the New Indenture occurs and is continuing.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency" for
registered participants, and it facilitates the settlement of transactions among
its participants in those securities through electronic computerized book-entry
changes in participants' accounts, eliminating the need for physical movement of
securities certificates. DTC's participants include securities brokers and
dealers, including the agent, banks, trust companies, clearing corporation and
other organizations, some of whom and/or their representatives own DTC. Access
to DTC's book-entry system is also 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.
GOVERNING LAW
The New Indenture and the New Notes will be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflict of laws.
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COMPARISON BETWEEN THE TERMS
OF THE OLD NOTES AND THE NEW NOTES
The Old Notes were issued under an Indenture dated June 4, 2002 between
our company and Deutsche Bank Trust Company Americas, as trustee, such indenture
will be hereinafter referred to as the Old Indenture. The following comparison
is only a summary of certain provisions of the Old Notes and the Old Indenture
that differ in a material respect to the provisions of the New Notes and the New
Indenture.
GENERAL
OLD NOTES
There is $400 million in aggregate principal amount of Old Notes
outstanding. The Old Notes are our unsecured senior obligations and will mature
on June 4, 2032, unless earlier redeemed at our option as described under
"--Optional Redemption of the Notes--Old Notes", repurchased by us at a holder's
option on certain dates as described under "--Repurchase of Notes at the Option
of the Holder--Old Notes" or repurchased by us at a holder's option upon a
change in control of our company. The Old Notes are convertible into shares of
our Class A common stock upon the occurrence of certain conditions.
The Old Notes bear interest at a rate of 2.5% per annum, payable
semi-annually in arrears on June 4 and December 4 of each year. We will make
each interest payment to the holders of record of the Old Notes on the
immediately preceding May 15 and November 15, whether or not such day is a
business day.
NEW NOTES
We will issue up to $492 million in aggregate principal amount of New
Notes. The New Notes will be our unsecured senior obligations and will mature on
June 4, 2033, unless earlier redeemed at our option as described under
"--Optional Redemption of the Notes--New Notes", repurchased by us at a holder's
option on certain dates as described under "Repurchase of Notes at the Option of
the Holder--New Notes" or repurchased by us at a holder's option upon a change
in control of our company. The New Notes are convertible into shares of our
Class A common stock upon the occurrence of certain conditions.
The New Notes will bear interest at a rate of 1.5% per annum, payable
semi-annually in arrears on June 4 and December 4 of each year, commencing on
December 4, 2003. We will make each interest payment to the holders of record of
the New Notes on the immediately preceding May 15 and November 15, whether or
not such day is a business day.
CONTINGENT INTEREST
OLD NOTES
Holders of Old Notes will receive a contingent interest payment during any
six-month period, from June 4 to December 3 and from December 4 to June 3, with
the initial six-month period commencing June 4, 2007, if the average trading
price of the Old Notes per $1,000 in principal amount for the five trading day
period ending on the third trading day immediately preceding the first day of
the applicable six-month period equals $1,200 or more. The average trading price
of the Old Notes shall be determined no later than the second trading day
immediately preceding the first day of the applicable six-month period by the
conversion agent acting as a calculation agent in the manner set forth below in
the definition of "trading price." During any period when contingent interest is
payable, it will be payable at a rate equal to 0.5% per annum. We will pay
contingent interest, if any, in the same manner as we will pay interest.
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NEW NOTES
We will pay contingent interest during any six-month period, from June 4
to December 3 and from December 4 to June 3, with the initial six-month period
commencing June 4, 2008. Other than as described in the previous sentence, the
terms of the New Notes regarding contingent interest are identical to the terms
of the Old Notes.
CONVERSION RIGHTS
OLD NOTES
A holder may convert any outstanding Old Notes into shares of our Class A
common stock at an initial conversion price per share of $58.10. This represents
a conversion rate of approximately 17.2117 shares per $1,000 in principal amount
of the Old Notes. The conversion price (and resulting conversion rate) is,
however, subject to adjustments. A holder may convert Old Notes only in
denominations of $1,000 and integral multiples of $1,000.
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITION
A holder may surrender any of its Old Notes for conversion into shares of
our Class A common stock during any quarter commencing after June 30, 2002 if
the closing sale price of our Class A common stock for at least 20 trading days
in the period of 30 consecutive trading days ending on the last trading day of
the preceding quarter exceeds 110% of the conversion price per share on that
30th trading day. The conversion agent, which will initially be the trustee,
will determine on our behalf at the end of each quarter whether the Old Notes
are convertible as a result of the market price of our Class A common stock.
NEW NOTES
A holder may convert any outstanding New Notes into shares of our Class A
common stock at an initial conversion price per share of $77.52. This represents
a conversion rate of approximately 12.8998 shares per $1,000 in principal amount
of the New Notes. This conversion price (and resulting conversion rate) is,
however, subject to adjustments for certain transactions affecting our Class A
common stock as described under "Description of the New Notes--Conversion Rate
Adjustments". A holder may convert New Notes only in denominations of $1,000 and
integral multiples of $1,000.
