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APP Pharmaceuticals, Inc. · DEFM14C · On 8/20/08

Filed On 8/20/08, 9:05pm ET   ·   Accession Number 1193125-8-181705   ·   SEC File 0-33407

Previous ‘DEFM14C’:  ‘DEFM14C’ on 3/13/06   ·   Latest:  This Filing

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 8/21/08  APP Pharmaceuticals, Inc.         DEFM14C     8/21/08    1:1.8M                                   RR Donnelley/FA

Definitive Proxy Information Statement — Merger or Acquisition   —   Schedule 14C
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14C     Definitive Information Statement                    HTML   1.79M 


Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
"Questions and Answers About the Merger
"Summary
"Parties to the Merger Agreement
"The Merger
"Merger Consideration
"The CVRs
"Opinions of APP's Financial Advisors
"Required Approval of the Merger
"Written Consent and Voting Agreement
"Interests of APP's Directors and Executive Officers in the Merger
"Treatment of APP Stock Options and Other Equity Awards
"CVR Indenture
"Conditions to the Merger
"Restrictions on Solicitation of Third Party Acquisition Proposals
"Termination of the Merger Agreement
"Termination Fees
"Regulatory Approvals
"Rights of Stockholders to Seek Appraisal
"Certain Material U.S. Federal Income Tax Consequences
"Market Price of APP Common Stock
"Litigation Related to the Merger
"Risks
"Selected Historical Consolidated Financial Data of App
"Selected Unaudited Pro Forma Consolidated Financial Data for Fk Holdings
"Cautionary Statement Regarding Forward-Looking Statements
"Risk Factors
"Risks Related to the Contingent Value Rights
"Risk Factors Related to the Business of APP and FK Holdings
"The Parties to the Merger
"Background of the Merger
"Reasons for the Merger
"Opinions of Financial Advisors to APP
"Certain Projected Financial Information of APP
"Accounting Treatment
"Delisting and Deregistration of APP Common Stock
"Stock Exchange Listing of CVR
"Financing of the Merger
"The Merger Agreement
"Effective Time
"Dissenters' Shares and Appraisal Rights
"Exchange and Payment Procedures
"Representations and Warranties
"Conduct of APP's Business Pending the Merger
"Termination in Connection with a Superior Proposal
"Agreement to Take Further Action and Use Reasonable Best Efforts
"Employee Benefits
"Director and Officer Indemnification and Insurance
"Other Covenants and Agreements
"Termination
"Termination Fees and Expenses
"Amendment and Waiver
"Voting Agreement and Written Consent
"Description of the Cvrs
"Equity Commitment Letter
"Tax Opinion Pursuant to Tax Allocation Agreement
"Rights of Appraisal
"Unaudited Pro Forma Consolidated Financial Statements
"Information With Respect to Fk Holdings Before the Merger
"Business and Operations of FK Holdings
"Legal Proceedings
"Management of Fk Holdings After the Merger
"Legal Matters
"Experts
"Where You Can Find More Information
"Report of Independent Registered Public Accounting Firm
"Annexes
"Annex A: Agreement and Plan of Merger
"Article I the Merger
"Effective Time of the Merger
"Certificate of Incorporation
"By-laws
"Board of Directors and Officers
"Effects of Merger
"Article Ii Conversion of Shares
"Conversion of Shares
"Payment and Exchange of Certificates
"Dissenting Company Shares
"No Further Ownership Rights in the Shares
"Closing of Company Transfer Books
"Adjustments
"Stock Options and RSUs
"Closing
"Withholding of Tax
"Article Iii Representations and Warranties of the Company
"Organization, Standing and Power
"Capital Structure
"Authority; Non-Contravention
"SEC Documents
"Information Statement/Prospectus and Registration Statement
"Absence of Certain Events
"Litigation
"No Violation of Law
"Taxes
"Employee Benefit Plans; ERISA
"Environmental Matters
"Affiliate Transactions
"Intellectual Property
"Takeover Statutes
"Title to Properties; Assets/Services
"Material Contracts
"Opinion of Financial Advisors
"Pharmaceutical Matters
"Consummation of the Spin-Off
"Insurance
"Brokers and Finders
"No Other Representations or Warranties
"Article Iv Representations and Warranties of Parent, Holdco and Sub
"Operations of Holdco
"Operations of Sub
"Availability of Funds
"Access to Information; Disclaimer
"Solvency
"Ownership of Shares
"Article V Covenants Relating to Conduct of Business
"Conduct of Business by the Company Pending the Merger
"Control of the Company's Operations
"Article Vi Additional Agreements
"Company Stockholder Approval; Registration Statement; Information Statement/Prospectus
"Listing
"Directors' and Officers' Indemnification
"No Solicitation
"Access to Information; Confidentiality
"Reasonable Best Efforts; Notification
"Financing
"Completion of the Spin-Off
"Benefit Plans
"Fees and Expenses
"Related Agreements
"Public Announcements
"Holdco
"Sub
"Repayment of Credit Agreement
"Tax Matters
"Article Vii Conditions Precedent
"Conditions to Each Party's Obligation to Effect the Merger
"Additional Conditions to Obligations of Parent, Holdco and Sub
"Additional Conditions to Obligations of the Company
"Frustration of Closing Conditions
"Invoking Certain Provisions
"Article Viii Termination, Amendment and Waiver
"Effect of Termination
"Amendment
"Extension; Waiver
"Procedure for Termination, Amendment, Extension or Waiver
"Article Ix Miscellaneous
"Non-Survival of Representations, Warranties and Agreements
"Notices
"Specific Performance
"Assignment; Binding Effect
"Entire Agreement
"Governing Law
"Counterparts
"Headings and Table of Contents
"No Third Party Beneficiaries
"Incorporation of Exhibits
"Severability
"Subsidiaries
"Person
"Knowledge of the Company; Knowledge of Parent
"Mutual Drafting
"Annex B: Form of Contingent Value Rights Agreement
"Article 1
"Definitions and Other Provisions of General Application
"Definitions
"Compliance and Opinions
"Form of Documents Delivered to Trustee
"Acts of Holders
"Notices, etc., to Trustee and Company
"Notice to Holders; Waiver
"Conflict with Trust Indenture Act
"Effect of Headings and Table of Contents
"Successors and Assigns
"Benefits of Agreement
"Legal Holidays
"Separability Clause
"No Recourse Against Others
"Acceptance of Trust
"Treasury Securities
"Article 2
"Security Forms
"Forms Generally
"Article 3
"The Securities
"Title and Terms
"Registrable Form
"Execution, Authentication, Delivery and Dating
"Temporary Securities
"Registration, Registration of Transfer and Exchange
"Mutilated, Destroyed, Lost and Stolen Securities
"Payments with respect to CVR Certificates
"Persons Deemed Owners
"Cancellation
"Article 4
"The Trustee
"Certain Duties and Responsibilities
"Certain Rights of Trustee
"Notice of Default
"Not Responsible for Recitals or Issuance of Securities
"May Hold Securities
"Money Held in Trust
"Compensation and Reimbursement
"Disqualification; Conflicting Interests
"Corporate Trustee Required; Eligibility
"Resignation and Removal; Appointment of Successor
"Acceptance of Appointment of Successor
"Merger, Conversion, Consolidation or Succession to Business
"Preferential Collection of Claims Against Company
"Article 5
"Holders' Lists and Reports by Trustee and Company
"Company to Furnish Trustee Names and Addresses of Holders
"Preservation of Information; Communications to Holders
"Reports by Trustee
"Reports by Company
"Article 6
"Amendments
"Amendments Without Consent of Holders
"Amendments with Consent of Holders
"Execution of Amendments
"Effect of Amendments; Notice to Holders
"Conformity with Trust Indenture Act
"Reference in Securities to Amendments
"Article 7
"Covenants
"Payment of Amounts, if any, to Holders
"Maintenance of Office or Agency
"Money for Security Payments to Be Held in Trust
"Certain Purchases and Sales
"Books and Records
"Audits
"Listing of CVRs
"Restrictive Covenants
"Fresenius Group Transactions
"Enforcement of Parent Equity Commitment
"Arm's Length Transactions
"Article 8
"Remedies of the Trustee and Holders on Event of Default
"Event of Default Defined; Waiver of Default
"Collection of Indebtedness by Trustee; Trustee May Prove Debt
"Application of Proceeds
"Suits for Enforcement
"Restoration of Rights on Abandonment of Proceedings
"Limitations on Suits by Holders
"Unconditional Right of Holders to Institute Certain Suits
"Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default
"Control by Holders
"Waiver of Past Defaults
"Trustee to Give Notice of Default, But May Withhold in Certain Circumstances
"Right of Court to Require Filing of Undertaking to Pay Costs
"Article 9
"Consolidation, Merger, Sale or Conveyance
"Company May Consolidate, etc., on Certain Terms
"Successor Person Substituted
"Opinion of Counsel to Trustee
"Successors
"Article 10
"Subordination
"Agreement to Subordinate
"Liquidation; Dissolution; Bankruptcy
"Default on Senior Obligations
"Notice of Event of Default
"When Distribution Must Be Paid Over
"Notice by Company
"Subordination Effective Notwithstanding Deficiencies with Respect to Senior Obligations; Waiver of Right to Contest Senior Obligation; Reinstatement of Subordination Provisions
"Subrogation
"Relative Rights
"Subordination May Not Be Impaired by Company
"Distribution or Notice to Representative
"Rights of Trustee
"Authorization to Effect Subordination
"Change of Control
"Annex C: Written Consent and Voting Agreement
"Annex D: Opinion of Goldman, Sachs & Co
"Annex E: Opinion of Lazard Fr res & Co. LLC
"Annex F: Delaware General Corporate Law-Section 262

This is an HTML Document rendered as filed.  [ Alternative Formats ]



  Definitive Information Statement  
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

SCHEDULE 14C INFORMATION

Information Statement Pursuant to Section 14(c)

of the Securities Exchange Act of 1934

 

Check the appropriate box:

¨

   Preliminary Information Statement

¨

   Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))

x

   Definitive Information Statement
  

APP PHARMACEUTICALS, INC.

 

(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):

¨

    No fee required

¨

    Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
  (1)  

Title of each class of securities to which transaction applies:

 

 

  (2)  

Aggregate number of securities to which transaction applies:

 

 

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

  (4)  

Proposed maximum aggregate value of transaction:

 

 

  (5)  

Total fee paid:

 

 

x

    Fee paid previously with preliminary materials.

¨

   

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1)  

Amount Previously Paid:

 

   

 

  (2)  

Form, Schedule or Registration Statement No.:

 

   

 

  (3)  

Filing Parties:

 

   

 

  (4)  

Date Filed:

 

   

 


Table of Contents

LOGO

APP PHARMACEUTICALS, INC.

1501 East Woodfield Road, Suite 300 East

Schaumburg, Illinois 60173

NOTICE OF ACTION BY WRITTEN CONSENT AND APPRAISAL RIGHTS

WE ARE NOT ASKING YOU FOR A PROXY AND

YOU ARE REQUESTED NOT TO SEND US A PROXY

August 20, 2008

Dear Stockholder:

As previously announced, on July 6, 2008, APP Pharmaceuticals, Inc. entered into a merger agreement with Fresenius SE and certain of its subsidiaries under which APP will be acquired by, and become an indirect, wholly-owned subsidiary of, Fresenius.

In the merger, APP stockholders (other than stockholders who validly perfect appraisal rights under Delaware law) will be entitled to receive, for each share of APP common stock that they hold, (i) $23.00 per share in cash, without interest, and (ii) one contingent value right, or CVR, issued by Fresenius Kabi Pharmaceuticals Holding, Inc., or FK Holdings, the subsidiary of Fresenius that will own APP following the merger. Each CVR will entitle its holder to receive a cash payment, without interest, of up to $6.00 to the extent that the “Adjusted EBITDA” of APP and FK Holdings for the three years ending December 31, 2010, determined in accordance with the CVR agreement described in this information statement/prospectus, exceeds a threshold amount.

Our board of directors, after careful consideration and acting upon the unanimous recommendation of a special committee of our independent directors, has approved and declared advisable the merger and the merger agreement. A copy of the merger agreement is attached to this information statement/prospectus as Annex A.

Under Delaware law, the approval of holders of a majority of the outstanding shares of APP common stock is required to adopt the merger agreement. On July 6, 2008, Dr. Patrick Soon-Shiong and entities affiliated with him, who together owned approximately 81.1% of the outstanding shares of APP common stock as of the date of the merger agreement, executed a written consent approving and adopting the merger and the merger agreement pursuant to the terms of a written consent and voting agreement they entered into with Fresenius. Accordingly, your approval is not required and is not being requested.

Under Delaware law, if you comply with certain requirements of Delaware law described in this information statement/prospectus, you will have the right to seek an appraisal and to be paid the “fair value” of your shares of APP common stock as determined in accordance with Delaware law (exclusive of any element of value arising from the accomplishment or expectation of the merger) instead of the merger consideration. Your appraisal rights under Delaware law are more fully described in this information statement/prospectus under “Rights of Appraisal” beginning on page 95.

There is currently no public market for the CVRs. FK Holdings intends to apply to list the CVRs on the NASDAQ Global Market under the symbol “ACVR.”

THE CVRs INVOLVE VARIOUS RISKS, WHICH ARE DESCRIBED IN THIS INFORMATION STATEMENT/PROSPECTUS UNDER “RISK FACTORS” BEGINNING ON PAGE 19.

We urge you to read this information statement/prospectus carefully and in its entirety.

Neither APP nor Fresenius or FK Holdings is soliciting proxies from APP stockholders.

This notice and the accompanying information statement/prospectus shall constitute notice to you of the action by written consent contemplated by Section 228 of the Delaware General Corporation Law.

By order of the board of directors,

 

  LOGO

Patrick Soon-Shiong, M.D.

Chairman

The information statement/prospectus is dated August 20, 2008 and is first being mailed to APP’s stockholders on or about August 20, 2008.


Table of Contents

INFORMATION STATEMENT

OF

APP PHARMACEUTICALS, INC.

1501 East Woodfield Road, Suite 300 East

Schaumburg, Illinois 60173

PROSPECTUS

OF

FRESENIUS KABI PHARMACEUTICALS HOLDING, INC.

Else-Kroener-Strasse 1

61352 Bad Homburg v.d.H.

Germany

We Are Not Asking You for a Proxy and

You Are Requested Not to Send Us a Proxy

August 20, 2008

This information statement/prospectus is being furnished to the holders of common stock of APP Pharmaceuticals, Inc., or APP, by the board of directors of APP and by Fresenius Kabi Pharmaceuticals Holding, Inc. (formerly Fresenius Kabi Pharmaceuticals Holding, LLC), or FK Holdings, in connection with the Agreement and Plan of Merger, dated as of July 6, 2008, by and among Fresenius SE, a societas europaea organized under the laws of Germany, which we refer to as Fresenius, FK Holdings, an indirect, wholly-owned subsidiary of Fresenius, and Fresenius Kabi Pharmaceuticals, LLC, a Delaware limited liability company and a direct, wholly-owned subsidiary of FK Holdings, which we refer to as Merger Sub, and APP. Under the merger agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into APP and APP will become a direct, wholly-owned subsidiary of FK Holdings and an indirect, wholly-owned subsidiary of Fresenius.

After careful consideration and acting upon the unanimous recommendation of a special committee of APP’s independent directors, APP’s board of directors approved the merger and the merger agreement. A copy of the merger agreement is attached to this information statement/prospectus as Annex A.

Under the merger agreement, when the merger is completed, APP stockholders (other than stockholders who validly perfect appraisal rights under Delaware law or Fresenius, FK Holdings or Merger Sub) will be entitled to receive, for each share of APP common stock they hold, (i) $23.00 in cash, without interest, and (ii) one contingent value right, or CVR, issued by FK Holdings and representing the right to receive an additional cash payment, without interest, of up to $6.00 per CVR, as determined in accordance with the terms of the Contingent Value Rights Agreement to be entered into in connection with the merger.

Each CVR will represent the right to receive a pro-rata portion of an amount equal to 2.5 times the excess of the cumulative net income before interest, taxes, depreciation and amortization, of APP and FK Holdings and their subsidiaries, on a consolidated basis, subject to certain adjustments, or Adjusted EBITDA, for the three years ending December 31, 2010, over $1.2677 billion. In the event that Adjusted EBITDA for this period does not exceed this threshold amount, no payment will be made on the CVRs. See “Description of the CVRs” beginning on page 80. A copy of the form of Contingent Value Rights Agreement, which we refer to as the CVR indenture, is attached hereto as Annex B.

THE CVRs INVOLVE RISKS. THESE RISKS ARE DISCUSSED IN GREATER DETAIL IN THIS INFORMATION STATEMENT/PROSPECTUS UNDER “RISK FACTORS” BEGINNING ON PAGE 19.

There is currently no public market for the CVRs. FK Holdings intends to apply to list the CVRs on the NASDAQ Global Market under the symbol “ACVR.”


Table of Contents

In accordance with Delaware law, the affirmative vote (or consent in writing in lieu thereof) of the holders of a majority of the outstanding shares of APP common stock, voting (or consenting in writing in lieu thereof) as a single class, is required to adopt the merger agreement. On July 6, 2008, immediately following execution of the merger agreement, Dr. Patrick Soon-Shiong and certain entities affiliated with him, which we refer to collectively in this information statement/prospectus as the principal stockholders and who together owned at that date approximately 81.1% of the outstanding shares of APP common stock, signed a Written Consent and Voting Agreement, which we refer to as the voting agreement, and delivered a written consent in accordance with Section 228 of the General Corporation Law of the State of Delaware, which we refer to as the DGCL, adopting the merger agreement and approving the merger and the other transactions contemplated by the merger agreement. A copy of the voting agreement executed by the principal stockholders is attached hereto as Annex C. Because the principal stockholders owned a majority of the outstanding shares of APP common stock entitled to vote on the adoption of the merger agreement, the principal stockholders’ action by written consent was sufficient to adopt the merger agreement and to approve the merger without any further action by any other APP stockholder. As a result, no other votes are necessary to adopt the merger agreement, and your approval is not required and is not being requested. Neither APP nor Fresenius is soliciting proxies from APP’s stockholders.

Under Section 262 of the DGCL, if you are not one of the principal stockholders and you comply with the requirements of Section 262 of the DGCL, you will have the right to seek an appraisal and to be paid the “fair value” of your shares of APP common stock at the effective time of the merger (exclusive of any element of value arising from the accomplishment or expectation of the merger) instead of the merger consideration. This information statement/prospectus constitutes notice to you of the availability of appraisal rights under Section 262 of the DGCL, a copy of which is attached as Annex F to this information statement/prospectus.

Under applicable law, the merger may not be completed until 20 calendar days after the date of mailing of this information statement/prospectus to APP stockholders. Under the merger agreement, the parties are not required to complete the merger for an additional four business days following completion of this 20 calendar day period and satisfaction of other closing conditions. Therefore, notwithstanding the execution and delivery of the written consent by the principal stockholders, the merger may not be completed until that time has elapsed, and therefore, the earliest possible date on which the merger can be completed is September 9.

Please read this information statement/prospectus carefully and in its entirety as it contains important information.

Please do not send any APP stock certificates at this time. If the merger is completed, you will receive detailed instructions regarding the surrender of your stock certificates and payment for your shares of APP common stock as promptly as practicable after the merger is completed.

This information statement/prospectus is first being mailed to APP stockholders on or about August 20, 2008. This information statement/prospectus also constitutes FK Holdings’ prospectus, filed with the Securities and Exchange Commission, which we refer to as the SEC, as part of a Registration Statement on Form S-4 filed under the Securities Act of 1933, which we refer to as the Securities Act, with respect to the CVRs to be issued in connection with the merger. APP has supplied all the information contained herein with respect to itself. FK Holdings has supplied all the information contained herein with respect to itself and Fresenius and their respective subsidiaries.

The CVRs have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this information statement/prospectus. Any representation to the contrary is a criminal offense.


Table of Contents

ADDITIONAL INFORMATION

This information statement/prospectus incorporates important business and financial information about APP from documents that APP has filed with the SEC and which are included in this information statement/prospectus and can be found following the annexes. For a listing of documents incorporated by reference in this information statement/prospectus, please see the section entitled “Where You Can Find More Information” on page 109. APP will provide you with additional copies of this information relating to APP, without charge, upon written or oral request to:

APP Pharmaceuticals, Inc.