In addition to adjusting the conversion rate pursuant to the terms of the
Old Notes, prior to June 11, 2008, we will adjust the conversion rate of the New
Notes if we declare a dividend or distribution to all or substantially all of
the holders of our Class A common stock, to the extent that such dividend or
distribution is payable in cash and is greater than $0.05 per issued and
outstanding share of Class A common stock per fiscal quarter. See "Description
of the New Notes -- Conversion Rate Adjustment."
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITION
A holder may surrender any of its New Notes for conversion into shares of
our Class A common stock during any quarter commencing after September 30, 2003
if the closing sale price of our Class A common stock for at least 20 trading
days in the period of 30 consecutive trading days ending on the last trading day
of the preceding quarter, exceeds 120% of the conversion price per share on that
30th trading day.
Other than the differences in conversion rights described in preceding
three paragraphs, the terms of the conversion rights of the New Notes are
identical to the terms of the Old Notes.
OPTIONAL REDEMPTION OF THE NOTES
OLD NOTES
Prior to June 11, 2007, we cannot redeem the Old Notes at our option.
Beginning on June 11, 2007, we may redeem the Old Notes, in whole at any time,
or in part from time to time,
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for cash at a price equal to 100% of the principal amount of the Old Notes, plus
accrued and unpaid interest, (including contingent interest, if any), up to but
not including the date of redemption. We will give not less than 20 days' nor
more than 60 days' notice of redemption by mail to holders of the Old Notes. If
we opt to redeem less than all of the Old Notes at any time, the trustee will
select or cause to be selected the Old Notes to be redeemed by any method that
it deems fair and appropriate. In the event of a partial redemption, the trustee
may provide for selection for redemption of portions of the principal amount of
any Old Note of a denomination larger than $1,000.
NEW NOTES
Prior to June 11, 2008, we cannot redeem the New Notes at our option.
Beginning on June 11, 2008, we may redeem the New Notes, in whole at any time,
or in part from time to time, for cash at a price equal to 100% of the principal
amount of the New Notes, plus accrued and unpaid interest (including contingent
interest, if any), up to but not including the date of redemption.
Other than as described in the previous paragraph, the terms of the New
Notes regarding optional redemption are identical to the terms of the Old Notes.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER
OLD NOTES
A holder has the right to require us to repurchase all or a portion of the
Old Notes on June 4, 2007, 2012 and 2017. We will repurchase the Old Notes for
an amount of cash equal to 100% of the principal amount of the Old Notes on the
date of purchase, plus accrued and unpaid interest (including contingent
interest, if any) to the date of repurchase. To exercise the repurchase right,
the holder of an Old Note must deliver, during the period beginning at any time
from the opening of business on the date that is 20 business days prior to the
repurchase date until the close of business on the business day before the
repurchase date, a written notice to us and the trustee of such holder's
exercise of the repurchase right. This notice must be accompanied by
certificates evidencing the Old Note or Old Notes with respect to which the
right is being exercised, duly endorsed for transfer. This notice of exercise
may be withdrawn by the holder at any time on or before the close of business on
the business day preceding the repurchase date.
NEW NOTES
A holder has the right to require us to repurchase all or a portion of the
New Notes on June 4, 2008, 2013 and 2018. Other than as described in the
previous sentence, the terms of the New Notes regarding repurchase of the New
Notes at the option of the holder are identical to the Old Notes.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
We have two classes of authorized common stock: Class A common stock, par
value $0.014 per share, of which we are authorized to issue 50,000,000 shares,
and Class B common stock, par value $0.014 per share, of which we are authorized
to issue 1,000,000 shares. As of March 31, 2003, 30,743,267 shares of Class A
common stock were issued and outstanding and held by approximately 248 holders
of record. As of March 31, 2003, 379,016 shares of Class B common stock were
issued and outstanding and held by a single holder. As of June 30, 2003, an
additional 6,390,796 shares of Class A common stock were issuable upon exercise
of outstanding option.
Except as noted below, the designations, preferences, limitations and
relative rights of the Class A common stock and Class B common stock are
substantially identical. Holders of Class A common stock are entitled to one
vote per share while holders of Class B common stock are entitled to ten votes
per share. Except as required by law, holders of Class A common stock and Class
B common stock vote together as a class on all matters with respect to which our
stockholders are entitled to vote.
Holders of Class A common stock and Class B common stock have equal rights
to receive dividends and other distributions, if any, as may be declared from
time to time by our board of directors. However, any dividend declared and paid
to the holders of Class A common stock must be accompanied by the declaration
and payment of an equivalent dividend to the holders of Class B common stock. If
we in any manner subdivide, combine or reclassify the outstanding shares of
Class A common stock or Class B common stock, as the case may be, the
outstanding shares of the other class shall be subdivided, combined or
reclassified proportionately in the same manner and on the same basis as the
outstanding shares of Class A common stock or Class B common stock, as the case
may be.
Holders of Class A common stock and Class B common stock are not entitled
to preemptive or similar rights. The Class B common stock may be converted into
Class A common stock on a share-for-share basis at any time at the election of
the holder and will automatically convert into Class A common stock upon sale or
transfer of Class B common stock other than to another holder of Class B common
stock.
PREFERRED STOCK
We currently have authorized 5,000,000 shares of preferred stock, par
value $0.01 per share, of which no shares are issued or outstanding. See
"--Preference Stock Purchase Rights."
Upon liquidation, dissolution or winding up of our company, any holders of
preferred stock will be paid in full any amounts to which they may be entitled,
prior to any distribution of our assets to the holders of Class A common stock
and Class B common stock on a pro rata basis.
PREFERENCE STOCK PURCHASE RIGHTS
On August 17, 1995, our board of directors adopted a stockholder rights
plan, pursuant to which it declared a dividend of one preference stock purchase
right on each outstanding share of Class A common stock and Class B common
stock. The description and terms of these rights are set forth in a Rights
Agreement, dated as of August 17, 1995, as amended, between our company and
Norwest Bank Minnesota, N.A., as rights agent. These rights are exercisable only
if a person or group acquires beneficial ownership of 15% or more of the then
outstanding shares of Class A common stock or announces a tender offer the
consummation of which would result in beneficial ownership by a person or group
of 15% or more of the then outstanding shares of Class A common stock. Each
right entitles the holder to buy one one-hundredth of a share of a new Series A
junior participating preference stock at an exercise price of $185.00 per share,
subject to adjustment.
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If we are acquired in a merger or other business combination transaction
after a person has acquired beneficial ownership of 15% or more of the then
outstanding shares of Class A common stock, each right will entitle the holder
to purchase, at the right's then-current exercise price, a number of shares of
the acquiring person's common stock having a market value of twice such price.
In addition, if a person or group acquires 50% or more of the then outstanding
shares of Class A common stock, each right will entitle the holder, other than
such person or members of such group, to purchase, at the right's then-current
exercise price, a number of shares of Class A common stock of such other person
or group, including our company as successor to the acquiring company or as the
surviving corporation, having a market value of twice such price.
Following the acquisition by a person or group of beneficial ownership of
15% or more of the then outstanding shares of Class A common stock and prior to
an acquisition of 50% or more of the then outstanding shares of Class A common
stock, our board of directors may exchange the rights, other than rights owned
by such person or group, in whole or in part, at an exchange ratio of one share
of Class A common stock, one one-hundredth of a share of the Series A junior
participating preference stock or a share of a class or series of our preferred
stock having equivalent rights, preferences and privileges as the Series A
junior participating preference stock, per right. Prior to the acquisition by a
person or group of beneficial ownership at 15% or more of the then outstanding
shares of Class A common stock, the rights are redeemable for $0.001 per right
at the option of our board of directors.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This discussion describes the material U.S. federal income tax
consequences of the exchange offer and owning and disposing of the New Notes. It
applies to you only if you hold your Old Notes and New Notes as capital assets
for U.S. federal income tax purposes. This section does not apply to you if you
are a member of a class of holders subject to special rules, such as:
- a dealer in securities or currencies;
- a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;
- a bank, an insurance company or other financial institution;
- a tax-exempt organization;
- a person treated as a partnership for U.S. federal income tax
purposes or a partner thereof;
- a person that owns Old Notes or New Notes that are a hedge or that
are hedged against interest rate risks;
- a person that owns Old Notes or New Notes as part of a straddle,
conversion or other risk reduction transaction for U.S. federal
income tax purposes; or
- a U.S. holder (as defined below) whose functional currency for U.S.
federal income tax purposes is not the U.S. dollar.
The summary below does not address all of the tax consequences that may be
relevant to you. In particular, it does not address:
- the U.S. federal estate, gift or alternative minimum tax
consequences of the exchange offer or ownership or disposition of
the New Notes;
- state, local or foreign tax consequences of the exchange offer or
ownership or disposition of the New Notes; or
- U.S. federal, state, local or foreign tax consequences of owning or
disposing of our Class A common stock.
This discussion is based on the Internal Revenue Code of 1986, as amended,
or the Code, the Treasury Regulations promulgated under the Code and
administrative and judicial interpretations of the Code and the Treasury
Regulations, all as of the date of this prospectus, and all of which are subject
to differing interpretations and to change, possibly on a retroactive basis.
No statutory, administrative or judicial authority directly addresses the
treatment of the New Notes for U.S. federal income tax purposes. We have not
sought, nor do we expect to seek, a ruling from the Internal Revenue Service, or
the IRS, with respect to any of the U.S. federal income tax consequences
discussed below. No assurance can be given that the IRS will not take contrary
positions to the U.S. federal income tax consequences discussed below. As a
result, no assurance can be given that the IRS will agree with the tax
characterizations and the tax consequences described below.