1501 East Woodfield Road, Suite 300 East

Schaumburg, Illinois 60173

Attention: Investor Relations

Telephone Number: (847) 969-2700

This information can also be obtained without charge from the “Investor Relations” section of APP’s website at http://www.apppharma.com and from the SEC’s website at www.sec.gov.


Table of Contents

TABLE OF CONTENTS

 

     Page

QUESTIONS AND ANSWERS ABOUT THE MERGER

   1

SUMMARY

   5

Parties to the Merger Agreement

   5

The Merger

   6

Merger Consideration

   6

The CVRs

   6

Opinions of APP’s Financial Advisors

   7

Required Approval of the Merger

   7

Written Consent and Voting Agreement

   7

Interests of APP’s Directors and Executive Officers in the Merger

   8

Treatment of APP Stock Options and Other Equity Awards

   9

CVR Indenture

   9

Conditions to the Merger

   9

Restrictions on Solicitation of Third Party Acquisition Proposals

   10

Termination of the Merger Agreement

   11

Termination Fees

   11

Regulatory Approvals

   11

Rights of Stockholders to Seek Appraisal

   12

Certain Material U.S. Federal Income Tax Consequences

   12

Market Price of APP Common Stock

   12

Litigation Related to the Merger

   12

Risks

   13

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF APP

   14

SELECTED FINANCIAL DATA OF FK HOLDINGS

   15

SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA FOR FK HOLDINGS

   16

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

   17

RISK FACTORS

   19

Risks Related to the Contingent Value Rights

   19

Risk Factors Related to the Business of APP and FK Holdings

   21

THE PARTIES TO THE MERGER

   31

THE MERGER

   33

Background of the Merger

   33

Reasons for the Merger

   41

Opinions of Financial Advisors to APP

   46

Certain Projected Financial Information of APP

   55

Interests of APP’s Directors and Executive Officers in the Merger

   56

Regulatory Approvals

   61

Litigation Related to the Merger

   62

Accounting Treatment

   62

Delisting and Deregistration of APP Common Stock

   62

Stock Exchange Listing of CVR

   62

Financing of the Merger

   63

THE MERGER AGREEMENT

   65

The Merger

   65

Effective Time

   65

Merger Consideration

   65

 

i


Table of Contents
     Page

Dissenters’ Shares and Appraisal Rights

   65

Treatment of APP Stock Options and Other Equity Awards

   65

Exchange and Payment Procedures

   66

Representations and Warranties

   67

Conduct of APP’s Business Pending the Merger

   69

Restrictions on Solicitation of Third Party Acquisition Proposals

   71

Termination in Connection with a Superior Proposal

   72

Agreement to Take Further Action and Use Reasonable Best Efforts

   72

Employee Benefits

   73

Director and Officer Indemnification and Insurance

   74

Other Covenants and Agreements

   74

Conditions to the Merger

   75

Termination

   76

Termination Fees and Expenses

   77

Amendment and Waiver

   77

VOTING AGREEMENT AND WRITTEN CONSENT

   78

DESCRIPTION OF THE CVRS

   80

CVR Indenture

   80

Equity Commitment Letter

   89

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

   91

TAX OPINION PURSUANT TO TAX ALLOCATION AGREEMENT

   94

RIGHTS OF APPRAISAL

   95

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

   98

INFORMATION WITH RESPECT TO FK HOLDINGS BEFORE THE MERGER

   106

Business and Operations of FK Holdings

   106

Legal Proceedings

   106

MANAGEMENT OF FK HOLDINGS AFTER THE MERGER

   107

LEGAL MATTERS

   108

EXPERTS

   108

WHERE YOU CAN FIND MORE INFORMATION

   109

INDEX TO FINANCIAL STATEMENTS

   F-1

ANNEXES

  

Annex A: Agreement and Plan of Merger

  

Annex B: Form of Contingent Value Rights Agreement

  

Annex C: Written Consent and Voting Agreement

  

Annex D: Opinion of Goldman, Sachs & Co.

  

Annex E: Opinion of Lazard Frères & Co. LLC

  

Annex F: Delaware General Corporate Law—Section 262

  

 

ii


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE MERGER

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger. These questions and answers may not address all questions that may be important to you as an APP stockholder. To better understand these matters, and for a description of the legal terms governing the merger, you should carefully read this entire information statement/prospectus, including the annexes, as well as the documents that we have incorporated by reference into this document. See “Where You Can Find More Information.”

Unless otherwise indicated or the context requires otherwise, all references to “Fresenius” refer to Fresenius SE; all references to “Fresenius group” means Fresenius and its subsidiaries; all references to “FK Holdings” refer to Fresenius Kabi Pharmaceuticals Holding, Inc. (formerly Fresenius Kabi Pharmaceutical, Holdings LLC), an indirect, wholly-owned subsidiary of Fresenius; all references to “APP” refer to APP Pharmaceuticals, Inc. and its subsidiaries, including its operating subsidiary, APP Pharmaceuticals, LLC; all references to “Merger Sub” refer to Fresenius Kabi Pharmaceuticals, LLC, a direct, wholly-owned subsidiary of FK Holdings; all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of July 6, 2008, by and among APP, Fresenius, FK Holdings and Merger Sub, a copy of which is attached as Annex A to this information statement/prospectus, as it may be amended from time to time; all references to the “merger” refer to the merger contemplated by the merger agreement; and all references to the “principal stockholders” refer to Dr. Patrick Soon-Shiong and certain entities affiliated with him, who together owned approximately 81.1% of the outstanding shares of APP common stock as of the date of the merger agreement.

 

Q: Why are APP stockholders receiving this information statement/prospectus?

 

A: Fresenius and APP have agreed to the acquisition of APP by Fresenius upon the terms and conditions of the merger agreement described in this information statement/prospectus, and APP’s principal stockholders have adopted the merger agreement and approved the merger. Applicable provisions of Delaware law and certain securities regulations require APP and Fresenius to provide you with information regarding the merger even though your vote or consent is neither required nor requested to adopt the merger agreement or complete the merger.

 

Q: What will happen to APP as a result of the merger?

 

A: The acquisition of APP by Fresenius will be accomplished through a merger of Merger Sub with and into APP, with APP surviving the merger as a direct, wholly-owned subsidiary of FK Holdings and an indirect, wholly-owned subsidiary of Fresenius. As a result of the merger, APP’s common stock will be cancelled and de-listed from the NASDAQ Global Select Market and will no longer be publicly traded.

 

Q: Why did APP’s board of directors approve the merger and the merger agreement?

 

A: After careful consideration and evaluation of the merger, upon the unanimous recommendation of a special committee of APP’s independent directors, which we refer to as the special committee, and in consideration of, among other things, the opinions of APP’s financial advisors that the merger consideration, taken in the aggregate, was fair from a financial point of view to the holders (other than the principal stockholders) of shares of APP common stock, APP’s board of directors determined that the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of the stockholders of APP. Accordingly, APP’s board of directors approved, adopted and declared advisable the merger agreement and the merger. To review the special committee’s and APP’s board of directors’ reasons for recommending and approving the merger and the merger agreement, see “The Merger—Reasons for the Merger.”

 

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Q: Is the approval of stockholders necessary to adopt the merger? Why am I not being asked to vote on the merger?

 

A: Adoption of the merger agreement requires approval of the holders of a majority of the outstanding shares of APP common stock, voting (or consenting in writing in lieu thereof) together as a single class. APP stockholder approval was obtained on July 6, 2008 when the principal stockholders delivered a written consent adopting the merger agreement and approving the merger and the other transactions contemplated by the merger agreement. The principal stockholders’ action by written consent was sufficient under Delaware law to adopt the merger agreement and approve the merger and the other transactions contemplated by the merger agreement without the approval of any other stockholder of APP. Therefore, your vote is not required and is not being sought. We are not asking you for a proxy and you are not requested to send us a proxy.

 

Q: If the merger is completed, what will I receive for my shares of APP common stock?

 

A: Upon completion of the merger, each share of APP common stock that is issued and outstanding (other than those for which appraisal rights are validly perfected or those owned by Fresenius, FK Holdings or Merger Sub) will be cancelled and converted into the right to receive (i) $23.00 in cash, without interest, and (ii) one contingent value right, which we refer to as a CVR, representing the right to receive a payment of up to $6.00 in cash, without interest, if and to the extent that any amount is payable as determined in accordance with the CVR indenture to be entered into in connection with the merger. We refer to the consideration for the merger described in clauses (i) and (ii) together as the merger consideration. See “The Merger Agreement—Merger Consideration”; “The Merger Agreement—Treatment of APP Stock Options and Other Equity Awards”; and “The Merger Agreement—Exchange and Payment Procedures.”

 

Q: What are the CVRs?

 

A: The CVRs are contingent value rights to be issued in the merger by FK Holdings. Each CVR represents the right to receive a pro rata portion of an amount equal to 2.5 times the amount by which cumulative Adjusted EBITDA of APP and FK Holdings and their subsidiaries on a consolidated basis, for the three years ending December 31, 2010, exceeds $1.2677 billion, up to a maximum of $6.00 in cash per CVR. If Adjusted EBITDA for this period does not exceed this threshold amount, no amounts will be payable on the CVRs and the CVRs will expire valueless. The CVRs are not an equity security of FK Holdings and do not represent ownership rights in FK Holdings and holders of CVRs are not entitled to any vote on or with respect to any matter put to a vote of the holders of equity securities of FK Holdings. Similarly, holders of CVRs are not entitled to any dividends declared or paid with respect to any equity security of FK Holdings. A holder of a CVR is entitled only to those rights set forth in the CVR indenture.

 

Q: How much is the CVR payment and when will it be paid?

 

A: The CVR payment, if any, will be calculated based upon the Adjusted EBITDA of APP and FK Holdings and their consolidated subsidiaries for the three years ending December 31, 2010, and, accordingly, the CVR payment amount cannot be determined until after December 31, 2010. The maximum CVR payment is $6.00 in cash per CVR. The CVR payment, if any, is payable by FK Holdings on June 30, 2011. See “Description of the CVRs.”

 

Q: Is interest payable with respect to the CVRs?

 

A: Generally, no. Except in the limited circumstance where a CVR payment is due and has not been paid when due by FK Holdings (in which case, default interest accrues), no interest will accrue on the CVRs.

 

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Q: Are the CVR payments secured or guaranteed?

 

A: No. The CVR payments are neither secured nor guaranteed. CVR payments, if any become due, are unsecured general obligations of FK Holdings, are not guaranteed by Fresenius or any of its affiliates and are expressly subordinated to an unlimited amount of senior indebtedness of FK Holdings and its subsidiaries. Fresenius has agreed to make an equity contribution to FK Holdings to support payment of amounts due under the CVR to the extent that FK Holdings does not have sufficient funds.

 

Q: Can I sell the CVRs?

 

A: Yes. The CVRs are transferable (subject to applicable restrictions under securities laws) and are being registered with the SEC in connection with the merger pursuant to the registration statement of which this information statement/prospectus forms a part. FK Holdings intends to apply to list the CVRs on the NASDAQ Global Market. There can be no guarantee, however, that the CVRs will be listed on the NASDAQ Global Market or any other exchange, and, if listed, there is no assurance that they will continue to satisfy the listing requirements of the NASDAQ Global Market, or that a trading market in the CVRs will develop or exist at any time. Furthermore, no prediction can be made regarding the liquidity of any such market or the prices at which the CVRs may trade at any point in time, if at all. A sale or exchange of a CVR would be a taxable transaction. See “Certain Material U.S. Federal Income Tax Consequences” for a more detailed explanation.

 

Q: Will the merger consideration I receive in the merger increase if APP’s results of operations improve or if the price of APP’s common stock increases above the cash amount per share included in the merger consideration?

 

A: No. The merger consideration payable for each share of APP common stock at closing is fixed at (i) $23.00 cash, without interest, and (ii) one CVR, and the payment received at closing will not change regardless of APP’s results of operations or the price of APP’s publicly traded common stock. However, improvements in APP’s results of operations could positively affect the Adjusted EBITDA of FK Holdings and APP and their consolidated subsidiaries and result in a payment on the CVRs. See “Description of the CVRs.”

 

Q: When is the merger expected to be completed?

 

A: APP and Fresenius are working hard to complete the merger as quickly as practicable. We anticipate that the merger will be completed before the end of the first quarter of 2009. However, we cannot predict the exact timing of the completion of the merger or guarantee that the merger will be completed.

 

Q: Am I entitled to appraisal rights?

 

A: Yes. Stockholders other than the principal stockholders are entitled to appraisal rights under the General Corporation Law of the State of Delaware, which we refer to as the DGCL, in connection with the merger so long as they take all the steps required to perfect their rights under Delaware law. See “Rights of Appraisal.”

 

Q: What are the material U.S. federal income tax consequences to the APP stockholders of the merger?

 

A: The receipt of the merger consideration in exchange for shares of APP common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes (and may also be a taxable transaction under applicable state, local and foreign income or other tax laws). For U.S. federal income tax purposes, a U.S. holder of APP common stock generally will recognize gain or loss at the time of the merger equal to the difference, if any, between (a) the amount of cash and the fair market value of the CVRs received by the U.S. holder in exchange for such APP common stock and (b) the U.S. holder’s adjusted tax basis in such APP common stock. Because individual circumstances may differ, we strongly recommend that you consult your own tax advisor to fully understand the tax consequences of the merger to you. See “Certain Material U.S. Federal Income Tax Consequences” for a more detailed explanation.

 

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Q: Should I send my APP common stock certificates now?

 

A: No. After the completion of the merger, you will be sent a letter of transmittal and detailed instructions for exchanging your APP common stock certificates for the merger consideration.

 

Q: Where can I find more information about APP?

 

A: APP files periodic reports and other information with the SEC. You may read and copy this information at the SEC’s public reference facilities. Please call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available on the internet site maintained by the SEC, at http://www.sec.gov, and on APP’s internet site, at http://www.apppharma.com. For a more detailed description of the information available, please refer to the section entitled “Where You Can Find More Information.”

 

Q: Who can help answer my questions?

 

A: If you have additional questions about the merger after reading this information statement/prospectus, or require assistance or need additional copies of this information statement/prospectus, please contact:

APP Pharmaceuticals, Inc.

Attention: Investor Relations

1501 East Woodfield Road, Suite 300 East

Schaumburg, Illinois 60173

Phone: (847) 969-2700

 

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SUMMARY

The following summary highlights only selected information contained elsewhere in this information statement/prospectus and may not contain all the information that may be important to you. Accordingly, you are encouraged to read this information statement/prospectus carefully and in its entirety, including its annexes and the documents incorporated by reference in this information statement/prospectus. See the section entitled “Where You Can Find More Information.”

Parties to the Merger Agreement

APP Pharmaceuticals, Inc.

1501 East Woodfield Road, Suite 300 East

Schaumburg, IL 60173

Telephone: (847) 969-2700

APP Pharmaceuticals, Inc., a corporation organized under the laws of Delaware, or APP, is a fully-integrated pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products with a primary focus on the oncology, anti-infective, anesthetic/analgesic and critical care markets. APP offers one of the most comprehensive product portfolios used in hospitals, long-term care facilities, alternate care sites and clinics within North America and manufactures a comprehensive range of dosage formulations.

Fresenius SE

Else-Kroener-Strasse 1

61352 Bad Homburg v.d.H.

Germany

Telephone: +49 (6172) 608 0

Fresenius SE, a societas europaea organized under the laws of Germany, or Fresenius, is a health care group with products and services for dialysis, hospital and medical care of patients at home. In addition, Fresenius focuses on hospital operations as well as on engineering and services for hospitals. The Fresenius group consists of Fresenius Medical Care, Fresenius Kabi, Fresenius Helios and Fresenius Vamed. The Fresenius group had total assets of €15,324 million as of December 31, 2007, and sales of €11,358 million for the year ending December 31, 2007, in each case determined in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.

Fresenius Kabi Pharmaceuticals Holding, Inc.

Else-Kroener-Strasse 1

61352 Bad Homburg v.d.H.

Germany

Telephone: +49 (6172) 608 0

Fresenius Kabi Pharmaceuticals Holding, Inc. (formerly Fresenius Kabi Pharmaceuticals Holding, LLC), or FK Holdings, a Delaware corporation, is an indirect, wholly-owned subsidiary of Fresenius. FK Holdings was formed solely for the purpose of executing the merger. FK Holdings has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement, and has no material assets or liabilities. Upon completion of the merger, APP will be a wholly-owned subsidiary of FK Holdings.

 

 

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Fresenius Kabi Pharmaceuticals, LLC

Else-Kroener-Strasse 1

61352 Bad Homburg v.d.H.

Germany

Telephone: +49 (6172) 608 0

Fresenius Kabi Pharmaceuticals, LLC, a Delaware limited liability company, or Merger Sub, is a wholly-owned subsidiary of FK Holdings formed for the purpose of executing the merger, to act as the holding company of APP and to issue the CVRs. Merger Sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement. By operation of the merger, Merger Sub will be merged into APP, Merger Sub’s separate existence will cease, and APP will be a direct, wholly-owned subsidiary of FK Holdings.

The Merger

Under the merger agreement, Merger Sub will merge with and into APP, and APP will be the surviving corporation in the merger. As a result of the merger, APP will become a direct, wholly-owned subsidiary of FK Holdings and an indirect, wholly-owned subsidiary of Fresenius. APP will continue to do business immediately following the merger as APP Pharmaceuticals, Inc.

Merger Consideration

Upon completion of the merger, each share of APP common stock outstanding immediately prior to the merger, other than those held by stockholders who properly demand and perfect appraisal rights or Fresenius, FK Holdings or Merger Sub, will be converted into the right to receive (i) $23.00 in cash, without interest, and (ii) one CVR.

The CVRs

Each CVR will entitle its holder to receive, on June 30, 2011, a cash payment, without interest, equal to a pro rata portion of an amount equal to 2.5 times the excess over $1.2677 billion, if any, of the cumulative Adjusted EBITDA of APP and FK Holdings and their subsidiaries on a consolidated basis for the three years ending December 31, 2010. The maximum amount payable with respect to each CVR is $6.00 in cash. If cumulative Adjusted EBITDA for this period does not exceed the threshold, no amounts will be payable on the CVRs and the CVRs will expire valueless. Adjusted EBITDA will exclude (i) costs, expenses, and revenue from sales outside the U.S. and Canada, and (ii) costs, expenses and revenue for sales of product not currently under development by APP. The CVRs are unsecured obligations of FK Holdings, subordinated to an unlimited amount of FK Holdings’ indebtedness.

There are numerous risks associated with the CVRs, including whether APP and FK Holdings will generate sufficient Adjusted EBITDA to require any payment under the CVRs, and there is no assurance that the minimum Adjusted EBITDA threshold will be met or exceeded. The CVRs are freely transferable (subject to restrictions under applicable securities laws) and are being registered with the SEC in connection with the merger pursuant to the registration statement, of which this information statement/prospectus forms a part. FK Holdings intends to apply to list the CVRs on the NASDAQ Global Market. See “Description of the CVRs” and “Risk Factors.”

 

 

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Opinions of APP’s Financial Advisors

Opinion of Goldman, Sachs & Co.

Goldman, Sachs & Co., which we refer to as Goldman Sachs, delivered its opinion to the board of directors of APP and the special committee thereof that, as of July 6, 2008, and based upon and subject to the factors and assumptions set forth therein, the merger consideration, which consists of $23.00 in cash consideration plus a CVR entitling the holder thereof to a potential payment of up to $6.00 in cash, taken in the aggregate, to be received by the holders (other than the principal stockholders) of shares of APP common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated July 6, 2008, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex D. Goldman Sachs provided its opinion for the information and assistance of the special committee in connection with their consideration of the merger. The Goldman Sachs opinion is not a recommendation as to any action that an APP stockholder should take with respect to the merger. Pursuant to an engagement letter between the special committee and Goldman Sachs, APP has agreed to pay Goldman Sachs a transaction fee of 0.4% of the aggregate consideration paid in the merger, all of which is payable upon consummation of the merger.

Opinion of Lazard Frères & Co. LLC

In connection with the merger, Lazard Frères & Co. LLC, which we refer to as Lazard, rendered its oral opinion on July 6, 2008 to the board of directors of APP and its special committee, which was subsequently confirmed in writing, that, as of July 6, 2008 and based upon and subject to the factors and assumptions set forth therein, the merger consideration, taken in the aggregate, to be received by the holders (other than the principal stockholders) of shares of APP common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Lazard, dated July 7, 2008, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex E. Lazard provided its opinion for the information and assistance of the board of directors of APP and the special committee in connection with their consideration of the merger. The Lazard opinion is not a recommendation as to any action that an APP stockholder should take with respect to the merger. Pursuant to an engagement letter between APP and Lazard, APP has agreed to pay Lazard a transaction fee of 0.4% of the aggregate consideration paid in the merger, all of which is payable upon consummation of the merger.