We urge you to consult your tax advisors with respect to the tax
consequences to you of the exchange offer and ownership and disposition of the
New Notes and shares of our Class A common stock in light of your own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws and the possible effects of changes in U.S. federal or other tax
laws.
CLASSIFICATION OF THE NEW NOTES
We intend to treat the New Notes as debt instruments subject to the rules
governing contingent payment debt instruments for U.S. federal income tax
purposes. Pursuant to the terms
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of the New Indenture relating to the New Notes, you agree, for U.S. federal
income tax purposes, to treat your New Notes as indebtedness subject to the
Treasury Regulations governing contingent payment debt instruments and to be
bound by our application of those regulations to the New Notes, including our
determination of the rate at which interest will be deemed to accrue on the New
Notes. The remainder of this discussion assumes that the New Notes will be
treated in accordance with this determination. However, there is some
uncertainty as to the proper application of the Treasury Regulations governing
contingent payment debt instruments, and no assurance can be given that the IRS
will not assert that the New Notes should be treated differently or that such an
assertion would not prevail. Such treatment could affect the amount, timing and
character of income, gain or loss in respect of an investment in the New Notes.
In particular, it might be determined that you should have accrued interest
income at a lower rate, should not have recognized ordinary income upon the
conversion of your New Notes, or should have recognized capital gain or loss
upon a taxable disposition of your New Notes.
TREATMENT OF U.S. HOLDERS
You are a "U.S. holder" if you are a beneficial owner of an Old Note or a
New Note and you are, for United States federal income tax purposes:
- a citizen or resident of the United States;
- a domestic corporation;
- an estate whose income is subject to U.S. federal income tax
regardless of its source; or
- a trust over whose administration a U.S. court can exercise primary
supervision and all substantial decisions of which one or more U.S.
persons are authorized to control.
If you are a "non-U.S. holder," this Section does not apply to you. You
are a non-U.S. holder if you are a beneficial owner of an Old Note or a New Note
and you are, for United States federal income tax purposes:
- a nonresident alien individual (other than an expatriate);
- a foreign corporation; or
- a foreign estate or trust that is not subject to U.S. federal income
taxation on its worldwide income.
If you are a non-U.S. holder, please see the section titled "Treatment of
Non-U.S. Holders" below.
EXCHANGE OFFER
The exchange of Old Notes for New Notes will qualify as a
"recapitalization" for U.S. federal income tax purposes. Consequently, a U.S.
holder will recognize gain on the exchange of an Old Note for a New Note to the
extent of the lesser of (i) the difference between the issue price of the New
Note (determined as described below) and the U.S. holder's adjusted tax basis in
the Old Note and (ii) the fair market value of the excess of the principal
amount of the New Notes over the principal amount of the Old Notes. The issue
price of a New Note will be the fair market value of the New Note as of the
exchange date. A U.S. holder's adjusted tax basis in an Old Note generally will
be its original purchase price for the Old Note, increased by any interest
income previously accrued by the U.S. holder with respect to the Old Note
(determined without regard to any positive or negative adjustments to such
interest accruals), decreased by the amount of any projected payments actually
made on the Old Note and increased or decreased by the amount of any positive or
negative adjustments, respectively, that a U.S. holder was required to make as a
result of having purchased the Old Note at a price other than its adjusted issue
price. Gain recognized on the exchange will be treated as ordinary interest
income. Any loss realized by a
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U.S. holder on the exchange of its Old Note for a New Note will not be
recognized. A U.S. holder's basis in a New Note received in the exchange will
equal its basis in its Old Note, increased by the amount of any gain recognized
on the exchange. A U.S. holder's holding period in a New Note will include its
holding period for the Old Note exchanged therefor.
ACCRUAL OF INTEREST ON THE NEW NOTES
Under the rules governing contingent payment debt instruments, a U.S.
holder of New Notes generally will be required to accrue interest income on the
New Notes, in the amounts described below, regardless of whether the U.S. holder
uses the cash or accrual method of tax accounting. Accordingly, U.S. holders
will likely be required to include interest in taxable income in each year in
excess of the stated interest that accrues on the New Notes and in excess of any
contingent interest payments actually received in that year.
A U.S. holder of New Notes must accrue an amount of interest as ordinary
income for U.S. federal income tax purposes, for each accrual period prior to
and including the maturity date of the New Notes that equals:
- the product of (i) the adjusted issue price (as defined below) of
the New Notes as of the beginning of the accrual period, and (ii)
the comparable yield (as defined below) of the New Notes, adjusted
for the length of the accrual period;
- divided by the number of days in the accrual period; and
- multiplied by the number of days during the accrual period that the
U.S. holder held the New Notes.
The adjusted issue price of a New Note is its issue price (as defined
above) increased by any interest income previously accrued, determined without
regard to any adjustments to interest accruals described below, and decreased by
the amount of any projected payments actually made with respect to the New
Notes.
Under the rules governing contingent payment debt instruments, we are
required to establish the "comparable yield" for the New Notes. We determined
that the comparable yield for the New Notes is the annual yield we would incur,
as of the exchange date, on a fixed rate nonconvertible debt security with no
contingent payments, but with terms and conditions otherwise comparable to those
of the New Notes, including the level of subordination, term and general market
conditions, but excluding any adjustments for liquidity or the riskiness of the
contingencies with respect to the New Notes. Accordingly, while the comparable
yield of the New Notes cannot be determined until the date of the exchange
offer, if it were to be determined as of the date of the commencement of the
exchange offer, the comparable yield would be 8.75% compounded semi-annually.
We are required to provide to holders of the New Notes, solely for U.S.
federal income tax purposes, a schedule of the projected amounts of payments on
the New Notes. This schedule must produce the comparable yield. Our
determination of the projected payment schedule for the New Notes includes
estimates for payments of contingent interest and an estimate for a payment at
maturity taking into account the conversion feature. U.S. HOLDERS OF NEW NOTES
MAY OBTAIN THE COMPARABLE YIELD AND THE PROJECTED PAYMENT SCHEDULE BY SUBMITTING
A WRITTEN REQUEST TO OUR VICE PRESIDENT OF FINANCE, C/O MEDICIS PHARMACEUTICAL
CORPORATION, 8125 NORTH HAYDEN ROAD, SCOTTSDALE, ARIZONA 85258-2463.
For U.S. federal income tax purposes, holders must use the comparable
yield and projected payment schedule determined by us in calculating interest
accruals, and the adjustments thereto described below, in respect of the New
Notes, unless the holder timely discloses and justifies the use of other
estimates to the IRS. This requirement for holders to use the comparable yield
and projected payment schedule determined by us is imposed by Treasury
Regulations issued by the IRS, and is in addition to your agreement to treat the
New Notes consistently with our treatment pursuant to the indenture.
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THE COMPARABLE YIELD AND THE SCHEDULE OF PROJECTED PAYMENTS ARE NOT
DETERMINED FOR ANY PURPOSE OTHER THAN FOR THE DETERMINATION OF INTEREST ACCRUALS
AND ADJUSTMENTS THEREOF IN RESPECT OF THE NEW NOTES OF A HOLDER OF NEW NOTES FOR
U.S. FEDERAL INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR
REPRESENTATION REGARDING THE ACTUAL AMOUNTS PAYABLE TO HOLDERS OF NEW NOTES.
ADJUSTMENTS TO INTEREST ACCRUALS ON THE NEW NOTES
If a U.S. holder of New Notes receives actual payments with respect to the
New Notes in a taxable year that in the aggregate exceed the total amount of
projected payments for that taxable year, the U.S. holder would incur a net
positive adjustment equal to the amount of such excess. The U.S. holder would
treat this net positive adjustment as additional interest income for the taxable
year. For this purpose, the payments in a taxable year include the fair market
value of property received (including any of our Class A common stock received
on conversion of the New Notes) in that year.
If a U.S. holder receives actual payments with respect to the New Notes in
a taxable year that in the aggregate are less than the amount of the projected
payments for that taxable year, the U.S. holder would incur a "net negative
adjustment" equal to the amount of such deficit. This net negative adjustment
would (a) reduce the interest income on the New Notes of the U.S. holder for
that taxable year, and (b) to the extent of any excess after the application of
(a), give rise to an ordinary loss to the extent of the amount by which the U.S.
holder's total interest inclusions with respect to the New Note exceed the total
amount of the U.S. holder's net negative adjustments treated as ordinary loss
with respect to the New Note in prior taxable years. Any excess would be carried
forward to the next taxable year as a net negative adjustment or would reduce
the amount realized upon sale, purchase by us at your option, exchange,
conversion or redemption of the New Notes.
DISCOUNT OR PREMIUM
A U.S. holder that acquires a New Note after its initial issuance is
required to accrue interest for U.S. federal income tax purposes based upon the
original projected payment schedule as if the New Note had been acquired
directly from us pursuant to the exchange offer. Except to the extent described
in the third paragraph below as to New Notes that are deemed to be "exchange
listed," a U.S. holder must allocate any difference between the holder's tax
basis in a New Note upon acquisition and the then adjusted issue price of the
New Note to daily portions of interest or the projected payments over the
remaining term of the New Note on some reasonable basis, taking into account
then applicable interest rates and changes in the projected value of our Class A
common stock.
Thus, if a U.S. holder's basis in a New Note upon its acquisition (either
pursuant to the exchange offer or otherwise) is less than the New Note's then
adjusted issue price, such U.S. holder would be required to allocate the
"discount" among the daily portions of interest or projected payments to be made
on the New Note. The portion of the discount allocated to a daily portion of
interest would be treated as a positive adjustment on the date the daily portion
accrues, and the portion allocated to a projected payment would be treated as a
positive adjustment on the date the projected payment was scheduled to be made.
A U.S. holder's adjusted basis in the New Note would be increased by the amount
of any such positive adjustment.