See “The Merger – Opinions of Financial Advisors to APP.”

Required Approval of the Merger

Under Section 251 of the DGCL, approval of APP’s board of directors and the affirmative vote (or written consent in lieu thereof) of a majority of the outstanding shares of APP common stock voting (or consenting in writing in lieu thereof) is required to adopt the merger agreement. APP’s board of directors has declared advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement.

Written Consent and Voting Agreement

Concurrently with the execution of the merger agreement, the principal stockholders, who together owned approximately 81.1% of the outstanding shares of APP common stock entitled to vote on the adoption of the

 

 

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merger agreement at the date of the merger agreement, entered into a voting agreement with Fresenius, FK Holdings and Merger Sub and agreed, among other things, to take specified actions in furtherance of the merger, including delivering to APP a written consent (in accordance with Section 228 of the DGCL) adopting the merger agreement and approving the merger and the other transactions contemplated by the merger agreement. A copy of the voting agreement is attached to this information statement/prospectus as Annex C. On July 6, 2008, immediately following execution of the merger agreement and the voting agreement, the principal stockholders delivered the written consent adopting the merger. Because the principal stockholders owned a majority of the outstanding shares of APP common stock entitled to vote on the adoption of the merger agreement, the principal stockholders’ action by written consent was effective to adopt the merger agreement and to approve the merger and the other transactions contemplated by the merger agreement without any further action by any other APP stockholder. As a result, no other votes are necessary to adopt the merger agreement, and your approval is not required and is not being requested. If the merger agreement is terminated in accordance with its terms (other than a termination resulting from a breach of the voting agreement), the voting agreement will automatically terminate, and the written consent of each of the principal stockholders will be automatically revoked.

Interests of APP’s Directors and Executive Officers in the Merger

When reading this information statement/prospectus, you should be aware that the executive officers and directors of APP may have interests in the merger that may be different from, or in addition to, the interests of other APP stockholders generally. A description of these interests is set forth below.

Each executive officer of APP (other than the chief financial officer) will be entitled to receive (i) severance pay equal to two times his then-current base salary plus the amount of his incentive cash bonus for 2007 and (ii) health and dental benefits through May 23, 2010, in each case in the event of a “qualifying termination” on or before May 23, 2010. The chief financial officer of APP will be entitled to receive severance payments equal to (i) his then-current base salary for eighteen months, plus (ii) an amount generally approximating the incentive cash bonus for the prior year, calculated based on bonuses paid in prior years and prorated based on the number of days of employment in the year of termination, plus (iii) $50,000, if this amount is not paid as contemplated on March 31, 2009, if his employment is terminated by APP without “cause” or he voluntarily resigns for “good reason,” in each case whether or not in connection with a change of control transaction. Assuming the merger is completed on December 31, 2008 and all executive officers are terminated immediately after the closing of the merger in a “qualifying termination” or without “cause” or for “good reason,” as applicable, the total aggregate value of these payments to, and benefits for, the executive officers would be approximately $4.2 million.

In addition, each executive officer and director of APP holds stock options and/or restricted stock units of APP, which, whether or not vested, will immediately vest and be cancelled upon the closing of the merger in exchange for a portion of the merger consideration. See “The Merger Agreement—Treatment of APP Stock Options and Other Equity Awards” on page 65. Assuming the merger is completed on December 31, 2008, and excluding any value attributable to the CVRs, the total amount that the executive officers and directors of APP would receive in respect of their vested and unvested equity awards would be approximately $5.9 million.

Concurrently with the execution of the merger agreement, Dr. Soon-Shiong entered into a Consulting Agreement dated July 6, 2008, with Fresenius and FK Holdings, which we refer to as the consulting agreement, pursuant to which Dr. Soon-Shiong will act as a consultant to FK Holdings for a period of one year from the effective date of the merger, subject to extension by agreement of the parties. Dr. Soon-Shiong will receive an annual consultancy fee equal to $600,000 and is entitled to additional compensation of $600,000 for each calendar year while the consulting agreement is in effect in which the Adjusted EBITDA of FK Holdings and APP exceeds by ten percent APP management’s projected Adjusted EBITDA for such year. In addition, Fresenius has agreed to take all reasonably necessary actions to appoint and maintain Dr. Soon-Shiong as a member of FK Holdings’ board of directors through June 30, 2011.

 

 

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The special committee of APP’s independent directors was aware of these interests and considered them, among other factors, in unanimously recommending to APP’s board of directors to approve the merger agreement and declare the advisability of the merger. APP’s board of directors was also aware of these interests and considered them, among other factors, in approving the merger agreement and declaring the advisability of the merger.

Following the date of the merger agreement, Dr. Soon-Shiong and certain entities affiliated with him agreed to purchase €100 million of the Mandatory Exchangeable Bonds offered by Fresenius as part of the financing for the merger. See “The Merger—Financing of the Merger—Mandatory Exchangeable Bonds.”

Treatment of APP Stock Options and Other Equity Awards

Upon completion of the merger, each outstanding option to purchase APP common stock, whether or not vested, will immediately vest and be cancelled and:

 

   

if the exercise price is less than $23.00, the option will entitle the holder to receive (i) cash, without interest, equal to the difference between $23.00 and the exercise price and (ii) one CVR.

 

   

if the exercise price is equal to or greater than $23.00 but less than $29.00, the option will entitle the holder to receive, on June 30, 2011, cash, without interest, equal to the excess, if any, of (i) $23.00 plus the amount payable with respect to each CVR, over (ii) the exercise price of such option.

 

   

if an option to purchase APP common stock has an exercise price greater than $29.00, the holder will not be entitled to receive any merger consideration for such option.

Upon completion of the merger, each outstanding APP restricted stock unit, or RSU, will immediately vest and convert into the right to receive: (i) $23.00 in cash, without interest, and (ii) one CVR.

CVR Indenture

The CVRs will be issued under the CVR indenture, to be entered into by FK Holdings and The Bank of New York Mellon Trust Company, N.A., as trustee, prior to the effective time of the merger. A copy of the form of Contingent Value Rights Agreement is attached to this information statement/prospectus as Annex B.

FK Holdings will cause the CVR indenture to be qualified under the Trust Indenture Act of 1939, as amended. The terms of the CVRs include those stated in the CVR indenture and those made part of the CVR indenture by reference to the Trust Indenture Act.

Conditions to the Merger

Before the merger can be completed, a number of conditions must be satisfied or (to the extent permitted under applicable laws and the terms of the merger agreement) waived. These conditions to the respective obligations of APP and Fresenius to complete the merger include, among others:

 

   

approval and adoption of the merger agreement by the requisite vote of the holders of APP common stock (this condition was satisfied upon delivery of the written consent of the principal stockholders);

 

   

the SEC shall have declared effective the registration statement, of which this information statement/prospectus is a part, and no stop order suspending the effectiveness of the registration statement shall be in effect;

 

   

to the extent required by applicable law, the CVR indenture shall have been qualified under the Trust Indenture Act;

 

 

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this information statement/prospectus shall have been mailed to APP’s stockholders at least 20 calendar days prior to the closing;

 

   

the absence of any injunction or order issued by any governmental entity of competent jurisdiction in the United States or Canada prohibiting the completion of the merger;

 

   

the expiration or earlier termination of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act;

 

   

counsel to APP having issued a tax opinion in accordance with the merger agreement and the tax allocation agreement entered into by APP, APP Pharmaceuticals, LLC, Abraxis BioScience, Inc. and Abraxis BioScience, LLC pursuant to the November 2007 spin-off of Abraxis BioScience from APP to the effect that the merger should not affect the qualification of the spin-off under Section 355 and Section 368(a)(1)(D) of the Code and the non-recognition of gain to APP in the spin-off;

 

   

solely with respect to the obligations of Fresenius, the representations and warranties of APP contained in the merger agreement being true and correct as of the closing date (except to the extent that such representation and warranty speaks as of a particular date, in which case such representation and warranty shall be true and correct as of that date), except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have a material adverse effect (as defined in the merger agreement) on APP;

 

   

solely with respect to the obligations of APP, the representations and warranties of Fresenius, FK Holdings and Merger Sub contained in the merger agreement being true and correct in all material respects as of the closing date (except to the extent that such representation and warranty speaks as of a particular date, in which case such representation and warranty shall be true and correct as of that date);

 

   

with respect to the obligations of Fresenius, on the one hand, and of APP, on the other hand, the other party having performed, or complied with, in all material respects, its covenants and agreements in the merger agreement;

 

   

solely with respect to the obligations of Fresenius, since the date of the merger agreement, there shall not have been any material adverse effect (as defined in the merger agreement) on APP, and the non-competition agreement shall be in full force and effect; and

 

   

solely with respect to the obligations of APP, the CVR indenture shall have been entered into by FK Holdings and the trustee and be in full force and effect, the equity commitment of Fresenius in favor of FK Holdings shall be in full force and effect, and the CVRs shall have been approved for listing (subject to notice of issuance) on the NASDAQ Capital Market or other exchange or trading platform agreed by APP and Fresenius.

Restrictions on Solicitation of Third Party Acquisition Proposals

The merger agreement generally restricts APP’s ability to: (1) solicit or encourage the making of any third party proposal for the acquisition of a significant interest in APP’s equity or assets or engage in any discussions with, or provide any non-public information to, any person in respect of inquires regarding or the making of a third party proposal for the acquisition of a significant interest in APP’s equity interests or assets, or (2) approve or recommend any third party proposal or enter into any agreement or letter of intent relating to a third party proposal. Under certain circumstances specified in the merger agreement, if the APP board of directors had determined that failing to do so would be inconsistent with its fiduciary duties, the APP board of directors could have provided non-public information to a third party and, if after consultation with its independent financial advisors and outside counsel, the board of directors determined in good faith that any unsolicited third party acquisition proposal constituted or was reasonably likely to lead to a superior proposal, as defined in the merger agreement, then the APP board of directors may have engaged in discussions with the party that made the acquisition proposal. APP did not receive any acquisition proposal that constituted or was reasonably likely to lead to a superior proposal during the applicable period established in the merger agreement.

 

 

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Termination of the Merger Agreement

APP and Fresenius may terminate the merger agreement by mutual written consent at any time before the completion of the merger (even though the principal stockholders have approved and adopted the merger agreement by written consent). In addition, either APP or Fresenius may terminate the merger agreement if:

 

   

the merger has not been completed by the termination date, which is March 31, 2009. However, if any of the conditions relating to antitrust and competition law approvals (described under “The Merger Agreement—Conditions to the Merger”) have not been satisfied by March 31, 2009, but all of the other conditions have been satisfied by that date, then either APP or Fresenius may extend the termination date to June 30, 2009, so long as Fresenius is able to extend the commitment for the debt portion of its financing for the merger on commercially reasonable terms to June 30, 2009; or

 

   

any permanent injunction or order issued by any court of competent jurisdiction in the United States preventing the merger has become final and non-appealable.

APP may terminate the merger agreement if Fresenius, FK Holdings or Merger Sub breaches or fails to perform any of its representations, warranties, covenants or agreements in the merger agreement so that the conditions relating to the accuracy of its representations and warranties or the performance of its covenants or agreements could not be satisfied by the termination date.

Also, until August 8, 2008, APP had the right to terminate the merger agreement if APP’s board of directors determined, in accordance with the merger agreement, that an unsolicited third-party acquisition proposal constituted a superior proposal (as defined in the merger agreement) and APP terminated the merger agreement in order to concurrently enter into an agreement with respect to that superior proposal in accordance with the merger agreement. See “The Merger Agreement—Termination in Connection with a Superior Proposal.” This right to terminate the merger agreement has now expired.

In addition, Fresenius may terminate the merger agreement if APP breaches or fails to perform any of its representations, warranties, covenants or agreements in the merger agreement so that the conditions relating to the accuracy of its representations and warranties, the performance of its covenants or agreements could not be satisfied by the termination date.

Termination Fees

Under the terms of the merger agreement, APP would have been obligated to pay to Fresenius a break-up fee of $140 million if APP had terminated the merger agreement to accept a superior proposal. For more information, see “The Merger Agreement—Termination Fees and Expenses.”

Regulatory Approvals

Under the HSR Act, the merger may not be completed until notification and report forms have been filed with the U.S. Federal Trade Commission, or the FTC, and the Antitrust Division of the U.S. Department of Justice, or the Antitrust Division, and the applicable waiting period has expired or been terminated. On July 14, 2008, APP filed and on July 15, 2008, Fresenius filed, their respective notification and report forms under the HSR Act with the FTC and the Antitrust Division. On August 13, 2008, Fresenius, with the concurrence of APP, voluntarily withdrew and refiled its notification and report form under the HSR Act. The purpose of the withdrawal and re-filing was to provide federal antitrust authorities with additional time to review the proposed merger.

Subject to the terms and conditions of the merger agreement, APP and Fresenius have agreed to use their reasonable best efforts to obtain all regulatory clearances necessary to complete the merger, including divestitures of assets or restrictions on operations; however, Fresenius is not required to take any action that

 

 

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would result in a material adverse effect on the combined business of APP and Fresenius Kabi AG after giving effect to the merger, and APP is not required to take any action unless it is conditioned on the completion of the merger.

Although not a condition to closing under the terms of the Merger Agreement, on July 29, 2008, Fresenius filed a notification with the German Bundeskartellamt under the Act Against Restraints on Competition. APP and Fresenius are in the process of verifying that no other antitrust merger control filings will be made.

Rights of Stockholders to Seek Appraisal

Under Delaware law, holders of APP common stock who have not delivered a written consent in favor of adopting the merger agreement will have the right to seek appraisal of the fair value of their shares of APP common stock as determined by the Delaware Court of Chancery if the merger is completed, but only if they comply with all applicable requirements of Delaware law. This appraisal amount could be more than, the same as or less than the merger consideration. Among other requirements, any holder of APP common stock intending to exercise appraisal rights must submit a written demand for an appraisal to APP within 20 days of the mailing of this information statement/prospectus to APP’s stockholders. Your failure to strictly follow the procedures specified under Delaware law will result in the loss of your appraisal rights. For a summary of the requirements for asserting and perfecting your appraisal rights, see “Rights of Appraisal.” The provisions of Delaware law that address appraisal rights and govern the required procedures are attached as Annex F to this information statement/prospectus.

Certain Material U.S. Federal Income Tax Consequences

The receipt of the merger consideration in exchange for shares of APP common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes (and may also be a taxable transaction under applicable state, local and foreign income or other tax laws). For U.S. federal income tax purposes, a U.S. holder of APP common stock generally will recognize gain or loss at the time of the merger equal to the difference, if any, between (a) the amount of cash and the fair market value of the CVRs received by the U.S. holder in exchange for such APP common stock and (b) the U.S. holder’s adjusted tax basis in such APP common stock. Tax matters can be complicated, and the tax consequences of the merger to you will depend on the facts of your own situation. We strongly recommend that you consult your own tax advisor to fully understand the tax consequences of the merger to you.

Market Price of APP Common Stock

APP common stock is listed on the NASDAQ Global Select Market under the trading symbol “APPX.” The closing sale price of APP common stock on the NASDAQ Global Select Market on July 3, 2008, the last trading day prior to the announcement of the merger, was $17.82. The $23.00 cash consideration to be paid for each share of APP common stock in the merger represents a premium of approximately 29% over the closing sale price of APP common stock on July 3, 2008. On August 19, 2008, the last trading day before the date of this information statement/prospectus, the closing sale price of APP common stock on the NASDAQ Global Select Market was $23.25 per share.

Litigation Related to the Merger

On August 12, 2008, a putative class action complaint was filed against APP and four of APP’s current directors (Dr. Soon-Shiong, Michael Blaszyk, Michael Sitrick, and Joseph Pizza) in the Circuit Court of Cook County, Illinois: Buggs v. APP Pharmaceuticals, Inc., Patrick Soon-Shiong, Michael D. Blaszyk, Michael S. Sitrick, and Joseph M. Pizza, Case No. 08CH29335.

 

 

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The plaintiff purports to represent all stockholders of APP, other than the defendants and related persons or entities. The complaint asserts claims for breach of fiduciary duty against the defendants relating to the merger agreement between APP and Fresenius, based on the allegation that defendants have engaged in self-dealing and obtained for themselves personal benefits, and causes of action of aiding and abetting breach of fiduciary duty.

Plaintiffs also allege that the information statement/prospectus is materially misleading because, among other things, it omits or fails to fully and fairly disclose material information about (i) alleged conflicts of interest that burdened APP’s board of directors and its advisors; (ii) the purported unfair sales process for APP; and (iii) APP’s prospects as a standalone entity and the “true value” of APP.

The complaint seeks a declaration that the action is maintainable as a class action, a declaration that the defendants have breached their fiduciary duties to the putative class of plaintiffs, to enjoin the defendants from consummating the merger unless and until APP adopts and implements a procedure that represents a “true fiduciary out” designed to encourage other bidders and to allow APP’s board of directors to exercise its fiduciary discretion, to direct the individual defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests of APP’s stockholders and to rescind, to the extent already implemented, the proposed merger. The complaint also seeks recovery of attorneys’ fees and costs, and further relief as determined by the court. The defendants deny any wrongdoing and intend to defend the complaint vigorously.

Risks

In evaluating the CVRs, you should carefully read this information statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors.”

 

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF APP

The following selected historical consolidated financial data of APP for the years ending December 31, 2007, 2006 and 2005 and as of December 31, 2007 and 2006, have been derived from APP’s historical audited consolidated financial statements incorporated by reference into this information statement/prospectus. The following selected historical consolidated financial data for the years ending December 31, 2004 and 2003 and as of December 31, 2005, 2004 and 2003, have been derived from APP’s historical audited consolidated financial statements not required to be incorporated by reference into this information statement/prospectus. The following selected historical consolidated financial data for APP as of and for the six months ending June 30, 2008 and 2007, has been derived from APP’s unaudited interim consolidated financial statements contained in APP’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2008, which is incorporated by reference into this information statement/prospectus. In the opinion of APP’s management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations at these dates and for these periods. Results of interim periods are not necessarily indicative of the results expected for a full year or for future periods. This information is only a summary and you should read this selected historical consolidated financial data together with APP’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the unaudited and audited consolidated financial statements and notes thereto incorporated by reference into this information statement/prospectus.

 

    As of and for the six
months ending June 30,
  As of and for the years ending December 31,
    2008     2007   2007     2006   2005   2004   2003
   

(unaudited)

   
   

(in thousands, except per share data)

Consolidated Statement of Operations Data:

             

Net revenue

  $ 345,997     $ 299,595   $ 647,374     $ 583,201   $ 385,082   $ 405,010   $ 351,315
                                             

Net income from continuing operations

  $ 33,049     $ 36,409   $ 82,179     $ 55,226   $ 30,456   $ 74,984   $ 60,363
                                             

Net income per common share from continuing operations-basic

  $ 0.21     $ 0.23   $ 0.51     $ 0.35   $ 0.19   $ 0.59   $ 0.39
                                             

Consolidated Balance Sheet Data:

             

Total assets

  $ 1,105,063     $ 1,817,808   $ 1,077,587     $ 1,773,721   $ 524,229   $ 392,623   $ 323,777

Long term debt

  $ 986,250     $ 220,000   $ 995,000     $ 165,000   $ 190,000   $ 42,750   $ 30,850

Total stockholders’ (deficit) equity

  $ (41,687 )   $ 1,093,461   $ (79,771 )   $ 1,033,361   $ 68,140   $ 167,418   $ 139,747

 

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SELECTED FINANCIAL DATA OF FK HOLDINGS

The following selected historical consolidated financial data for the periods presented has been derived from, and should be read in conjunction with, the audited consolidated financial statements of FK Holdings contained in this information statement/prospectus.

STATEMENT OF OPERATIONS DATA

 

     From July 2, 2008
(inception) through
August 8, 2008
 

Net revenue

   $ —    

Cost of sales

     —    
        

Gross profit

     —    

Operating expenses:

  

Selling, general and administrative

     15,921  

Research and development

     —    
        

Income (expense) before income taxes

     (15,921 )

Income tax expense (benefit)

     —    
        

Net loss

   $ (15,921 )
        

BALANCE SHEET DATA

 

     As of
August 8,
2008
 

Assets

  

Non-current assets:

  

Capitalized acquisition cost

   $ 17,444,891  

Capitalized debt cost

     2,544,738  
        

Total assets

   $ 19,989,629  
        

Liabilities and member’s equity

  

Current liabilities:

  

Due to affiliates

   $ 20,005,550  

Member’s equity:

  

Common interests

     1  

Receivable from sole member

     (1 )

Retained earnings

     (15,921 )
        

Total member’s equity

     (15,921 )
        

Total liabilities and member’s equity

   $ 19,989,629  
        

 

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SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

FOR FK HOLDINGS

The following selected unaudited pro forma consolidated financial data is presented as if the merger were completed on January 1, 2007, for statement of operations purposes, and on June 30, 2008, for balance sheet purposes. This data should be read in conjunction with the “Unaudited Pro Forma Consolidated Financial Statements” and other financial statements contained in, and incorporated by reference into, this information statement/prospectus. See the section entitled “Where You Can Find More Information.”

 

     For the six months
ending June 30, 2008
    For the year ending
December 31, 2007
 
     (in thousands)  

Statement of Operations Data:

    

Net revenue

   $ 345,997     $ 647,374  

Net loss from continuing operations

   $ (43,742 )   $ (93,865 )

 

     As of June 30, 2008
     (in thousands)

Balance Sheet Data:

  

Total assets

   $ 5,063,825

Long term debt

   $ 3,844,713

Total stockholder’s equity

   $ 829,963

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This information statement/prospectus and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, as well as assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenues, synergies, margins, EBITDA or Adjusted EBITDA or other financial items; any statements of the plans, strategies and objectives of management for future operations, including integration and any potential restructuring plans and the anticipated timing of filings and approvals relating to the merger; any statements concerning proposed new products, services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements of belief and any statements of assumptions underlying any of the foregoing.

Such forward-looking statements, whether expressed or implied, are subject to risks and uncertainties which could cause the actual results of FK Holdings or APP and its consolidated subsidiaries to differ materially from those implied by such forward-looking statements, due to a number of factors, many of which are beyond either FK Holdings’ or APP’s control, which include, but are not limited to:

 

   

the market adoption of and demand for existing and new pharmaceutical products;

 

   

the ability to maintain and/or improve sales;

 

   

the ability to successfully manufacture products in an efficient, timely and cost effective manner;

 

   

the ability to service debt;

 

   

the impact on products and revenues of patents and other owned or licensed proprietary rights;

 

   

compliance with laws, regulations and standards, and the application and interpretation of those laws, regulations and standards, that govern or affect the pharmaceutical industry, the non-compliance with which may delay or prevent the sale of products;

 

   

the difficulty in predicting the timing or outcome of product development efforts and regulatory approvals;

 

   

the availability and price of acceptable raw materials and components from third-party suppliers;

 

   

evolution of the fee-for-service arrangements being adopted by major wholesale customers;

 

   

inventory reductions or fluctuations in buying patterns by wholesalers or distributors;

 

   

the possibility that the merger may involve unexpected costs;

 

   

the effect of the announcement or completion of the merger on APP’s customer and supplier relationships, operating results and business generally;

 

   

risks that the merger disrupts APP’s current plans and operations, and the potential difficulties for APP’s employee retention as a result of the announcement or completion of the merger;

 

   

the outcome of any pending or future litigation and administrative claims;

 

   

the impact of recent legislation changes to the governmental reimbursement system;

 

   

potential restructurings of FK Holdings and its subsidiaries following the merger (which will include APP and its subsidiaries) which could affect its ability to generate Adjusted EBITDA;

 

   

the ability of FK Holdings following the merger to generate Adjusted EBITDA sufficient to trigger a payment under the CVRs;

 

   

challenges of integration and restructuring associated with the merger or other planned acquisitions and the challenges of achieving anticipated synergies;

 

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the possibility that FK Holdings may be required to modify some aspects of the merger or other acquisitions in order to obtain regulatory approvals; and

 

   

other risks that are described in the section titled “Risk Factors” and in the documents that are incorporated by reference into this information statement/prospectus.

If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, results of FK Holdings and APP could differ materially from the expectations in these statements. FK Holdings and APP do not undertake any obligation to update these forward-looking statements, except as required by law.

 

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RISK FACTORS

In addition to the other information included in, incorporated by reference into, and found in the Annexes attached to this information statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risk factors. Please see the section entitled “Where You Can Find More Information.” The CVRs involve a high degree of risk and the risks and uncertainties described below are not the only ones faced by APP or FK Holdings. Additional risks and uncertainties not presently known, or that APP or FK Holdings currently deem immaterial, could negatively impact the business, results of operations or financial condition of APP or FK Holdings in the future. If any of the following risks and uncertainties develop into actual events, the business, results of operations or financial condition of APP could be adversely affected, which could adversely affect the likelihood of any payments being made under the CVRs and the amount of any such payments.

Risks Related to the Contingent Value Rights

You may not receive any payment on the CVRs.

Your right to receive any future payment on the CVRs will be contingent upon the achievement by APP and FK Holdings and their consolidated subsidiaries of cumulative Adjusted EBITDA (calculated in accordance with the CVR indenture) in excess of the threshold specified in the CVR indenture. If cumulative Adjusted EBITDA does not exceed this threshold for any reason, no payment will be made under the CVRs and the CVRs will expire valueless. Accordingly, the value, if any, of the CVRs is speculative, and the CVRs may ultimately have no value. See “Description of the CVRs.”

Regulatory agencies must approve the merger and could impose conditions that could affect the value of the CVRs you receive in the merger.

FK Holdings and APP intend to comply with antitrust laws of the United States and any other jurisdiction in which the merger is subject to review. The reviewing authorities may impose conditions on FK Holdings and APP as a condition to giving their approval or consent to the merger. Fresenius and APP have agreed to use reasonable best efforts to obtain the required regulatory approvals, including negotiating and committing to the sale, divestiture or disposition of such assets or businesses, subject to exceptions. The value of the CVR depends on the ability of APP and FK Holdings and their consolidated subsidiaries to generate Adjusted EBITDA (calculated in accordance with the CVR indenture) over and above the threshold level. Conditions imposed by regulatory authorities could reduce the scope or otherwise harm the operation of the APP business following the merger, which could adversely affect FK Holdings’ and APP’s ability to generate Adjusted EBITDA, which could reduce the amount of any CVR payment or could result in no payment being made on the CVRs.

You will not be able to determine the amount of cash to be received under the CVRs until 2011 which makes it difficult to value the CVRs.

If any payment is made on the CVR, it will not be made until June 2011 (except in certain cases of foreclosure of the APP shares pledged as security for the indebtedness of FK Holdings), and the amount of any payment will not be determined prior to the second quarter of 2011. FK Holdings will provide an interim statement of Adjusted EBITDA for each of 2008 and 2009, and a final statement of Adjusted EBITDA following the end of 2010. The final calculation of any CVR payment, however, will be provided to you no earlier than the second quarter of 2011. Because the amount of any payment on the CVRs will not be determined prior to the second quarter of 2011 and the CVR payment will be determined on the basis of cumulative Adjusted EBITDA for a three-year period, it may be difficult to value the CVRs, and accordingly it may be difficult or impossible for you to resell your CVRs.

 

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The management of FK Holdings may not follow the current business, financial and operational policies of APP.

The directors of FK Holdings elected by Fresenius will have significant authority to effect decisions affecting the capital structure of FK Holdings and APP. There can be no assurance that the business, financial and operational policies of APP in effect prior to the merger including, for example, APP’s business strategy, will continue after the merger. Different policies may adversely affect the value of the CVRs and any payment thereunder. Except in limited circumstances described in the CVR indenture, FK Holdings does not have any obligations to CVR holders regarding the operation of the APP business after the completion of the merger.

FK Holdings has no obligation to continue to research, develop or commercialize APP’s products.

FK Holdings has no obligation to initiate or continue research, development or commercialization activities with respect to any APP products and, in its sole discretion, FK Holdings may abandon efforts to research, develop or commercialize any product, whether or not such product is in development or commercialized as of the closing date of the merger. Changes or abandonment of APP’s current research, development or commercialization activities by FK Holdings may adversely affect the amount of Adjusted EBITDA generated by FK Holdings, APP and their consolidated subsidiaries, which would adversely affect the value of the CVR and any payment thereunder.

The U.S. federal income tax treatment of the CVRs is unclear.

Pursuant to the CVR indenture, FK Holdings will agree to report any CVR payment (excluding any imputed interest) as additional consideration for the sale of APP common stock. Assuming this method of reporting is correct, if a payment is made with respect to a CVR, the holder of the CVR generally should recognize capital gain or loss equal to the difference between the amount of such payment (less any imputed interest) and the holder’s adjusted tax basis in the CVR. FK Holdings will also agree that a portion of any CVR payment will be treated as interest income, in accordance with Section 483 of the Code. However, there is no legal authority directly addressing the U.S. federal income tax treatment of the CVRs and, therefore, there can be no assurance that the Internal Revenue Service would not assert, or that a court would not sustain, a position that any CVR payment or a sale or exchange of a CVR does not attract capital gain treatment, or that a different method should be used for purposes of calculating the amount of imputed interest. If such a position were sustained, all or any part of any CVR payment could be treated as ordinary income and could be required to be included in income prior to the receipt of any CVR payment. See “Certain Material U.S. Federal Income Tax Consequences” for a more detailed explanation of the U.S. federal income tax treatment of the CVRs.

Any payments in respect of the CVRs are subordinated to the right of payment of FK Holdings’ other indebtedness.

The CVRs are unsecured obligations of FK Holdings and the CVR payments, acceleration payments, all other obligations under the CVR indenture and the CVRs and any rights or claims relating thereto are subordinated in right of payment to the prior payment in full of all senior obligations of FK Holdings. Senior obligations of FK Holdings include all principal, interest, penalties, fees, indemnification, reimbursements, damages and other liabilities payable under, or with respect to, FK Holdings’ and APP’s senior credit facilities and, so long as the senior obligations are outstanding pursuant to the preceding clause, intercompany loans and other senior debt. With the financing arrangements expected to be entered into in connection with the merger, there would be approximately $3.8 billion outstanding under credit facilities of Fresenius and its subsidiaries that would be senior to the obligations under the CVRs. Substantially all such indebtedness would be considered senior obligations for the purposes of the subordination provisions of the CVR indenture. In addition, if a default on FK Holdings’ senior obligations would occur as a result of the CVR payment, there is an existing payment default on FK Holdings’ senior obligations, the maturity of FK Holdings’ senior obligations is accelerated or in other circumstances, no CVR payment will be payable, if any payment is due, until any such default is remedied. See “The Merger—Financing of the Merger.”

 

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An active public market for the CVRs may not develop, or the CVRs may trade at low volumes, both of which could have an adverse effect on the resale price, if any, of the CVRs.

The CVRs are a new security for which there is currently no public trading market. An active public trading market for the securities may not develop or be sustained. FK Holdings has agreed to use its reasonable best efforts to cause the CVRs to be approved for listing at the effective time of the merger on the NASDAQ Capital Market, or an exchange, electronic trading network or trading platform as agreed by Fresenius and APP. Notwithstanding its efforts, FK Holdings may be unable to have the CVRs listed for trading.

Even if an active public trading market develops, there may be little or no market demand for the CVRs, making it difficult or impossible to resell the CVRs, which would have an adverse effect on the resale price, if any, of the CVRs. In addition, holders of CVRs may incur brokerage charges in connection with the resale of the CVRs, which in some cases could exceed the proceeds realized by the holder from the resale of its CVRs. Neither FK Holdings nor APP can predict the price, if any, at which the CVRs will trade following the closing of the transaction.

Because there has not been any public market for the CVRs, the market price and trading volume of the CVRs may be volatile.

Neither APP nor FK Holdings can predict the extent to which investor interest will lead to a liquid trading market in the CVRs or whether the market price of the CVRs will be volatile following the merger. The market price of the CVRs could fluctuate significantly for many reasons, including, without limitation:

 

   

as a result of the risk factors listed in this information statement/prospectus;

 

   

actual or anticipated fluctuations in the operating results of APP and FK Holdings;

 

   

for reasons unrelated to operating performance, such as reports by industry analysts, investor perceptions, or negative announcements by our customers or competitors regarding their own performance;

 

   

regulatory changes that could impact APP’s business; and

 

   

general economic, securities markets and industry conditions.

Risk Factors Related to the Business of APP and FK Holdings

If APP and FK Holdings are unable to develop and commercialize new products, their ability to generate revenue and Adjusted EBITDA will deteriorate.

Profit margins for a pharmaceutical product generally decline as new competitors enter the market. As a result, the future success of APP and FK Holdings will depend on their ability to commercialize the product candidates APP is currently developing, as well as develop new products in a timely and cost-effective manner. APP currently has over 25 abbreviated new drug applications, or ANDAs, pending with the U.S. Food and Drug Administration, or the FDA, and approximately 65 product candidates under development. Successful development and commercialization of product candidates will require significant investment in many areas, including research and development and sales and marketing, and APP and FK Holdings may not realize a return on those investments. In addition, development and commercialization of new products are subject to inherent risks, including:

 

   

failure to receive necessary regulatory approvals;

 

   

difficulty or impossibility of manufacture on a large scale;

 

   

prohibitive or uneconomical costs of marketing products;

 

   

inability to secure raw material or components from third-party vendors in sufficient quantity or quality or at a reasonable cost;

 

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failure to be developed or commercialized prior to the successful marketing of similar or superior products by third parties;

 

   

lack of acceptance by customers;

 

   

impact of authorized generic competition;

 

   

infringement on the proprietary rights of third parties;

 

   

grant of new patents for existing products may be granted, which could prevent the introduction of newly-developed products for additional periods of time; and

 

   

grant to another manufacturer by the FDA of a 180-day period of marketing exclusivity under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, as patents or other exclusivity periods for brand name products expire.

The timely and continuous introduction of new products is critical to the business of APP and FK Holdings. The ability of APP and FK Holdings to grow revenue will deteriorate if they are unable to successfully develop and commercialize new products, which could have an adverse effect on FK Holdings’ ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs.

If sales of key products decline, the business of APP and FK Holdings may be adversely affected.

APP’s top ten products comprised approximately 57% of its total revenue for both the year ending December 31, 2007 and the six months ending June 30, 2008. APP’s key products could lose market share or revenue due to numerous factors, many of which are beyond the control of APP and FK Holdings, including:

 

   

lower prices offered on similar products by other manufacturers;

 

   

substitute or alternative products or therapies;

 

   

development by others of new pharmaceutical products or treatments that are more effective than the products of APP and FK Holdings;

 

   

introduction of other generic equivalents or products which may be therapeutically interchanged with the products of APP and FK Holdings;

 

   

interruptions in manufacturing or supply;

 

   

changes in the prescribing practices of physicians;

 

   

changes in third-party reimbursement practices; and

 

   

migration of key customers to other manufacturers or sellers.

Any factor adversely affecting the sale of the key products of APP and FK Holdings may cause their revenues to decline, which could have an adverse effect on FK Holdings’ ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs.

If APP and FK Holdings or their suppliers are unable to comply with ongoing and changing regulatory standards, sales of their products could be delayed or prevented.

Virtually all aspects of APP’s business, including the development, testing, manufacturing, processing, quality, safety, efficacy, packaging, labeling, record-keeping, distribution, storage and advertising and promotion of APP’s products and disposal of waste products arising from these activities, are subject to extensive regulation by federal, state and local governmental authorities in the United States, including the FDA and the Department of Health and Human Services Office of Inspector General (OIG). APP’s business is also subject to regulation in foreign countries. Compliance with these regulations is costly and time-consuming.

 

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APP’s manufacturing facilities and procedures and those of its suppliers are subject to ongoing regulation, including periodic inspection by the FDA and foreign regulatory agencies. For example, manufacturers of pharmaceutical products must comply with detailed regulations governing current good manufacturing practices, including requirements relating to quality control and quality assurance. APP must spend funds, time and effort in the areas of production, safety, quality control and quality assurance to ensure compliance with these regulations. APP and FK Holdings cannot assure that their manufacturing facilities or those of their suppliers will not be subject to regulatory action in the future.

APP’s products must receive appropriate regulatory clearance before they can be sold in a particular country, including the United States. APP and FK Holdings may encounter delays in the introduction of a product as a result of, among other things, failure of clinical trials to show safety or efficacy, undesirable side effects, insufficient or incomplete submissions to the FDA for approval of a product, objections by another company to submissions for approval, patent protection covering brand name products, patent challenges by other companies which result in a 180-day exclusivity period awarded to the challenger, and changes in regulatory policy during the period of product development or during the regulatory approval process. The FDA has the authority to revoke drug approvals previously granted and remove from the market previously approved products for various reasons, including issues related to current good manufacturing practices for that particular product or in general. APP and FK Holdings may be subject from time to time to product recalls initiated by them or by the FDA. Delays in obtaining regulatory approvals, the revocation of a prior approval or product recalls could impose significant costs on APP and FK Holdings and adversely affect their ability to generate revenue.

The inability of APP and FK Holdings or the inability of their suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things, warning letters, fines, consent decrees restricting or suspending their manufacturing operations, delay of approvals for new products, injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales and criminal prosecution. Any of these regulatory actions could materially and adversely affect their ability to generate and receive revenue and result in the incurrence of significant expenses, which could have an adverse effect on FK Holdings’ ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs.

State pharmaceutical marketing compliance and reporting requirements may expose APP and FK Holdings to regulatory and legal action by state governments or other government authorities.

In recent years, several states, including California, Vermont, Maine, Minnesota, New Mexico, West Virginia and Nevada in addition to the District of Columbia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs and file periodic reports on sales, marketing, pricing and other activities. Similar legislation is being considered in other states. Many of these requirements are new and uncertain, and available guidance is limited. APP has received notice regarding possible non-compliance with these state laws and certain licensing requirements. However, APP is continuing to assess and address its compliance obligations under these state laws. Unless APP and FK Holdings are in full compliance with these laws, they could face enforcement action and fines and other penalties and could receive adverse publicity, all of which could harm their business.

If side effects or manufacturing problems are identified after the products are on the market, APP and FK Holdings may be subject to additional regulatory requirements or enforcement.

If side effects are identified after any products of APP and FK Holdings are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of products, additional clinical trials, changes in labeling of products, and changes to or re-approvals of their manufacturing facilities may be required, any of which could have a material adverse effect on sales of the affected products.

After any of the products of APP and FK Holdings are approved for commercial use, APP and FK Holdings or regulatory bodies could decide that changes to the product labeling are needed to ensure the safety and

 

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effectiveness of the products. Label changes may be necessary for a number of reasons, including the identification of actual or theoretical safety or efficacy concerns by regulatory agencies or the discovery of significant problems with a similar product that implicates an entire class of products. Any significant concerns raised about the safety or efficacy of the products could also result in the need to reformulate those products, to conduct additional clinical trials, to make changes to the manufacturing processes, or to seek re-approval of the relevant manufacturing facilities. Significant concerns about the safety and effectiveness of a product could ultimately lead to the revocation of its marketing approval. The revision of product labeling or the regulatory actions described above could be required even if there is no clearly established connection between the product and the safety or efficacy concerns that have been raised. The revision of product labeling or the regulatory actions described above could have a material adverse effect on sales of the affected products and on their business and results of operations, which could have an adverse effect on FK Holdings’ ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs.

The manufacture of APP’s products is highly exacting and complex, and if APP and FK Holdings or their suppliers encounter production problems, their business may suffer.

Almost all of the pharmaceutical products APP makes are sterile, injectable drugs. APP also purchases some such products from other companies. The manufacture of all the products is highly exacting and complex, due in part to strict regulatory requirements and standards which govern both the manufacture of a particular product and the manufacture of these types of products in general. Problems may arise during their manufacture due to a variety of reasons including equipment malfunction, failure to follow specific protocols and procedures and environmental factors. If problems arise during the production of a batch of product, that batch of product may have to be discarded. This could, among other things, lead to loss of the cost of raw materials and components used, lost revenue, time and expense spent in investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If such problems are not discovered before the product is released to the market, recall costs may also be incurred. To the extent APP and FK Holdings experience problems in the production of their pharmaceutical products, this may be detrimental to their business, operating results and reputation.

APP’s market is highly competitive, and if APP and FK Holdings are unable to compete successfully, their revenue will decline and their business will be harmed.