If a U.S. holder's basis in a New Note upon its acquisition (either
pursuant to the exchange offer or otherwise) exceeds the New Note's then
adjusted issue price, the amount of the "premium" allocated to a daily portion
of interest would be treated as a negative adjustment on the date the daily
portion accrues, and the amount allocated to a projected payment would be
treated as a negative adjustment on the date the projected payment was scheduled
to be made. A U.S. holder's adjusted basis in the New Note would be reduced by
the amount of any such negative adjustment.
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Additionally, if a New Note is deemed to be "exchange listed" property at
the time of a U.S. holder's acquisition, then, instead of allocating the
discount or premium to projected payments, a U.S. holder generally would be
permitted, but not required (unless any other method was unreasonable), to
allocate the discount or premium pro rata to the accrual of interest on the New
Notes. The New Notes will be considered "exchange listed" if they are listed on
either a national securities exchange or an interdealer quotation system
sponsored by a national securities association.
SALE, EXCHANGE, CONVERSION OR REDEMPTION
Generally, the sale or exchange of a New Note, or the redemption of a New
Note for cash, will result in taxable gain or loss to a U.S. holder of New
Notes. In addition, as described above, our calculation of the comparable yield
and the schedule of projected payments for the New Notes includes the receipt of
Class A common stock upon conversion of a New Note into our Class A common stock
as a contingent payment with respect to the New Notes. Accordingly, we intend to
treat the receipt of our Class A common stock by a U.S. holder upon the
conversion of a New Note, as a contingent payment. As described above, you are
generally bound by our determination of the comparable yield and the schedule of
projected payments. Under this treatment, a conversion also will result in
taxable gain or loss to the U.S. holder. The amount of gain or loss on a taxable
sale, purchase by us at your option, exchange, conversion or redemption will
equal the difference between (a) the amount of cash plus the fair market value
of any other property received by the U.S. holder, including the fair market
value of any Class A common stock received, and (b) the adjusted tax basis in
the New Notes of the U.S. holder. The adjusted tax basis in a New Note of a U.S.
holder generally will equal the original purchase price for the New Note of the
U.S. holder, increased by any interest income previously accrued by the U.S.
holder with respect to the New Note (determined without regard to any positive
or negative adjustments to interest accruals described above), and decreased by
the amount of any projected payments actually made on the New Note and increased
or decreased by the amount of any positive or negative adjustment, respectively,
that a U.S. holder is required to make if the U.S. holder acquires New Notes
with a basis upon acquisition other than their adjusted issue price. Gain
recognized upon a sale, purchase by us at your option, exchange, conversion or
redemption of a New Note generally will be treated as ordinary interest income;
any loss will be ordinary loss to the extent of the excess of interest
previously included in income over the total negative adjustments previously
taken into account as ordinary loss and, thereafter, capital loss (which will be
long-term if the New Note is held for more than one year). The deductibility of
net capital losses is subject to limitations.
The tax basis of a U.S. holder in the Class A common stock received upon a
conversion of a New Note will equal the then current fair market value of our
Class A common stock. The holding period of the U.S. holder for such Class A
common stock received will commence on the day after the date of conversion.
CONSTRUCTIVE DIVIDENDS
If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend for U.S. federal income tax
purposes and, in accordance with the anti-dilution provisions of the New Notes,
the conversion rate of the New Notes is increased, such increase may be deemed
to be the payment of a taxable dividend to U.S. holders of New Notes.
For example, in the event we are required to increase the conversion rate
of the New Notes because we distribute cash dividends to holders of our common
stock (see "Description of the New Notes--Conversion Rights--Conversion Rate
Adjustment"), then U.S. holders of New Notes would be treated as currently
receiving a constructive distribution, taxable as a dividend, equal to the
value, as of the date of the constructive distribution, of the additional common
stock that the U.S. holders would be entitled to receive upon a conversion of
the New Notes by virtue of the increase in the conversion rate.
63
TREATMENT OF NON-U.S. HOLDERS
The following section discusses the U.S. federal income tax consequences
of the exchange offer and the ownership and disposition of New Notes to non-U.S.
holders (as defined above). If you are not a non-U.S. holder, this section does
not apply to you. Please see the section titled "Treatment of U.S. Holders"
above.
EXCHANGE OFFER AND OWNERSHIP AND DISPOSITION OF NEW NOTES
Payments of interest on the New Notes made to a non-U.S. holder, including
a payment in common stock pursuant to a conversion, and any gain realized on the
exchange or a sale or exchange of the New Notes, will be exempt from United
States income or withholding tax, provided that: (i) such non-U.S. holder does
not own, actually or constructively, 10% or more of the total combined voting
power of all classes of our stock entitled to vote, is not a controlled foreign
corporation related, directly or indirectly, to us through stock ownership, and
is not a bank receiving certain types of interest; (ii) the statement
requirement set forth in section 871(h) or section 881(c) of the Code has been
fulfilled with respect to the beneficial owner, as discussed below; (iii) such
payments and gain are not effectively connected with the conduct by such non-
U.S. holder of a trade or business in the United States; (iv) our common stock
continues to be actively traded within the meaning of section 871(h)(4)(C)(v)(I)
of the Code; and (v) we are not and have not been a United States real property
holding corporation ("USRPHC"). We believe that we are not and have never been,
nor do we anticipate becoming, a USRPHC. However, if a non-U.S. holder were
deemed to have received a constructive dividend (see "Treatment of U.S.