The markets for injectable pharmaceutical products are highly competitive, rapidly changing and undergoing consolidation. Most of APP’s products are generic injectable versions of brand name products that are still being marketed by proprietary pharmaceutical companies. The first company to market a generic product is often initially able to achieve high sales, profitability and market share with respect to that product. Prices, revenue and market size for a product typically decline, however, as additional generic manufacturers enter the market.

APP faces, and FK Holdings will face, competition from major, brand-name pharmaceutical companies as well as generic manufacturers such as Hospira, Inc., Bedford Laboratories, Baxter Laboratories (including Elkin-Sinn), SICOR Inc. (acquired by Teva Pharmaceuticals USA) and Mayne Pharma (acquired by Hospira, Inc.) and, in the future, increased competition from new, foreign competitors. Smaller and foreign companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies. Some of APP’s competitors have significantly greater research and development, financial, sales and marketing, manufacturing, regulatory and other resources than APP and FK Holdings. As a result, they may be able to devote greater resources to the development, manufacture, marketing or sale of their products, receive greater resources and support for their products, initiate or withstand substantial price competition, more readily take advantage of acquisition or other opportunities, or otherwise more successfully market their products.

Any reduction in demand for the products of APP and FK Holdings could lead to a decrease in prices, fewer customer orders, reduced revenues, reduced margins, reduced levels of profitability or loss of market share.

 

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These competitive pressures could adversely affect their business and operating results, which could have an adverse effect on FK Holdings’ ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs.

APP and FK Holdings face uncertainty related to pricing and reimbursement and health care reform.

In both domestic and foreign markets, sales of the products of APP and FK Holdings will depend, in part, on the availability of reimbursement from third-party payors such as government health administration authorities, private health insurers, health maintenance organizations and other health care-related organizations. However, reimbursement by such payors is presently undergoing reform, and there is significant uncertainty at this time how this will affect sales of certain pharmaceutical products. There is possible U.S. legislation or regulatory action affecting, among other things, pharmaceutical pricing and reimbursement, including under Medicaid and Medicare, and the importation of prescription drugs that are marketed outside the U.S. and sold at prices that are regulated by governments of various foreign countries.

Medicare, Medicaid and other governmental reimbursement legislation or programs govern drug coverage and reimbursement levels in the United States. Federal law requires all pharmaceutical manufacturers to rebate a percentage of their revenue arising from Medicaid-reimbursed drug sales to individual states. Generic drug manufacturers’ agreements with federal and state governments provide that the manufacturer will remit to each state Medicaid agency, on a quarterly basis, 11% of the average manufacturer price for generic products marketed and sold under abbreviated new drug applications covered by the state’s Medicaid program. For proprietary products, which are marketed and sold under new drug applications, manufacturers are required to rebate the greater of (a) 15.1% of the average manufacturer price or (b) the difference between the average manufacturer price and the manufacturer’s best price to any customer for products sold during a specified period. The Medicaid program also requires pharmaceutical manufacturers to report certain information to the Centers for Medicare & Medicaid Services (CMS) on a periodic basis, including average manufacturer price and best price. The Medicare program requires manufacturers of Part B drugs, generally injectables, to report average sales price to CMS on a quarterly basis. If a pharmaceutical manufacturer is found to have knowingly submitted false information to the government, it may be liable for civil monetary penalties per item of false information.

Both the federal and state governments in the United States and foreign governments continue to propose and pass new legislation, rules and regulations designed to contain or reduce the cost of health care. Existing regulations that affect the price of pharmaceutical and other medical products may also change before any of the products of APP and FK Holdings are approved for marketing. Cost control initiatives could decrease the price that APP and FK Holdings receive for any product they develop in the future. In addition, third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services and litigation has been filed against a number of pharmaceutical companies in relation to these issues. Additionally, significant uncertainty exists as to the reimbursement status of newly approved injectable pharmaceutical products. The products of APP and FK Holdings may not be considered cost effective or adequate third-party reimbursement may not be available to enable APP and FK Holdings to maintain price levels sufficient to realize an adequate return on their investment.

If APP and FK Holdings are unable to maintain APP’s key customer arrangements, sales of their products and revenue would decline.

Almost all injectable pharmaceutical products are sold to customers through arrangements with group purchasing organizations, or GPOs, and distributors. The majority of hospitals contract with the GPO of their choice for their purchasing needs. APP currently derives, and APP and FK Holdings expect to continue to derive, a large percentage of its and their revenue through a small number of GPOs. Currently, fewer than ten GPOs control a large majority of sales to hospital customers.

 

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APP has purchasing arrangements with the major GPOs in the United States, including AmeriNet, Inc., Broadlane Healthcare Corporation, Consorta, Inc., MedAssets Inc., Novation, LLC, Owen Healthcare, Inc., PACT, LLC, Premier Purchasing Partners, LP, International Oncology Network, National Oncology Alliance, and U.S. Oncology, Inc. In order to maintain these relationships, APP and FK Holdings believe they need to be a reliable supplier, offer a broad product line, remain price competitive, comply with FDA regulations and provide high-quality products. The GPOs through which APP sells its products also have purchasing agreements with other manufacturers that sell competing products and the bid process for products such as those of APP and FK Holdings is highly competitive. Most of APP’s GPO agreements may be terminated on short notice. If APP and FK Holdings are unable to maintain these arrangements with GPOs and key customers, revenue of the products of APP and FK Holdings would decline, which could have an adverse effect on FK Holdings’ ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVRs.

The strategy to license rights to or acquire and commercialize proprietary or other specialty injectable products may not be successful, and APP and FK Holdings may never receive any return on their investment in these product candidates.

APP and FK Holdings may license rights to or acquire or commercialize proprietary or other specialty injectable products or technologies. Other companies, including those with substantially greater financial and sales and marketing resources, will compete with APP and FK Holdings to license rights to or acquire or commercialize these products. APP and FK Holdings may not be able to license rights to or acquire these proprietary or other products or technologies on acceptable terms, if at all. Even if APP and FK Holdings obtain rights to a pharmaceutical product and commit to payment terms, including, in some cases, up-front license payments, APP and FK Holdings may not be able to generate product sales sufficient to create a profit or otherwise avoid a loss.

A product candidate may fail to result in a commercially successful drug for other reasons, including the possibility that the product candidate may:

 

   

fail to receive necessary regulatory approvals;

 

   

be difficult or uneconomical to produce in commercial quantities;

 

   

be precluded from commercialization by proprietary rights of third parties; or

 

   

fail to achieve market acceptance.

The marketing strategy, distribution channels and levels of competition with respect to any licensed or acquired product may be different from those of APP’s current products, and APP and FK Holdings may not be able to compete favorably in any new product category.

APP depends and FK Holdings will depend heavily on the principal members of APP’s management team, the loss of whom could harm their business.

APP depends and FK Holdings will depend heavily on the principal members of APP’s executive management team. Each of the members of APP’s executive management team is employed “at will.” The loss of the services of any member of APP’s executive management team may significantly delay or prevent the achievement of product development or business objectives of APP and FK Holdings.

To be successful, APP and FK Holdings must attract, retain and motivate key employees, and the inability to do so could seriously harm their operations.

To be successful, APP and FK Holdings must attract, retain and motivate executives and other key employees. APP and FK Holdings face competition for qualified scientific, technical and other personnel, which may adversely affect their ability to attract and retain key personnel. APP and FK Holdings also must attract and motivate employees and keep them focused on their strategies and goals.

 

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APP depends on third parties to supply raw materials and other components and APP and FK Holdings may not be able to obtain sufficient quantities of these materials, which will limit their ability to manufacture their products on a timely basis and harm their operating results.

The manufacture of APP’s products requires raw materials and other components that must meet stringent FDA requirements. Some of these raw materials and other components are available only from a limited number of sources. Additionally, APP’s regulatory approvals for each particular product specify the raw materials and components, and the suppliers for such materials, that APP and FK Holdings may use for that product. Obtaining approval to change, substitute or add a raw material or component, or the supplier of a raw material or component, can be time consuming and expensive, as testing and regulatory approval is necessary. If their suppliers are unable to deliver sufficient quantities of these materials on a timely basis or they encounter difficulties in their relationships with these suppliers, the manufacture and sale of their products may be disrupted, and their business, operating results and reputation could be adversely affected.

Other companies may claim that APP and FK Holdings infringe their intellectual property or proprietary rights, which could cause APP and FK Holdings to incur significant expenses or prevent them from selling their products.

The success of APP and FK Holdings depends in part on their ability to operate their business without infringing the patents and proprietary rights of third parties. The manufacture, use, offer for sale and sale of pharmaceutical products have been subject to substantial litigation in the pharmaceutical industry. These lawsuits relate to the enforceability, validity and infringement of patents or proprietary rights of third parties. Infringement litigation is prevalent with respect to generic versions of products for which the patent covering the brand name product is expiring, particularly since many companies which market generic products focus their development efforts on products with expiring patents. A number of pharmaceutical companies, biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover aspects of APP’s and FK Holdings’ products or their licensors’ products, product candidates or other technologies.

Future or existing patents issued to third parties may contain claims that conflict with the products of APP and FK Holdings. APP and FK Holdings are subject to infringement claims from time to time in the ordinary course of their business, and third parties could assert infringement claims against APP and FK Holdings in the future with respect to APP’s current products, products APP and FK Holdings may develop or products APP and FK Holdings may license. In addition, APP’s patents and patent applications, or those of the licensors of APP and FK Holdings, could face other challenges, such as interference, opposition and reexamination proceedings. Any such challenge, if successful, could result in the invalidation of, or a narrowing of scope of, any such patents and patent applications. Litigation or other proceedings could force APP and FK Holdings to:

 

   

stop or delay selling, manufacturing or using products that incorporate or are made using the challenged intellectual property;

 

   

pay damages; or

 

   

enter into licensing or royalty agreements that may not be available on acceptable terms, if at all.

Any litigation or interference proceedings, regardless of their outcome, would likely delay the regulatory approval process, be costly and require significant time and attention of key management and technical personnel.

APP’s and FK Holdings’ inability to protect their intellectual property rights in the United States and foreign countries could limit their ability to manufacture or sell their products.

APP relies and FK Holdings will rely on trade secrets, unpatented proprietary know-how, continuing technological innovation and patent protection to preserve their competitive position. The patents of APP and

 

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those for which it has or will license rights, may be challenged, invalidated, infringed or circumvented, and the rights granted in those for which APP and FK Holdings hold patents may not provide proprietary protection or competitive advantages to APP and FK Holdings. APP and FK Holdings and their licensors may not be able to develop patentable products. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to APP and FK Holdings. Third-party patents could reduce the coverage of the patents licensed, or that may be licensed to or owned by APP and FK Holdings. If patents containing competitive or conflicting claims are issued to third parties, APP and FK Holdings may be prevented from commercializing the products covered by such patents, or may be required to obtain or develop alternate technology. In addition, other parties may duplicate, design around or independently develop similar or alternative technologies.

APP and FK Holdings may not be able to prevent third parties from infringing or using their intellectual property. APP generally controls and limits access to, and the distribution of, its product documentation and other proprietary information. Despite these efforts to protect this proprietary information, however, unauthorized parties may obtain and use information that APP and FK Holdings regard as proprietary. Other parties may independently develop similar know-how or may even obtain access to the technologies of APP and FK Holdings.

The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries.

The U.S. Patent and Trademark Office and the courts have not established a consistent policy regarding the breadth of claims allowed in pharmaceutical patents. The allowance of broader claims may increase the incidence and cost of patent interference proceedings and the risk of infringement litigation. On the other hand, the allowance of narrower claims may limit the value of the proprietary rights of APP and FK Holdings.

APP and FK Holdings may become subject to federal and state false claims or other similar litigation brought by private individuals and the government.

The Federal False Claims Act allows persons meeting specified requirements to bring suit alleging false or fraudulent Medicare or Medicaid claims and to share in any amounts paid to the government in fines or settlement. These suits, known as qui tam actions, have increased significantly in recent years and have increased the risk that a health care company will have to defend a false claim action, pay fines and/or be excluded from Medicare and Medicaid programs. Federal false claims litigation can lead to civil monetary penalties, criminal fines and imprisonment and/or exclusion from participation in Medicare, Medicaid and other federally-funded health programs. Other alternate theories of liability may also be available to private parties seeking redress for such claims. A number of parties have brought claims against numerous pharmaceutical manufacturers, and APP and FK Holdings cannot be certain that such claims will not be brought against APP and FK Holdings, or if they are brought, that such claims might not be successful. A majority of states have enacted their own false claim act statutes and have used them to bring similar suits against pharmaceutical manufacturers.

APP and FK Holdings may need to change APP’s business practices to comply with changes to, or may be subject to charges under, the fraud and abuse laws.

APP is, and FK Holdings will be, subject to various federal and state laws pertaining to health care fraud and abuse, including the federal Anti-Kickback Statute and its various state analogues, the federal False Claims Act and marketing and pricing laws. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state health care programs such as Medicare and Medicaid. APP believes that it is in substantial compliance with these laws, but the government could disagree and challenge APP’s practices, which could materially and adversely affect APP’s and FK Holdings’ business. APP and FK Holdings may have to change APP’s advertising and promotional

 

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business practices, or APP’s existing business practices could be challenged as unlawful due to changes in laws, regulations or rules or due to administrative or judicial findings, which could materially adversely affect their business.

APP and FK Holdings may be required to defend lawsuits or pay damages for product liability claims.

Product liability is a major risk in testing and marketing pharmaceutical products. APP and FK Holdings may face substantial product liability exposure for products that they sell after regulatory approval. Historically, APP has carried product liability insurance and APP and FK Holdings expect to continue to carry such policies. Product liability claims, regardless of their merits, could exceed policy limits, divert management’s attention and adversely affect the reputation of APP and FK Holdings and the demand for their products.

APP and FK Holdings are subject to risks associated with international expansion, which could harm both domestic and international operations.

The business strategy of APP and FK Holdings includes international expansion. This could impose substantial burdens on the resources of APP and FK Holdings, divert management’s attention from domestic operations or otherwise harm their business, thereby having an adverse effect on FK Holdings’ ability to achieve the Adjusted EBITDA threshold required to trigger a payment under the CVR. Moreover, under the CVR indenture, revenue derived from the sale of products outside North America is excluded in calculating Adjusted EBITDA.

APP may be required to indemnify Abraxis BioScience, Inc. and may not be able to collect on indemnification rights from Abraxis BioScience.

Under the terms of the separation and distribution agreement relating to the separation of Abraxis BioScience, Inc. from APP in November 2007, Abraxis BioScience agreed to indemnify APP from and after the spin-off with respect to all liabilities of the pre-separation company not related to APP’s business and the use by APP of any trademarks or other source identifiers owned by Abraxis BioScience. Similarly, APP agreed to indemnify Abraxis BioScience from and after the spin-off with respect to all liabilities of the pre-separation company related to APP’s business and the use by Abraxis BioScience of any trademarks or other source identifiers owned by APP. Under the terms of a tax allocation agreement relating to the separation of Abraxis BioScience from APP, Abraxis BioScience agreed to indemnify APP against all tax liabilities to the extent they relate to the proprietary products business, and APP agreed to indemnify Abraxis BioScience against all tax liabilities to the extent they relate to the hospital-based products business. In addition, Abraxis BioScience agreed to indemnify APP against any tax liability arising as a result of the spin-off failing to qualify as a tax-free distribution unless such tax liability is imposed as a result of an acquisition of APP, including the merger, or certain other specified acts of APP. Under the terms of a manufacturing agreement relating to the separation of Abraxis BioScience from APP, Abraxis BioScience agreed to indemnify APP from any damages resulting from a third-party claim caused by or alleged to be caused by (i) Abraxis BioScience’s failure to perform its obligations under the manufacturing agreement; (ii) any product liability claim arising from the negligence, fraud or intentional misconduct of Abraxis BioScience or any of its affiliates or any product liability claim arising from Abraxis BioScience’s manufacturing obligations (or any failure or deficiency in Abraxis BioScience’s manufacturing obligations) under the manufacturing agreement; (iii) any claim that the manufacture, use or sale of APP’s pipeline products infringes a patent or any other proprietary right of a third party; or (iv) any recall, product liability claim or other third-party claim not arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by, APP by reason of the $100 million limitation of liability described below. Abraxis BioScience also agreed to indemnify APP for liabilities that Abraxis BioScience becomes subject to as a result of Abraxis BioScience’s activities under the manufacturing agreement and for which Abraxis BioScience is not responsible under the terms of the manufacturing agreement. APP agreed to indemnify Abraxis BioScience from any damages resulting from a third-party claim caused by or alleged to be caused by (i) APP’s gross negligence, bad faith, intentional

 

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misconduct or intentional failure to perform its obligations under the manufacturing agreement; or (ii) any product liability claim arising from the gross negligence or bad faith of, or intentional misconduct or intentional breach of the manufacturing agreement by APP. APP generally will not have any liability for monetary damages to Abraxis BioScience or third parties in connection with the manufacturing agreement for damages in excess of $100 million in the aggregate. There are no time limits on when an indemnification claim must be brought and no other monetary limits on the amount of indemnification that may be provided. In addition, indemnification obligations could be significant. APP’s ability to satisfy any of these indemnification obligations will depend upon the future financial strength of APP. APP cannot determine whether it will have to indemnify Abraxis BioScience for any substantial obligations after the separation. In addition, APP and FK Holdings also cannot assure you that, if Abraxis BioScience becomes obligated to indemnify APP for any substantial obligations, Abraxis BioScience will have the ability to satisfy those obligations.

 

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THE PARTIES TO THE MERGER

APP Pharmaceuticals, Inc.

1501 East Woodfield Road, Suite 300 East

Schaumburg, IL 60173

Telephone: (847) 969-2700

APP is a fully-integrated pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products with a primary focus on the oncology, anti-infective, anesthetic/analgesic and critical care markets. APP offers one of the most comprehensive product portfolios used in hospitals, long-term care facilities, alternate care sites and clinics within North America and manufactures a comprehensive range of dosage formulations.

For more information about APP, please visit its website at http://www.apppharma.com. APP’s website address is provided as an inactive textual reference only. The information provided on APP’s website is not part of this information statement/prospectus and is not incorporated by reference. APP common stock is publicly traded on the NASDAQ Global Select Market under the symbol “APPX.” For more information on APP, see the section entitled “Where You Can Find More Information.”

Fresenius SE

Else-Kroener-Strasse 1

61352 Bad Homburg v.d.H.

Germany

Telephone: +49 (6172) 608 0

Fresenius is a healthcare group with products and services for dialysis, hospital and medical care of patients at home. In addition, Fresenius focuses on hospital operations as well as on engineering and services for hospitals. The Fresenius group consists of Fresenius Medical Care, Fresenius Kabi, Fresenius Helios and Fresenius Vamed. The Fresenius group had total assets of €15,324 million as of December 31, 2007, and sales of €11,358 million for the year ending December 31, 2007, in each case determined in accordance with U.S. GAAP.

For more information about Fresenius, please visit its website at www.fresenius.com. Fresenius’ website address is provided as an inactive textual reference only. The information provided on Fresenius’ website is not part of this information statement/prospectus and is not incorporated by reference. Fresenius’ ordinary shares are publicly traded on the Official Market at the stock exchanges in Frankfurt, Düsseldorf and Munich under the symbol “FRE.”

Fresenius Kabi Pharmaceuticals Holding, Inc.

Else-Kroener-Strasse 1

61352 Bad Homburg v.d.H.

Germany

Telephone: +49 (6172) 608 0

FK Holdings is an indirect, wholly-owned subsidiary of Fresenius. FK Holdings was formed solely for the purpose of executing the merger, to act as the holding company of APP and to issue the CVRs. FK Holdings has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement, and has no material assets, liabilities or operating history. Upon completion of the merger, APP will be a direct, wholly-owned subsidiary of FK Holdings.

 

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Fresenius Kabi Pharmaceuticals, LLC

Else-Kroener-Strasse 1

61352 Bad Homburg v.d.H.

Germany

Telephone: +49 (6172) 608 0

Merger Sub was formed solely for the purpose of facilitating the merger. Merger Sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement. By operation of the merger, Merger Sub will be merged into APP, Merger Sub’s separate existence will cease and APP will be a direct, wholly-owned subsidiary of FK Holdings.

 

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THE MERGER

The following is a description of the material aspects of the merger. While we believe that the following description covers the material terms of the merger, the description may not contain all of the information that may be important to you. The discussion of the merger in this information statement/prospectus is qualified in its entirety by reference to the merger agreement, which is attached to this information statement/prospectus as Annex A and incorporated by reference into this document. We encourage you to read carefully this entire information statement/prospectus, including the merger agreement, for a more complete understanding of the merger.

Background of the Merger

On February 19, 2008, Dr. Soon-Shiong, APP’s Chairman and then-CEO, received an unsolicited telephone call from a senior executive of a company we refer to as potential acquiror A, inviting Dr. Soon-Shiong to a meeting on February 26, 2008. Dr. Soon-Shiong met with executives of potential acquiror A in New York on February 26, 2008. At the meeting, the executives of potential acquiror A expressed interest in exploring a potential acquisition of APP, and Dr. Soon-Shiong and potential acquiror A’s executives discussed general industry trends and the potential strategic fit of their two companies. Following this meeting, APP sent a draft confidentiality agreement to potential acquiror A on February 28, 2008.

On February 29, 2008, Dr. Soon-Shiong received an unsolicited telephone call from a senior executive of a company we refer to as potential acquiror B expressing interest in exploring strategic opportunities with APP. This telephone call was followed up by a call on March 7, 2008, from the senior executive of potential acquiror B to Dr. Soon-Shiong to invite him to meet with potential acquiror B’s CEO and other members of potential acquiror B’s leadership team to discuss strategic opportunities.

On March 11, 2008, Dr. Soon-Shiong met with potential acquiror B’s CEO and other members of potential acquiror B’s leadership team in Boston to discuss strategic opportunities. A representative of Lazard also attended this meeting. At the meeting, the leadership team of potential acquiror B informed Dr. Soon-Shiong that APP had been under their internal review for some time and the parties discussed general industry trends and the potential strategic fit of their two companies.

On March 19, 2008, Dr. Soon-Shiong, Mr. Richard Maroun, general counsel of APP, and representatives of Lazard, Goldman Sachs, and Fried, Frank, Harris, Shriver & Jacobson LLP, counsel to APP, which we refer to as Fried Frank, and executives of potential acquiror B and its advisors participated in a telephone conference regarding potential acquiror B’s interest in exploring strategic opportunities with APP and various due diligence matters. On March 28, 2008, Dr. Soon-Shiong met in Los Angeles with potential acquiror B’s CEO and another member of potential acquiror B’s leadership team. At the meeting, potential acquiror B’s CEO reiterated potential acquiror B’s interest in exploring a transaction with APP and the parties discussed generally potential strategic opportunities and the strategic fit of their two companies.

On March 31, 2008, a member of potential acquiror B’s management sent a letter to Dr. Soon-Shiong stating that potential acquiror B had been internally discussing a potential transaction with APP for several months and that potential acquiror B was very interested in further exploring the opportunity for a potential transaction with APP. The letter requested that APP execute and return to potential acquiror B a draft confidentiality agreement. On the same date, a representative of potential acquiror B sent an email to a representative of Lazard regarding initial diligence items that potential acquiror B would require to evaluate the possibility of a potential acquisition of APP.

During the week of March 31, 2008, a representative of Lazard received an unsolicited telephone call from a private equity firm we refer to as potential acquiror C, expressing its interest in exploring a potential transaction with APP.

 

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On April 2, 2008, at a special meeting of APP’s board of directors, Dr. Soon-Shiong described to the board of directors the unsolicited expressions of interest that APP had received from potential acquirors A and B. At the meeting, the board of directors authorized Dr. Soon-Shiong and APP management to undertake further discussions with the potential acquirors regarding strategic opportunities and execute confidentiality agreements if necessary and subsequently share confidential information with potential acquirors. APP’s board of directors also authorized the engagement of Lazard and Goldman Sachs as financial advisors to assist APP in evaluating potential acquirors’ expressions of interest. That same day, potential acquiror A sent Dr. Soon-Shiong a letter indicating its interest in evaluating a possible business transaction with APP. The letter was accompanied by an executed confidentiality agreement.

On April 8, 2008, APP’s board of directors held a special meeting to discuss the unsolicited expressions of interest that APP had received from potential acquirors. Representatives of Goldman Sachs, Lazard and Fried Frank were present at the meeting. At the meeting, representatives of Fried Frank discussed with the APP directors their fiduciary duties in evaluating a potential business combination involving APP. Also, at the meeting, Goldman Sachs and Lazard identified other companies that might be interested in acquiring APP, including Fresenius, and discussed making these other companies aware that APP was currently reviewing indications of interest which it had received and that they should contact APP if they were interested in pursuing a potential transaction.

During the week of April 8, 2008, after discussions with its financial advisors, APP concluded that potential acquiror C, as a financial acquiror, was unlikely to be able to realize meaningful synergies or other strategic benefits from an acquisition of APP. In light of the foregoing and the difficult financing market faced by private equity firms, APP, together with its financial advisors, determined that potential acquiror C was unlikely to be able to make an attractive proposal to acquire APP and declined to pursue discussions with potential acquiror C.

On April 11, 2008, potential acquiror B’s legal counsel and Fried Frank met to discuss various due diligence matters.

On April 14, 2008, Goldman Sachs and Lazard delivered a confidential information memorandum containing non-public information regarding APP’s financial condition to potential acquirors A and B, respectively.

On April 16, 2008, Dr. Soon-Shiong and representatives of Goldman Sachs and Lazard met with representatives of potential acquiror B in Los Angeles to discuss APP’s business and future prospects and to respond to due diligence questions from potential acquiror B. Beginning on April 18, 2008, APP granted potential acquiror B and its legal and financial advisors access to due diligence materials in APP’s on-line data room.

In mid-April 2008, representatives of Lazard and Goldman Sachs informed the other companies viewed as potentially having an interest in pursuing a transaction with APP and discussed at the April 8 board meeting, including Fresenius, on a confidential basis that APP had received indications of interest regarding a potential acquisition of APP. In the case of Fresenius, a Lazard representative advised Fresenius that it should inform a representative of Lazard or APP if it was interested in exploring a potential business combination with APP. On April 21, 2008, a representative of Fresenius contacted a representative of Lazard to indicate Fresenius’s interest in a potential transaction with APP. On the same day, Dr. Ulf M. Schneider, Chief Executive Officer of Fresenius, sent a letter to Dr. Soon-Shiong requesting a meeting to discuss the possibility of business cooperation between Fresenius and APP. Thereafter, APP sent a draft confidentiality agreement to Fresenius.

On April 22, 2008, Dr. Soon-Shiong and representatives of Goldman Sachs and Lazard met with representatives of potential acquiror A in Los Angeles to discuss APP’s business and future prospects and to respond to due diligence questions from potential acquiror A. Beginning on April 23, 2008, APP granted potential acquiror A and its legal and financial advisors access to the due diligence materials maintained in APP’s on-line data room.

 

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On April 25, 2008, APP received an executed confidentiality agreement from Fresenius and on April 26, 2008 Lazard delivered the confidential information memorandum to Fresenius.

During the week of April 28, 2008, a representative of Lazard received an unsolicited telephone call from a company we refer to as potential acquiror D, expressing interest in exploring a potential acquisition of APP. On May 1, 2008, APP sent a draft confidentiality agreement to potential acquiror D. Beginning on May 1, 2008, APP granted Fresenius access to the due diligence materials maintained in APP’s online data room.

On May 2, 2008, Dr. Soon-Shiong and representatives of Goldman Sachs and Lazard met with representatives of Fresenius in Los Angeles to discuss APP’s business and future prospects and to respond to due diligence questions from Fresenius.

During the week of May 5, 2008, Goldman Sachs and Lazard distributed a letter to Fresenius and potential acquirors A and B indicating to each that APP had received multiple expressions of interest in a transaction with APP and, if those parties remained interested in a potential transaction with APP, instructions for delivering a non-binding acquisition proposal to APP.

On May 9, 2008, Mr. Maroun of APP and representatives of Fried Frank, Goldman Sachs and Lazard participated in a due diligence telephone conference with representatives of potential acquiror A.

On May 13, 2008, Mr. Maroun of APP and representatives of Fried Frank, Goldman Sachs and Lazard participated in a due diligence telephone conference with representatives of Fresenius.

On May 16, 2008, Fresenius submitted a letter to Goldman Sachs and Lazard in which it outlined a non-binding, preliminary proposal, subject to further due diligence, to acquire the outstanding shares of APP common stock. The letter indicated that Fresenius had retained Deutsche Bank AG, which we refer to as Deutsche Bank, as its financial advisor and Skadden, Arps, Slate, Meagher & Flom (UK) LLP, which we refer to as Skadden Arps, as its legal counsel. This initial proposal contemplated the acquisition by Fresenius of 90% of the outstanding shares of APP common stock at a price per share of $20 in cash plus a CVR with a maximum payout of $6.66 per share based on APP achieving certain Adjusted EBITDA targets over an unspecified period. This proposal also required that Dr. Soon-Shiong and entities affiliated with him, who collectively hold approximately 81.1% of the outstanding shares of APP common stock and who we refer to as the “principal stockholders,” agree to “rollover” shares of APP representing 10% of the outstanding shares of APP common stock into equity interests of a subsidiary of Fresenius that would own 100% of the outstanding shares of APP after the proposed transaction. That same day, potential acquiror B also submitted a letter to Dr. Soon-Shiong in which it outlined a non-binding, preliminary proposal, subject to further due diligence, to acquire 100% of the outstanding shares of APP common stock.

On May 23, 2008, potential acquiror A submitted a letter to Dr. Soon-Shiong in which it outlined a non-binding, preliminary proposal, subject to further due diligence, to acquire 100% of the outstanding shares of APP common stock.

In the morning of May 26, 2008, Dr. Schneider and Mr. Stefan Sturm, Chief Financial Officer of Fresenius, met Dr. Soon-Shiong in Los Angeles to explain the Fresenius non-binding proposal in more detail.

During the week of May 26, 2008, representatives of Fresenius attended management presentations with the senior management of APP in Schaumburg, Illinois and visited the Melrose Park, Illinois facilities.

Also during the week of May 26, 2008, a representative of Lazard received a telephone call from a representative of potential acquiror D reiterating potential acquiror D’s interest in exploring a potential acquisition of APP. On May 27, 2008, potential acquiror D delivered an executed confidentiality agreement to

 

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APP. APP, through its advisors, provided potential acquiror D a copy of the confidential information memorandum and asked potential acquiror D to provide an indication of the value it attributed to APP’s business within one week. Potential acquiror D did not submit a formal indication of interest, but orally provided to APP’s advisors a range of the value it ascribed to APP’s business.

On May 28, 2008, at a special meeting of the board of directors of APP, Dr. Soon-Shiong provided the board an update regarding the proposals that APP received from Fresenius and potential acquirors A and B. After discussion, the board of directors of APP authorized management together with APP’s financial advisors to more fully analyze the indications of interest.

During the week of June 2, 2008, representatives of Fresenius visited APP’s Grand Island, New York and Puerto Rico manufacturing facilities.

Also, during the week of June 2, 2008, after discussions with its advisors, and on the basis of potential acquiror D’s proposed range of values for APP’s business as well as perceived potential regulatory barriers, APP, together with its advisors, concluded that it should discontinue discussions with potential acquiror D. Accordingly, Goldman Sachs, on behalf of APP, informed potential acquiror D that APP would not explore a potential transaction with potential acquiror D.

On June 6, 2008, drafts prepared by Fried Frank of a merger agreement and voting agreement to be executed by the principal stockholders were circulated to Fresenius and potential acquirors A and B.

On June 9, 2008, Fresenius submitted a letter to Goldman Sachs and Lazard in which it outlined a revised non-binding proposal to acquire the outstanding shares of APP common stock. The proposal was conditioned upon Fresenius being granted an exclusivity period to negotiate a potential transaction with APP until June 30, 2008. Fresenius subsequently revoked this non-binding proposal when APP declined to grant Fresenius the negotiating exclusivity within the time period specified in Fresenius’ June 9 letter.

From June 9 to June 13, 2008, potential acquiror A attended management presentations with APP’s senior management in Schaumburg, Illinois and conducted site visits at APP’s facilities. From June 10 to June 17, 2008, potential acquiror B attended management presentations with APP’s senior management in Schaumburg, Illinois and conducted site visits at APP’s facilities.

On June 11, 2008, potential acquiror A’s legal counsel and Fried Frank met to discuss various due diligence matters.

On June 16, 2008, at a special meeting of the APP board, representatives of Goldman Sachs and Lazard discussed with the board the terms of the non-binding proposals received from Fresenius and potential acquirors A and B, including the terms of Fresenius’ proposed CVR and rollover. Goldman Sachs and Lazard also reviewed with the board preliminary financial analyses of APP.

At this meeting, the board determined that, in light of the non-binding proposals, and in particular, the fact that the Fresenius proposal contemplated a “rollover” that was potentially beneficial to the principal stockholders and which was not being offered to other APP stockholders, it was appropriate to establish a special committee of independent directors, comprised of Michael Blaszyk and Stuart DePina, to assist the board in evaluating the proposals and any other alternatives that reasonably might be available to APP, including continuing to conduct business as a stand-alone company, and to make a recommendation to the board as to whether any of these proposals or any available alternatives should be approved and pursued. Each member of the special committee will receive a one-time fee of $50,000 for his service on the special committee.

On June 17, 2008, Goldman and Lazard provided Fresenius and potential acquirors A and B with a request for these parties to submit their final acquisition proposals by the end of the week of June 23, 2008.

 

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On June 20, 2008, representatives of Fresenius, Skadden Arps and Deutsche Bank met with representatives of APP, Fried Frank, Bingham McCutchen LLP, which we refer to as Bingham McCutchen (as legal advisors to the special committee), Goldman Sachs and Lazard at the New York offices of Fried Frank to discuss the draft merger agreement and aspects of Fresenius’ earlier non-binding proposal. Also, on June 20, 2008, representatives of Fried Frank, Goldman Sachs and Lazard participated in a conference call with legal and financial advisors of potential acquiror B to discuss possible terms of a transaction with potential acquiror B.

In the evening of June 20, 2008, Dr. Soon-Shiong met Dr. Schneider in New York to explain the expected next steps in the proposed process.

On June 23, 2008, Skadden Arps delivered to Fried Frank a markup of the draft merger agreement and voting agreement as well as draft term sheets and agreements for the CVRs and the proposed rollover for the principal stockholders. The draft agreements provided for the execution by the principal stockholders of an action by written consent approving and adopting the merger agreement immediately after its execution, thereby approving the merger without the necessity of a subsequent vote of APP’s stockholders, provided for a 15-business day period after signing (extendable by up to 3 additional business days in certain circumstances) during which APP’s board of directors could terminate the agreement to accept a superior acquisition proposal, and prohibited the principal stockholders from engaging in discussions with a third party that made an unsolicited proposal even in circumstances where APP would be permitted under the merger agreement to engage in those discussions. The draft term sheet for the CVRs provided that the CVRs would not be transferable and would not be listed. Skadden Arps also delivered a draft non-competition agreement that Fresenius requested be executed by Dr. Soon-Shiong.

On June 24, 2008, the special committee held a telephonic meeting that was attended by representatives of Bingham McCutchen, Goldman Sachs and Lazard. The special committee reviewed and discussed with Bingham McCutchen, Goldman Sachs and Lazard the terms of the non-binding proposals received from Fresenius and potential acquirors A and B and other relevant matters. Among other things, the meeting participants reviewed and discussed the value of consideration proposed to be paid by Fresenius and the other potential acquirors, the restrictions on APP’s ability to solicit or respond to other transaction proposals that would likely be included in any definitive merger agreement, the differences between the consideration proposed to be paid under the Fresenius proposal for 90% of APP’s outstanding shares and the terms of Fresenius’ proposed rollover by the principal stockholders, and whether other strategic or financial buyers might be willing or able to consummate a transaction at a higher value than the indicative value reflected in the proposals. At this meeting, the special committee formally approved the retention of Bingham McCutchen to act as its legal advisors. In light of Goldman Sachs and Lazard’s involvement with the process and familiarity with APP, the special committee requested that Goldman Sachs and Lazard be engaged to act as financial advisors to the special committee.

At the June 24th meeting, the special committee also discussed with representatives of Goldman Sachs and Lazard the potential risks and implications of continuing to conduct APP’s business on a stand-alone basis. Representatives of Goldman Sachs and Lazard also reviewed with the special committee the financial analyses previously presented by Goldman Sachs and Lazard at a June 16th meeting of the full board. The special committee also discussed with representatives of Goldman Sachs, Lazard and Bingham McCutchen the structure, terms and payout schedule of the CVRs and the rollover contemplated by the Fresenius proposal. At this meeting, representatives of Bingham McCutchen reviewed with the special committee the general fiduciary obligations of directors of a Delaware corporation and the specific fiduciary duties and standards implicated in the context of a sale transaction. In particular, Bingham McCutchen reviewed and discussed with the special committee the board’s obligation to pay particular attention to the interests of APP’s minority stockholders, should a sale of APP be deemed appropriate to pursue, given the voting control of the principal stockholders over APP. The special committee determined that, notwithstanding that at this time no decision had been made to sell APP or to pursue any specific transaction, it would be beneficial and consistent with maximizing value for the minority stockholders if the terms of any definitive sale transaction, should one be pursued, did not contain a materially different mix of consideration for the principal stockholders than would be paid to the other APP stockholders.

 

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On June 24, 2008, representatives of Fried Frank and Bingham McCutchen participated in a telephone conference with representatives of Skadden Arps to provide comments to Skadden Arps on the draft agreements and the CVR and rollover terms sheets furnished by Skadden Arps. On the conference call, representatives of Fried Frank and Bingham McCutchen communicated to Skadden Arps, among other things, that the special committee thought it would be advisable for Fresenius to either eliminate the rollover feature or make it available to all stockholders of APP and for APP’s board of directors to have a period longer than the 15 business days proposed to terminate the merger agreement to accept a superior proposal. On June 25, 2008, Fried Frank distributed to Skadden Arps a revised term sheet for the proposed rollover providing, among other things, that all APP stockholders would have the right to elect to participate in the rollover and that the principal stockholders would elect to participate for a sufficient number of APP shares to ensure that no less than 10% of the outstanding shares of APP common stock would participate in the rollover.

On June 25, 2008, representatives of Fried Frank, Bingham McCutchen, Goldman Sachs and Lazard held a telephone conference with representatives of potential acquiror B to discuss the draft merger agreement previously provided by Fried Frank as well as other possible terms of a transaction with potential acquiror B.

On June 26, 2008, Fresenius submitted a letter to Goldman Sachs and Lazard proposing to acquire 90% of the outstanding shares of APP common stock at a price per share of (i) $23 in cash and (ii) a CVR with a maximum payout of up to an additional $6.00 per share to the extent that the Adjusted EBITDA of APP’s business for the three years ending December 31, 2010, exceeds $1.2677 billion. The proposal contemplated the rollover by the principal stockholders of shares representing 10% of the outstanding shares of APP common stock, but did not provide an opportunity for APP’s other stockholders to participate in the rollover. The proposal letter was accompanied by a revised markup of the merger agreement and voting agreement and written consent as well as revised term sheets and agreements for the CVRs and the proposed rollover. The revised markup of the merger agreement provided for a 20-business day period after signing (extendable by up to 10 additional business days in certain circumstances) during which APP’s board of directors could terminate the agreement to accept a superior proposal, and included a proposal for a break-up fee of $185 million in the event that APP terminated the merger agreement under those circumstances. The revised term sheet for the CVRs provided that the CVRs would be registered with the SEC and listed for trading on an exchange. The proposal was also accompanied by commitment letters from Deutsche Bank to raise or arrange the equity and debt financing for the transaction. The proposal reiterated a request for exclusivity, and indicated that the offer would expire at 11:59 p.m. Eastern Daylight Time on June 28, 2008, if Fresenius were not by then granted negotiating exclusivity until July 11, 2008.

On June 26, 2008, a special meeting of the board of directors of APP was held to discuss the proposal submitted by Fresenius at which representatives of Goldman Sachs, Lazard, Fried Frank and Bingham McCutchen were present. At the meeting, representatives of Goldman Sachs, Lazard, Fried Frank and Bingham McCutchen discussed with the board the terms of the proposal submitted by Fresenius.

On June 27, 2008, potential acquiror A submitted a proposal to acquire all of the outstanding shares of APP common stock for a combination of shares of stock of potential acquiror A and cash. On the same day, potential acquiror B, through potential acquiror B’s financial advisors, orally requested the ability to delay submitting a proposal for two to three weeks in order to complete additional due diligence. Potential acquiror B had not previously indicated to APP or its advisors that it would not submit a proposal on June 27, 2008.