Holders--Constructive Dividends" above), the non-U.S. holder generally would be
subject to U.S. withholding tax at a 30% rate, subject to reduction by an
applicable treaty, on the taxable amount of such dividend. It is possible that
U.S. federal tax on the deemed distributions would be withheld from the interest
paid to the non-U.S. holder of the New Notes.
The statement requirement referred to in the preceding paragraph will be
fulfilled if the non-U.S. holder certifies on the appropriate IRS Form W-8,
under penalties of perjury, that it is not a U.S. person and provides its name
and address or otherwise satisfies applicable documentation requirements.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Proceeds from the exchange offer, payments of principal and interest
(including interest accrued under the rules discussed above and a payment in
common stock pursuant to a conversion) on the Notes, and the proceeds of
dispositions of the New Notes may be subject to information reporting and U.S.
federal backup withholding tax if the U.S. holder thereof fails to supply an
accurate taxpayer identification number or otherwise fails to comply with
applicable U.S. information reporting or certification requirements. A non-U.S.
holder may be subject to United States backup withholding tax on the exchange
offer, payments on the New Notes and the proceeds from a sale or other
disposition of the New Notes unless the non-U.S. holder complies with
certification procedures to establish that it is not a U.S. person. Any amounts
so withheld will be allowed as a credit against a holder's U.S. federal income
tax liability and may entitle a holder to a refund, provided the required
information is timely furnished to the IRS.
THE PROPER TAX TREATMENT OF A HOLDER OF NEW NOTES IS UNCERTAIN. AS A
RESULT, YOU ARE URGED TO CONSULT YOUR TAX ADVISORS REGARDING THE U.S. FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE OFFER AND AN
INVESTMENT IN THE NEW NOTES AND WHETHER PARTICIPATION IN THE EXCHANGE OFFER AND
AN INVESTMENT IN THE NEW NOTES IS ADVISABLE IN LIGHT OF THE AGREED UPON TAX
TREATMENT AND YOUR PARTICULAR TAX SITUATION.
64
LEGAL MATTERS
The validity of the New Notes and our Class A Common Stock issuable upon
conversion of the New Notes offered by this prospectus will be passed upon for
our company by Akin Gump Strauss Hauer & Feld LLP, New York, New York. Customary
legal matters will be passed upon for the dealer managers by Davis Polk &
Wardwell, New York, New York.
EXPERTS
Our consolidated financial statements appearing in our Annual Report on
Form 10-K for the year ended June 30, 2002 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report included therein and
incorporated into this prospectus by reference. Such consolidated financial
statements are incorporated into this prospectus by reference in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
65
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, prospectuses and other
information with the SEC. The SEC allows us to "incorporate by reference"
information into this prospectus, which means that we can disclose important
information to you by referring you to another document we have filed separately
with the SEC. The information incorporated by reference is deemed part of this
prospectus, except for any information superseded by information contained
directly in this prospectus.
This prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about the financial condition of our company.
- Annual Report on Form 10-K for the year ended June 30, 2002, filed
on September 30, 2002;
- Quarterly Report on Form 10-Q for the quarters ended September 30,
2002, filed on November 14, 2002; December 31, 2002, filed on
February 7, 2003; and March 31, 2003, filed on May 15, 2003;
- Current Reports on Form 8-K filed on January 16, 2003; February 10,
2003; March 5, 2003; March 10, 2003; April 24, 2003; and June 30,
2003; and
- Description of our company's Class A common stock contained in our
Registration Statement on Form 8-A filed on August 18, 1995; and the
amendment to the description of our company's Class A common stock
contained in our Registration Statement on Form 8-A/A filed on June
4, 2002.
Any statement contained in a document incorporated by reference shall be
deemed to be modified or superseded for the purpose of this prospectus to the
extent that a statement contained herein or in another document incorporated by
reference that is filed on or before the date of this prospectus modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
prospectus. All information appearing in this prospectus is qualified in its
entirety by the information and financial statements (including notes thereto)
appearing in the documents incorporated by reference, except to the extent set
forth in the immediately preceding sentence.
Unless indicated to the contrary in the filing, all documents and reports
filed by our company with the SEC pursuant to Section 13, 14 or 15(d) of the
Exchange Act, after the date of this prospectus but before the exchange offer is
terminated or completed, shall also be deemed to be incorporated by reference
into this prospectus and to be a part hereof from the date of the filing of such
documents and reports. Any statement contained in this prospectus or
incorporated herein by reference shall be deemed to be modified or superseded to
the extent that a statement contained in any documents and reports filed by our
company with the SEC pursuant to Section 13, 14 or 15(d) of the Exchange Act
after the date of this prospectus modifies or supersedes such statement.