On June 27, 2008, a special meeting of the board of directors of APP was held to discuss the proposal submitted by Fresenius and potential acquiror A at which representatives of Goldman Sachs, Lazard, Fried Frank and Bingham McCutchen were present. At the meeting, representatives of Goldman Sachs, Lazard, Fried Frank and Bingham McCutchen discussed with the board the terms of the proposals submitted by Fresenius and potential acquiror A and the request by potential acquiror B for an additional two to three weeks to submit an acquisition proposal. The APP board determined, after consultations with its advisors, that the Fresenius proposal was more attractive than the proposal submitted by potential acquiror A because the Fresenius proposal provided

 

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APP stockholders with greater value and the opportunity to participate in the upside of the APP business through the CVR. Also at this meeting, Goldman and Lazard noted that they believed they had contacted or been contacted by the most likely acquirors for APP. The board then discussed the exclusivity request submitted by Fresenius in connection with its proposal and instructed Goldman Sachs, Lazard and Fried Frank to communicate to Deutsche Bank and Skadden Arps that APP’s board of directors would be willing to enter into an exclusivity agreement with Fresenius if, among other things, Fresenius would agree to eliminate the proposed rollover by the principal stockholders, provide APP’s board of directors a longer period in which to terminate the merger agreement to accept a superior proposal and reduce the amount of its proposed break-up fee. Later that evening, Goldman Sachs, Lazard and Fried Frank communicated the board’s position to Deutsche Bank and Skadden Arps.

Also on June 27, 2008, special committee member Mr. Blaszyk, who was unable to participate in the earlier board meeting, held a telephonic discussion with representatives of Bingham McCutchen, Goldman Sachs and Lazard to discuss the terms and status of the bid process, including the proposal submitted by Fresenius. During this discussion, representatives of Goldman Sachs and Lazard reviewed with Mr. Blaszyk the matters discussed at the board meeting earlier that day. Representatives of Bingham McCutchen also relayed that the Fresenius proposal included a requirement that APP agree to negotiate exclusively with Fresenius. The participants in the meeting discussed further the indicative value and other terms and conditions of the Fresenius proposal as compared to the proposal received from potential acquiror A and the non-binding proposal previously received from potential acquiror B, including the risks that the Fresenius proposal might be withdrawn if the requested exclusive negotiating rights were not granted.

In the morning of June 28, 2008, Deutsche Bank communicated to Goldman Sachs and Lazard that Fresenius had agreed to eliminate the rollover feature and would be flexible on the other points communicated on behalf of APP’s board of directors. Deutsche Bank reiterated Fresenius’ insistence on an exclusivity period extending through July 11, 2008.

Later that morning, the special committee held a telephonic meeting with representatives of Bingham McCutchen, Goldman Sachs and Lazard to discuss Deutsche Bank’s communication that morning. It was noted that Fresenius had agreed to eliminate the rollover feature. In light of this concession and the other terms and conditions of the proposal submitted by Fresenius, the special committee resolved to recommend to the board of directors that Fresenius be granted exclusivity through July 11, 2008.

In the afternoon of June 28, 2008, a special meeting of the board of directors of APP was held to discuss the communications between Deutsche Bank and Goldman Sachs and Lazard. After discussion, the board, with the unanimous recommendation of the special committee, authorized APP to execute an exclusivity agreement with Fresenius extending through July 11, 2008. Also in the afternoon of June 28, 2008, Lazard, at the direction of APP, informed potential acquiror B and its financial advisors that APP had elected to pursue exclusive negotiations with another party and consequently would not entertain potential acquiror B’s request for additional time to complete due diligence. That same afternoon, potential acquiror A was also notified by Goldman Sachs that APP had elected to pursue exclusive negotiations with another party. In the morning of June 29, 2008, Dr. Schneider met Dr. Soon-Shiong in Los Angeles to explain Fresenius’ position on its binding proposal. At this meeting, Dr. Soon-Shiong explained the position of APP’s board of directors. On June 29, 2008, APP executed the requested exclusivity agreement.

On June 30, 2008, the special committee held a telephonic meeting to review with senior management of APP their views as to the prospects of, and risks to, APP continuing to operate on a stand-alone basis. At that meeting, the special committee discussed with APP management APP’s business and future prospects, including historic experiences in obtaining regulatory approvals for new product launches, management’s current views as to APP’s future position in therapeutic heparin in the United States, the principal competitive pressures that APP currently faces and that management believed could be reasonably anticipated to face in the next few years.

During the week of June 30, 2008, representatives of Fried Frank, Skadden Arps and Bingham McCutchen exchanged numerous drafts of the merger agreement and related disclosure schedules, the CVR indenture and

 

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other related documents, including a consulting agreement with Dr. Soon-Shiong proposed by Fresenius, and made substantial progress toward finalizing the definitive documentation for the transaction. Among the key issues subject to negotiation were the period after signing of the merger agreement during which APP’s board of directors would be permitted to terminate the merger agreement to accept a superior proposal (with the parties agreeing to a period of 25 business days, subject to extension for an additional 15 business days) and the size of break-up fee payable by APP in the event of such a termination (with the parties agreeing to a $140 million fee). In addition, APP insisted on including an obligation of Fresenius to execute definitive financing agreements as soon as reasonably practicable following the signing of the merger agreement and to use commercially reasonable efforts to extend the term of the debt portion of the financing through June 30, 2009. Furthermore, APP negotiated an optional extension of the termination date specified in the merger agreement from March 31, 2009 to June 30, 2009, if certain conditions are met. Fresenius, Deutsche Bank (in its capacity as Fresenius’ financing arranger) and its advisors also completed their due diligence review, which included telephonic due diligence meetings with representatives of APP management, Goldman Sachs and Lazard.

On July 5, 2008, the special committee held a telephonic meeting to discuss the status of negotiations of the transaction documentation, to review the transaction timeline and certain financial analyses of the Fresenius proposal, and to discuss and consider potential advantages and disadvantages of entering into a transaction with Fresenius. In particular, the special committee and representatives of Bingham McCutchen, Goldman Sachs and Lazard discussed the size of the proposed termination fee, which had decreased from $185 million to $140 million in the course of the negotiations, and the length of the proposed period during which APP’s board of directors could terminate the merger agreement to accept a superior proposal, which had increased from a 15-business day period (extendable by up to 3 additional business days) to a 25-business day period (extendable by up to 15 additional business days). The participants in the meeting also discussed the fact that the Fresenius proposal no longer included the requirement for a rollover by the principal stockholders, that the principal stockholders and the other stockholders of APP would all receive the same consideration in the merger, including CVRs, which would be registered securities that would be publicly tradable. The meeting participants also discussed that under the Fresenius proposal, Dr. Soon-Shiong, unlike the other stockholders of APP, would be required to enter into non-competition and consulting agreements with Fresenius, and that at the request of Fresenius he would sit on the board of directors of the company owning the surviving entity. It was noted, however, that the non-competition agreement represented a restriction on Dr. Soon-Shiong (and therefore was not a material benefit to him not shared by the minority stockholders), that payments to be received by Dr. Soon-Shiong under the consulting agreement were customary, would be for consulting services to be provided by Dr. Soon-Shiong following the merger and would not be a material inducement to Dr. Soon-Shiong, when compared to the total consideration to be received by the principal stockholders, as stockholders, under the merger agreement, and that the consulting arrangement and his board seat was proposed by Fresenius, not having been sought by Dr. Soon-Shiong. At this meeting, representatives of Bingham McCutchen reviewed again with the special committee the general fiduciary obligations of directors of a Delaware corporation, and those specific duties implicated in a sale transaction that involves a majority stockholder. The special committee also discussed further with representatives of Bingham McCutchen the current terms and conditions of the Fresenius proposal, including specific deal protection provisions which would prohibit APP from soliciting other acquisition proposals, and would require APP to pay a termination fee to Fresenius if APP were to terminate the merger agreement to accept a superior proposal.

On July 6, 2008, the special committee held a telephonic meeting with representatives of Bingham McCutchen, Goldman Sachs, Lazard and Fried Frank to discuss and consider the negotiated terms of the transaction documents, to complete the special committee’s review and consideration of the proposed merger agreement, and to seek to reach a final determination of the special committee’s views on the merger agreement and the proposed merger as well as the special committee’s recommendation that APP’s board of directors either approve or reject the merger agreement and the proposed merger. Representatives of Goldman Sachs and Lazard discussed and responded to additional questions and requests for clarification from the special committee regarding the financial analyses previously presented to and discussed with the special committee, as well as the views of Goldman Sachs and Lazard on the relative risks and benefits of entering into a sale transaction at this

 

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time. Following further discussion, Goldman Sachs and Lazard orally rendered their respective fairness opinions, which subsequently were confirmed in writing as described below in “The Merger—Opinions of Financial Advisors to APP,” to the effect that, as of July 6, 2008, subject to the qualifications, limitations and assumptions reflected in their respective written opinions, the merger consideration proposed to be received by the stockholders of APP (other than the principal stockholders) pursuant to the merger agreement was fair, from a financial point of view, to such stockholders.

Following additional discussion, after considering, among other things, the factors described below under “The Merger—Reasons for the Merger—Recommendation of the Special Committee of Independent Directors of the APP Board of Directors” the members of the special committee unanimously determined the terms of the definitive merger agreement and the merger contemplated thereby to be advisable, fair to and in the best interests of APP and its stockholders, and further unanimously resolved to recommend that APP’s full board of directors approve the merger agreement and the merger.

Following the special committee meeting, a meeting of APP’s board of directors was convened. At the meeting, representatives of Fried Frank reviewed the fiduciary duties of APP’s directors in considering whether to approve the transaction with Fresenius. Representatives of Goldman Sachs and Lazard then presented their financial analyses of APP and orally rendered their respective fairness opinions, which subsequently were confirmed in writing as described below under “The Merger—Opinions of Financial Advisors to APP,” to the effect that, as of July 6, 2008, subject to the qualifications, limitations and assumptions reflected in their respective written opinions, the merger consideration proposed to be received by the stockholders of APP (other than the principal stockholders) pursuant to the merger agreement was fair, from a financial point of view, to such stockholders. Representatives of Fried Frank then reviewed the terms of the merger agreement and related documents. The special committee then reported on its recommendation of the merger agreement and the merger to the full board of directors and the reasons for its recommendation. After considering, among other things, the factors described below under “The Merger—Reasons for the Merger—The APP Board of Directors’ Reasons for the Merger,” the financial analyses and opinions of Goldman Sachs and Lazard and the recommendation of the special committee, APP’s board of directors adopted resolutions reflecting that the proposed terms of the merger agreement and other transaction documents, and the merger and other transactions contemplated thereby, are advisable, fair to and in the best interests of APP and its stockholders, adopting the merger agreement and other transaction documents, approving the merger and the other transactions contemplated thereby, and recommending that APP’s stockholders adopt the merger agreement and approve the merger and the other transactions contemplated thereby.

After the board meeting adjourned, Fried Frank and Skadden Arps finalized the definitive documentation for the transaction, and the merger agreement and related agreements were executed later that evening. The transaction was publicly announced in a press release issued on July 7, 2008.

Reasons for the Merger

APP Pharmaceuticals, Inc.

Recommendation of the Special Committee of Independent Directors of the APP Board of Directors

In making their determination and recommendation of the merger agreement and the merger, the members of the special committee relied upon, among other things, their personal knowledge of APP and its business and the industry in which APP operates, and consulted with APP’s management with respect to strategic and operational matters pertaining to APP deemed relevant to the members of the special committee for purposes of their determination and recommendation. The special committee also consulted with Bingham McCutchen, Goldman Sachs and Lazard with respect to matters the special committee determined to be reasonably within the experience and expertise of Bingham McCutchen, Goldman Sachs and Lazard, respectively. The special committee also reviewed the financial analyses prepared by Goldman Sachs and Lazard and the assumptions, sensitivities and applicable variables reflected in those analyses and discussed such matters with Goldman Sachs and Lazard.

 

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In determining to recommend that APP’s board of directors adopt a resolution approving the merger agreement and the merger, the special committee reviewed and considered a number of factors, including the following material considerations:

 

   

the fact that the merger consideration will primarily be in the form of cash;

 

   

the fact that the cash consideration represents a minimum fixed amount that will be realized by each stockholder for its shares;

 

   

the fact that the cash consideration in the proposal submitted by Fresenius represents a premium of (i) 29.1% over APP’s stock price at the close of business on July 3, 2008, the last trading day prior to announcement of the merger; (ii) 37.3% over APP’s stock price at the close of business on June 25, 2008, the last trading day prior to receipt of the Fresenius proposal; (iii) 61.9% over the one-month average of APP’s stock price; and (iv) 74.6% over the three-month average of APP’s stock price;

 

   

the fact that, in addition to cash, each APP stockholder will receive SEC-registered and transferable and tradable CVRs, which may provide APP’s stockholders an opportunity to realize additional value by trading those CVRs in the public markets or, to the extent APP as the surviving corporation achieves performance goals, through an additional cash payment of up to $6.00 per CVR under the terms of the CVRs;

 

   

with respect to continuing the business of APP as presently conducted, the special committee’s views on the competitive risks and other risks and uncertainties associated with APP’s business and prospects, including the increasing trend towards pharmaceutical industry consolidation and the status and potential constraints of APP’s financial resources as a stand-alone company;

 

   

the special committee’s belief that the procedures used by Goldman Sachs and Lazard in contacting and responding to other potential acquirors and the process followed by the special committee and APP in negotiating the terms of the merger agreement yielded a full and fair price for APP’s business, and that the merger is fair to, advisable and in the best interests of, APP and its stockholders;

 

   

the fact that the merger agreement permitted APP to review and respond to unsolicited acquisition proposals under certain circumstances and permitted the board of directors, during a specified post-signing “market check” period, to terminate the merger agreement in the exercise of their fiduciary duties to accept a proposal that APP’s board of directors determined in good faith was reasonably expected to be consummated and would have resulted in a transaction more favorable to APP’s stockholders from a financial point of view than the terms and conditions of the merger and the fact that simultaneously with the termination of the merger agreement, the written consent and voting agreement executed by the principal stockholders would terminate;

 

   

the financing commitments obtained by Fresenius;

 

   

the fact that Fresenius’ obligations to complete the merger are not subject to any financing contingency;

 

   

the fact that APP stockholders who did not execute a written consent approving the merger and who follow certain prescribed procedures are entitled to appraisal rights under Delaware law;

 

   

the special committee’s belief that the business of APP could potentially benefit from being part of the larger Fresenius corporate group and having access to its distribution network and customers, and that by virtue of the CVRs, APP’s stockholders would have an opportunity to participate in those potential benefits;

 

   

the financial analyses prepared by Goldman Sachs and Lazard and described below under “The Merger—Opinions of Financial Advisors to APP”; and

 

   

Goldman Sachs’ and Lazard’s respective opinions that, as of the date of their opinions and based upon and subject to the factors and assumptions set forth in their respective opinions, the merger consideration, taken in the aggregate, to be received by the holders (other than the principal stockholders) of APP common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

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The special committee also specifically considered the following terms of the merger agreement:

 

   

the limited number and customary nature of the representations, warranties and covenants of APP in the merger agreement;

 

   

the limited and customary conditions to the parties’ obligations to complete the merger and the fact that there is no financing condition to Fresenius’ obligations;

 

   

the fact that the termination fee payable to Fresenius if APP terminated the merger agreement to pursue a superior proposal pursuant to the terms of the merger agreement was Fresenius’ sole and exclusive remedy for such termination; and

 

   

covenants requiring that Fresenius register the CVRs under the Securities Act, and use its reasonable best efforts to cause those securities to be listed on the NASDAQ Capital Market or another exchange or trading platform deemed suitable by APP and Fresenius.

In addition to the merger agreement, the special committee also reviewed, considered and discussed the terms and potential ramifications of the other transaction documents proposed to be executed in connection with the merger agreement, including the voting agreement and written consent pursuant to which the principal stockholders would approve the merger agreement (unless the merger agreement were subsequently terminated in accordance with its terms), the form of CVR indenture, the equity commitment letter pursuant to which Fresenius would agree to make an equity commitment to FK Holdings to support the payment obligations on the CVRs, the non-competition agreement pursuant to which Dr. Soon-Shiong would agree to certain restrictions on his ability to take specified actions that would compete with APP’s business after the merger, and the consulting agreement pursuant to which Dr. Soon-Shiong would agree to provide certain consulting services to APP as the surviving corporation following the merger and serve as a board member of FK Holdings.

The special committee also considered and balanced against the generally favorable factors considered above, a variety of potential risks and other potentially unfavorable factors, including the following material considerations:

 

   

the potential benefits of the merger may not be realized and therefore the performance goals necessary to trigger payments under the CVRs may not be achieved by APP and FK Holdings, potentially impacting the value and marketability of the CVRs;

 

   

APP has incurred and will continue to incur significant transaction costs and expenses in connection with the proposed transaction, regardless of whether or not the merger is consummated;

 

   

since the merger consideration is primarily in the form of cash, APP stockholders would participate in the future growth of APP as the surviving corporation only though the CVRs, which have a maximum potential payout of $6.00 per CVR;

 

   

since the merger consideration includes the CVRs (which are unsecured obligations and are expressly subordinated to all senior obligations of the issuer), APP’s stockholders are subject, with respect to the portion of the merger consideration represented by the CVRs, to the risk that there may be limitations on paying amounts as and when they become payable to the holders of the CVRs;

 

   

the deal protection measures in the merger agreement, including the limited post-signing “market check” period and the fact that the merger agreement included a $140 million termination fee, may have inhibited other potential acquirors from submitting potentially superior proposals to acquire APP and, if APP had elected to terminate the merger agreement to accept a superior proposal, would have resulted in an immediate $140 million payment obligation to Fresenius;

 

   

APP management’s focus and resources may become diverted from other important business opportunities and operational matters while working to implement the merger, which could adversely affect APP’s business; and

 

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the operations of APP will be restricted by interim operating covenants under the merger agreement during the period between signing the merger agreement and the closing of the merger, which could effectively prohibit APP from undertaking any strategic initiatives or other material transactions to the detriment of APP and its stockholders.

The special committee weighed the potential benefits, advantages and opportunities presented by the proposed merger against the potential risks and other negative factors described above, and after considering such matters unanimously determined the merger agreement and the merger to be advisable, fair to and in the best interests of APP and its stockholders, and unanimously determined to recommend that APP’s board of directors adopt a resolution approving the merger agreement and the merger. The foregoing discussion of the information and factors considered by the special committee in making their determination and recommendation as to the merger agreement and the merger is not intended to be exhaustive, but addresses the principal information and factors considered by the special committee in its review, evaluation and recommendation of the merger agreement and the merger. In reaching its conclusion, and in making its recommendation to the members of APP’s board of directors, the special committee did not find it practicable to assign, and did not assign, any relative or specific weight to the range of information and the many positive and negative factors that were considered, and individual members of the special committee may have given different weight to different factors.