You may request a copy of these filings, at no cost, by writing us at the
following address:
Medicis Pharmaceutical Corporation
8125 North Hayden Road
Scottsdale, Arizona 85258-2463
Attention: Office of Investor Relations
You may also obtain copies of any documents incorporated by reference in
this prospectus through us, the SEC or the SEC's website as described below.
Documents incorporated by reference are available from us without charge,
excluding exhibits thereto unless we have specifically incorporated by reference
such exhibits in this document. Any person, including any beneficial owner, to
whom this document is delivered may obtain documents incorporated by reference
in, but not delivered with, this document by requesting them from the
Information Agent
66
in writing or by telephone at the address set forth on the back cover of this
document. Any request should be made not later than five business days prior to
the end of the exchange offer.
You may read and copy any reports, statements or other information that
our company files at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. The SEC filings of our company are
also available to the public from commercial document retrieval services and at
the website maintained by the SEC at www.sec.gov.
If for any reason we are not required to comply with the reporting
requirements of the Exchange Act, we are still required under the New Indenture
to furnish the holders of the New Notes with the information, documents and
other reports specified in Sections 13 and 15(d) of the Exchange Act.
EXCHANGE AGENT
Deutsche Bank Trust Company Americas has been appointed to act as the
exchange agent for the exchange offer. All executed letters of transmittal
should be directed to the exchange agent at one of the addresses set forth
below. Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent, addressed as
follows:
To: DEUTSCHE BANK TRUST COMPANY AMERICAS
BY HAND: BY MAIL: BY OVERNIGHT MAIL OR COURIER:
Deutsche Bank Trust Company DB Services Tennessee, Inc. DB Services Tennessee, Inc.
Americas Reorganization Unit Corporate Trust & Agency
C/O The Depository Trust P.O. Box 292737 Services
Clearing Corporation Nashville, TN 37229-2737 Reorganization Unit
55 Water Street, 1(st) floor 648 Grassmere Park Road
Jeanette Park Entrance Fax: (615) 835-3701 Nashville, TN 37211
New York, NY 10041 Attn: Karl Shepherd
Confirm by Telephone
(615) 835-3572
DELIVERY OF A LETTER OF TRANSMITTAL OR AGENT'S MESSAGE TO AN ADDRESS OTHER
THAN THE ADDRESSES LISTED ABOVE OR TRANSMISSION OF INSTRUCTIONS BY FACSIMILE
OTHER THAN AS SET FORTH ABOVE IS NOT VALID DELIVERY OF THE LETTER OF TRANSMITTAL
OR AGENT'S MESSAGE.
INFORMATION AGENT
D.F. King & Co., Inc. has been appointed to act as the information agent
in connection with the exchange offer. All inquiries relating to this prospectus
and the transactions contemplated hereby should be directed to the information
agent at the telephone numbers and address set forth below:
D.F. King & Co., Inc.
48 Wall Street
New York, New York 10005
Banks and brokers please call collect: (212) 269-5550
All others please call toll-free: (888) 542-7446
67
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. THE CONTENTS OF ANY WEBSITES REFERRED TO IN THIS PROSPECTUS ARE NOT
PART OF THIS PROSPECTUS. WE ARE OFFERING, AND SEEKING TO OFFER, TO EXCHANGE ONLY
IN JURISDICTIONS WHERE OFFERS AND EXCHANGES ARE PERMITTED. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY EXCHANGE OF OUR
NOTES.
TABLE OF CONTENTS
Special Note Regarding Forward-Looking
Statements............................ i
Summary................................. 1
Risk Factors............................ 13
Use of Proceeds......................... 29
Ratios of Earnings to Fixed Charges..... 29
Book Value Per Share.................... 30
Price Range of Class A Common Stock and
Old Notes............................. 30
Dividend Policy......................... 31
Capitalization.......................... 32
Selected Consolidated Financial Data.... 33
The Exchange Offer...................... 34
Description of the New Notes............ 43
Comparison Between the Terms of the Old
Notes and the New Notes............... 54
Description of Capital Stock............ 57
Material United States Federal Income
Tax Considerations.................... 59
Legal Matters........................... 65
Experts................................. 65
Where You Can Find More Information..... 66
Exchange Agent.......................... 67
Information Agent....................... 67
[MEDICIS LOGO]
Offer to Exchange
UP TO $492 MILLION OF ITS 1.5%
CONTINGENT CONVERTIBLE
SENIOR NOTES
DUE JUNE 4, 2033
for
any and all outstanding
2.5% CONTINGENT CONVERTIBLE
SENIOR NOTES
DUE JUNE 4, 2032
(CUSIP NOS. 584 690 AA 9 AND 584 70K AA 2)
CO-DEALER MANAGERS
DEUTSCHE BANK SECURITIES
THOMAS WEISEL PARTNERS LLC
Prospectus
August 18, 2003