The APP Board of Directors’ Reasons for the Merger

In reaching its decision to approve the merger agreement and approve the merger, the APP board of directors consulted with APP’s management and APP’s legal and financial advisors. In reaching its conclusion that the merger is advisable, fair to and in the best interests of the stockholders of APP, the APP board of directors considered a variety of factors, including the following:

 

   

the unanimous recommendation of a special committee of APP’s independent directors;

 

   

the board of directors’ view that the stand-alone prospects of APP may be adversely impacted by ongoing consolidation and increasing competition in the generic pharmaceutical industry;

 

   

the board of directors’ view that APP’s stockholders will receive value in the merger that is materially greater than the value of APP on a stand-alone basis due to the strategic benefits that Fresenius could potentially realize from the merger; the merger consideration is primarily cash which allows APP stockholders to immediately realize value for their investment and provides certainty of value;

 

   

the fact that the cash portion of the merger consideration alone, excluding the CVR, represents a premium of 74.6% over the three-month average closing price of APP common stock, 61.9% over the one-month average closing price of APP common stock and 29.1% over the closing price of APP common stock on July 3, 2008 (the last trading day before the transaction was announced);

 

   

the fact that the cash portion of the merger consideration alone, excluding the CVR, values APP at attractive multiples of 7.1 times trailing annual net revenues and 18.2 times trailing annual Adjusted EBITDA, in each case, as of March 31, 2008;

 

   

the merger consideration includes the CVRs, which preserves the opportunity for APP stockholders to participate in the future growth of APP;

 

   

the CVRs will be registered and transferable and tradable securities, allowing APP stockholders an opportunity to monetize the CVRs;

 

   

the board of directors’ view that Fresenius has a similar culture as APP, with the same commitment to quality and dedication to patient care, and that together they will have a comprehensive and complementary offering of injectable pharmaceuticals, devices and delivery systems to customers, offering substantial opportunities for growth of APP, thereby increasing the likelihood and amount of a future payout under the CVR;

 

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the merger agreement permitted APP to respond to, and engage in discussions with, third parties who made unsolicited acquisition proposals that were financially superior to the merger and the merger agreement, and permitted the board of directors to terminate the merger agreement to accept a superior proposal during a specified “market check” period;

 

   

the financing commitments received by Fresenius from Deutsche Bank, JPMorgan Chase and Credit Suisse;

 

   

the terms and conditions of the merger agreement, including the limited nature of the closing conditions included in the merger agreement and the fact that the merger agreement does not include a financing condition to closing and Fresenius is obligated to use its reasonable best efforts to execute definitive financing documents at or prior to the execution of the merger agreement;

 

   

the fact that the principal stockholders indicated their support for the merger and their intention to enter into the written consent and voting agreement in support of the merger;

 

   

the fact that the written consent and voting agreement allowed the principal stockholders to participate in discussions with a third party who made an unsolicited acquisition proposal if the board of directors of APP was allowed to undertake discussions with such party under the terms of the merger agreement;

 

   

the fact that the voting agreement terminated if the merger agreement was terminated by APP to accept a superior proposal, allowing the principal stockholders to support such superior proposal;

 

   

APP stockholders who did not execute a written consent approving the merger and who follow certain prescribed procedures are entitled to appraisal rights under Delaware law; and

 

   

the oral opinions of Goldman Sachs and Lazard rendered to the special committee and the board of directors on July 6, 2008, which were subsequently confirmed in writing, to the effect that, as of July 6, 2008, and subject to the factors and assumptions set forth in their respective written opinions, the merger consideration, taken in the aggregate, to be received by the holders (other than the principal stockholders) of shares of APP common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

In the course of its deliberations, the APP board of directors also considered a variety of risks and other potentially negative factors, including the following:

 

   

since the merger consideration includes the CVRs (which are unsecured and subordinated to certain senior obligations of the issuer, including potentially future indebtedness of Fresenius guaranteed by the issuer of the CVRs), APP stockholders are subject, with respect to a portion of the merger consideration, to the risk that the issuer of the CVRs is unable to pay amounts due in respect of the CVRs;

 

   

the deal protection measures in the merger agreement may inhibit some potential acquirors from making competitive acquisition proposals for APP;

 

   

the board of directors’ right to terminate the merger agreement to respond to alternative acquisition proposals and to accept a superior proposal was time limited;

 

   

the fact that the operations of APP will be restricted under the merger agreement during the period between the signing of the merger agreement and closing and that there is no guaranty that the transaction will close;

 

   

the fact that Fresenius requires financing to complete the merger, although there is no financing contingency in the merger agreement;

 

   

Fresenius’ financing commitment expires on March 31, 2009, and notwithstanding Fresenius’ covenant to use its reasonable best efforts to extend such commitment to June 30, 2009, the availability of such extension on commercially reasonable terms is dependent in part on market conditions and the performance of Fresenius’ business; and

 

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certain of APP’s directors and executive officers may receive certain benefits that are different from, and in addition to, those of APP’s other stockholders (See “The Merger—Interests of APP’s Directors and Executive Officers in the Merger” beginning on page 56).

The foregoing discussion of the information and factors considered by the APP board of directors is not exhaustive but is intended to reflect the material factors considered by the APP board of directors. The APP board of directors did not quantify or assign any relative or specific weight to the various factors that it considered. Rather, the APP board of directors based its recommendation on the totality of the information presented to and considered by it. In addition, individual members of the APP board of directors may have given different weights to different factors.

After careful consideration and acting upon the unanimous recommendation of the special committee of APP’s independent directors, at a special meeting held on July 6, 2008, the APP board of directors determined that the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of the APP stockholders and approved the merger agreement.

Fresenius/FK Holdings

The merger represents an important step in Fresenius’ growth strategy. Through the acquisition of APP, Fresenius will gain entry into the U.S. pharmaceuticals market and will achieve a leading position in the global I.V. generics market. The North American platform provides further attractive growth opportunities for Fresenius’ existing product portfolio. Additionally, Fresenius will be able to market APP’s product range through its international marketing and sales network, enabling Fresenius to sell APP’s products globally.

Opinions of Financial Advisors to APP

Goldman, Sachs & Co.

Goldman Sachs rendered its opinion to the board of directors of APP and the special committee that, as of July 6, 2008, and based upon and subject to the factors and assumptions set forth therein, the merger consideration, taken in the aggregate, to be received by the holders (other than the principal stockholders) of shares of APP common stock pursuant to the merger agreement was fair from a financial point of view to such holders. Goldman Sachs subsequently confirmed its earlier opinion by delivery of a written opinion dated as of July 6, 2008.

The full text of the written opinion of Goldman Sachs, dated July 6, 2008, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex D. Goldman Sachs provided its opinion for the information and assistance of the special committee in connection with their consideration of the merger. The Goldman Sachs opinion is not a recommendation as to any action that an APP stockholder should take with respect to the merger.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

   

the merger agreement;

 

   

annual reports to stockholders and Annual Reports on Form 10-K of APP for the year ended December 31, 2007, and of its predecessor company, Abraxis BioScience, for the year ended December 31, 2006;

 

   

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of APP;

 

   

certain other communications from APP to its stockholders; and

 

   

certain internal financial analyses and forecasts for APP prepared by APP’s management and approved by APP for use by Goldman Sachs, which we refer to as the forecasts.

 

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Goldman Sachs also held discussions with members of the senior management of APP regarding their assessment of the past and current business operations, financial condition and future prospects of APP. In addition, Goldman Sachs reviewed the reported price and trading activity for shares of APP common stock, compared certain financial and stock market information of APP with similar information for certain other companies the securities of which are publicly traded, and reviewed the financial terms of certain recent business combinations in the generic pharmaceutical industry specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.

Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it. In that regard, Goldman Sachs assumed with APP’s consent that the forecasts have been reasonably prepared on a basis reflecting the best then available estimates and judgments of the management of APP. In addition, Goldman Sachs did not make any independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of APP and was not furnished with any such evaluation or appraisal. Goldman Sachs also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained without any adverse effect on APP or Fresenius or on the expected benefits of the transaction in any way meaningful to its analysis. Goldman Sachs’ opinion did not address any legal, regulatory, tax or accounting matters.

As described above, Goldman Sachs’ opinion to the board of directors of APP and the special committee was one of many factors taken into consideration by the board of directors of APP and the special committee in making their determination to approve the merger agreement. Goldman Sachs’ opinion addressed only the fairness from a financial point of view, as of the date of its opinion, of the merger consideration, taken in the aggregate, to be received by the holders (other than the principal stockholders ) of shares of APP common stock pursuant to the merger agreement. Goldman Sachs did not express any view on, and its opinion did not address, any other term or aspect of the merger agreement or the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, the principal stockholders, the holders of any other class of securities, creditors or other constituencies of APP or Fresenius; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of APP or Fresenius, or class of such persons in connection with the merger, whether relative to the merger consideration, taken in the aggregate, to be received by the holders pursuant to the merger agreement or otherwise. In addition, Goldman Sachs expressed no opinion as to the prices at which the CVRs would trade at any time. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of its opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and the opinion expressed in its opinion were provided for the information and assistance of the special committee in connection with their consideration of the merger and such opinion did not constitute a recommendation as to how any holder of shares of APP common stock should vote with respect to, or whether such holder should consent to, the merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of APP, Fresenius, FK Holdings and Merger Sub and any of their respective affiliates or any currency or commodity that may be involved in the merger for their own account and for the accounts of their customers. Goldman Sachs acted as financial advisor to the special committee in connection with, and participated in certain of the negotiations leading to, the merger. Goldman Sachs has provided certain investment banking and other financial services to APP and its affiliates from time to

 

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time, including acting as the advisor to the special committee of American Pharmaceutical Partners, a predecessor to Abraxis BioScience, Inc., in connection with the merger of APP and Abraxis in 2006. Goldman Sachs also extended a margin loan to APP’s chairman, Dr. Soon-Shiong, which is secured by certain of the principal stockholders’ shares of APP common stock (aggregate principal amount of $10,000,000, of which approximately $1,400,000 had been drawn as of the date of Goldman Sachs’ opinion), in June 2008, and Goldman Sachs may loan additional amounts to Dr. Soon-Shiong pursuant to a similar credit facility in the future. Goldman Sachs also may provide investment banking and other financial services to APP, Fresenius, FK Holdings and Merger Sub, Dr. Soon-Shiong and their respective affiliates in the future. In connection with the above-described services, Goldman Sachs has received, and may receive, compensation.

The special committee selected Goldman Sachs as one of its financial co-advisors because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated April 3, 2008, the special committee engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction(s) and agreed to pay Goldman Sachs a transaction fee equal to 0.4% of the aggregate consideration paid in such transaction, all of which is payable upon consummation of the transaction. In addition, the special committee has agreed to reimburse Goldman Sachs for its reasonable expenses and any expenses associated with Goldman Sachs’ working on the potential public offering of the APP common stock, arising in connection with this transaction, including attorneys’ fees and disbursements, plus any sales, use or similar taxes arising in connection with the engagement, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Lazard Frères & Co. LLC

Lazard rendered its opinion to the board of directors of APP and the special committee that, as of July 6, 2008, and based upon and subject to the factors and assumptions set forth therein, the merger consideration, taken in the aggregate, to be received by the holders (other than the principal stockholders) of shares of APP common stock pursuant to the merger agreement was fair from a financial point of view to such holders. Lazard subsequently confirmed its earlier opinion by delivery of a written opinion dated July 7, 2008.

The full text of the written opinion of Lazard, dated July 7, 2008, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex E. Lazard provided its opinion for the information and assistance of the board of directors of APP and the special committee in connection with their consideration of the merger. The Lazard opinion is not a recommendation as to any action that an APP stockholder should take with respect to the merger.

Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information available to Lazard as of, the date of Lazard’s opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of Lazard’s opinion. Lazard did not express any opinion as to the price at which shares of APP common stock or CVRs may trade at any time subsequent to the announcement of the merger. The following is a summary of Lazard’s opinion. You are urged to read Lazard’s written opinion carefully in its entirety.

In connection with its opinion, Lazard:

 

   

reviewed the financial terms and conditions of the merger agreement and the related agreements;

 

   

analyzed certain publicly available historical business and financial information relating to APP;

 

   

reviewed various financial forecasts and other data provided to Lazard by the management of APP relating to its business;

 

   

held discussions with members of the senior management of APP with respect to the business and prospects of APP;

 

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reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally comparable to the business of APP;

 

   

reviewed the financial terms of certain business combinations involving companies in lines of business Lazard believed to be generally relevant in evaluating the business of APP;

 

   

reviewed the historical stock prices and trading volumes of APP common stock; and

 

   

conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.

Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of APP or concerning the solvency or fair value of APP, and Lazard was not furnished with such valuation or appraisal. With respect to the financial forecasts it reviewed, Lazard assumed, with the consent of APP, that they have been reasonably prepared on bases reflecting the best then currently available estimates and judgments of the management of APP as to the future financial performance of APP. Lazard assumed no responsibility for and expressed no view as to such forecasts or the assumptions on which they were based.

In rendering its opinion, Lazard assumed, with APP’s consent, that the merger would be consummated on the terms described in the merger agreement and certain related agreements, without any waiver or modification of any material terms or conditions. Lazard further assumed, with APP’s consent, that obtaining the necessary regulatory or third party approvals and consents for the merger would not have an adverse effect on APP or FK Holdings. Lazard did not express any opinion as to any tax or other consequences that might result from the merger, nor did Lazard’s opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that APP obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects of the merger (other than the merger consideration to the extent expressly specified in Lazard’s opinion), including the related agreements. In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the merger, or class of such persons, relative to the merger consideration or otherwise.

Lazard’s engagement and the opinion are for the benefit of the board of directors of APP and the special committee and Lazard’s opinion was rendered to the board of directors of APP and the special committee in connection with its evaluation of the merger. Lazard’s opinion was not intended to and did not constitute a recommendation to any holder of shares of APP common stock as to any action that an APP stockholder should take with respect to the merger or any matter relating thereto.

In connection with Lazard’s services as APP’s financial advisor, APP agreed to pay Lazard an aggregate fee of 0.4% of the aggregate consideration paid in the merger which is contingent upon the consummation of the merger. APP has also agreed to reimburse Lazard for all expenses incurred in connection with the engagement and to indemnify Lazard and certain related parties against certain liabilities under certain circumstances that may arise out of the rendering of its advice, including certain liabilities under U.S. federal securities laws. Lazard in the past provided investment banking services to APP and other entities controlled by Dr. Soon-Shiong, for which Lazard received compensation. In 2006, Lazard advised Abraxis BioScience, Inc. in connection with its co-promotion agreement with AstraZeneca plc and the merger of American BioScience, Inc. with and into American Pharmaceutical Partners, Inc. In addition, in the ordinary course of their respective businesses, affiliates of Lazard and LFCM Holdings LLC (an entity indirectly owned in large part by managing directors of Lazard) may actively trade securities of APP and/or the securities of Fresenius and certain of its affiliates for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities. Lazard also may provide investment banking and other financial services to APP, Fresenius, FK Holdings and Merger Sub, Dr. Soon-Shiong and their respective affiliates in the future. The issuance of Lazard’s opinion was approved by the Opinion Committee of Lazard.

 

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Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and other services. Lazard was selected to act as a financial advisor to APP because of its qualifications, expertise and reputation in investment banking and mergers and acquisitions, as well as its familiarity with the business of APP.

Lazard prepared analyses for the purpose of providing an opinion to APP’s board of directors and the special committee as to the fairness, from a financial point of view, of the merger consideration to be received by the holders (other than the principal stockholders) of shares of APP common stock pursuant to the merger agreement. The merger consideration to be received by the holders of shares of APP common stock pursuant to the merger agreement was determined through arm’s-length negotiations between APP and Fresenius and was approved by the board of directors of APP. Lazard did not recommend any specific merger consideration to the board of directors of APP (including the special committee) or to APP or that any given merger consideration constituted the only appropriate consideration for the merger.

The opinion of Lazard was one of many factors taken into consideration by the special committee and the board of directors of APP. Consequently, the analyses described below should not be viewed as determinative of the opinion of the special committee or the board of directors of APP with respect to the merger consideration or of whether the special committee or the board of directors of APP would have been willing to determine that a different merger consideration was fair. Additionally, Lazard’s opinion is not intended to confer any rights or remedies upon any employee or creditor of APP.

Financial Analyses by Financial Co-Advisors

The following is a summary of the material financial analyses delivered by Goldman Sachs and Lazard, which we refer to collectively as the “financial co-advisors,” to the board of directors of APP and the special committee in connection with rendering their respective opinions described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by the financial co-advisors, nor does the order of analyses described represent relative importance or weight given to those analyses by the financial co-advisors. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of the financial co-advisors’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before July 3, 2008, and is not necessarily indicative of current market conditions.

The preparation of fairness opinions is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying the financial co-advisors’ opinions. In arriving at their respective fairness determination, the financial co-advisors considered the results of all of their analyses and did not attribute any particular weight to any factor or analysis considered by them. Rather, the financial co-advisors made their determination as to fairness on the basis of their experience and professional judgment after considering the results of all of their analyses. No company or transaction used in the analyses below as a comparison is directly comparable to APP or the merger.

The financial co-advisors prepared these analyses for purposes of their provision of their respective opinions to the board of directors of APP and the special committee as to the fairness from a financial point of view of the merger consideration, taken in the aggregate, to be received by the holders (other than the principal stockholders) of shares of APP common stock pursuant to the merger agreement to such holders. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of APP, Goldman Sachs, Lazard or any other person assumes responsibility if future results are materially different from those forecast.

 

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Historical Stock Trading Analysis. The financial co-advisors reviewed the historical trading prices and volumes for shares of APP common stock for the three-month period ended July 3, 2008. The financial co-advisors analyzed the equity value per share of APP common stock to be received by holders of shares of APP common stock pursuant to the merger agreement, with respect to (i) the $23.00 cash consideration, (ii) net present value of the merger consideration based on the CVR payout calculated using the May 2008 probability adjusted projections prepared by the APP senior management, (iii) net present value of the merger consideration with the maximum payout of the CVR and (iv) nominal value of the merger consideration with the maximum payout of the CVR, in each case as premium to (w) the per share price of June 25, 2008, (x) the per share price of July 3, 2008, (y) the one-month average per share price, and (z) the three-month average per share price.

The results of these analyses are summarized as follows:

 

     Cash
Consideration
(No CVR)
    NPV of Merger
Consideration
(Probability-
Adjusted Case
CVR Payout)
    NPV of Merger
Consideration
(Max CVR
Payout)
    Nominal Merger
Consideration
(Max CVR Payout)
 

Equity Value per Share

   $ 23.00     $ 24.79     $ 27.45     $ 29.00  

% Premium to June 25, 2008 ($16.75)

     37.3 %     48.0 %     63.9 %     73.1 %

% Premium to July 3, 2008 ($17.82)

     29.1 %     39.1 %     54.0 %     62.7 %

% Premium to 1-Month Average ($14.20)

     61.9 %     74.5 %     93.2 %     104.2 %

% Premium to 3-Month Average ($13.17)

     74.6 %     88.2 %     108.4 %     120.2 %

Implied Multiples Analysis. In addition, the financial co-advisors calculated certain ratios, based on the probability-adjusted projections prepared by APP’s management, which we refer to as the implied multiples, of (i) the implied enterprise value of APP with respect to (a) the cash consideration, (b) net present value of the merger consideration with the probability-adjusted case payout of the CVR, (c) net present value of the merger consideration with the maximum payout of the CVR, and (d) nominal value of the merger consideration with the maximum payout of the CVR, to (ii) net revenues and adjusted earnings before interest, taxes and depreciation and amortization, or EBITDA, of APP, in each case for (w) the latest twelve months ended March 31, 2008, (x) estimates for the latest twelve months ended June 30, 2008, and (y) estimates for 2008.

The results of these implied multiples analyses are summarized as follows:

 

     Cash
Consideration
(No CVR)
    NPV of Merger
Consideration
(Probability-
Adjusted Case
CVR Payout)
    NPV of Merger
Consideration
(Max CVR
Payout)
    Nominal Merger
Consideration
(Max CVR
Payout)
 

Enterprise Value / Net Revenues

        

LTM (March 31, 2008)

   7.1 x   7.5 x   8.2 x   8.6 x

LTM (June 30, 2008 Estimate)

   6.7     7.2     7.8     8.1  

2008 Estimate

   5.5     5.8     6.3     6.6  

 

     Cash
Consideration
(No CVR)
    NPV of Merger
Consideration
(Probability-
Adjusted Case
CVR Payout)
    NPV of Merger
Consideration
(Max CVR
Payout)
    Nominal Merger
Consideration
(Max CVR
Payout)
 

Enterprise Value / Adjusted EBITDA

        

LTM (March 31, 2008)

   18.2 x   19.4 x   21.0 x   22.0 x

LTM (June 30, 2008 Estimate)

   17.3     18.4     20.0     20.9  

2008 Estimate

   12.2     13.0     14.1     14.8  

 

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Selected Companies Analysis. The financial co-advisors reviewed and compared certain financial information for APP to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the generic specialty pharmaceutical industry:

 

   

Hospira, Inc.

 

   

Barr Pharmaceuticals, Inc.

 

   

Mylan Inc.

 

   

Watson Pharmaceuticals, Inc.

Although none of the selected companies is directly comparable to APP, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may in certain respects be considered similar to those of APP.

The financial co-advisors also calculated and compared various financial multiples and ratios based on financial data as of June 25, 2008 and July 3, 2008 and information they obtained from SEC filings and Institutional Brokers’ Estimate System (IBES) estimates. The multiples and ratios of APP were calculated using APP’s market data as of June 25, 2008 and July 3, 2008. The multiples and ratios of APP were based on information provided by management of APP. The multiples and ratios for each of the selected companies were based on the most recent publicly available information. With respect to the selected companies, the financial co-advisors calculated the following multiples:

 

   

enterprise value, which is the market value of common equity plus the book value of debt, minority interest and preferred shares, less cash and cash equivalents, as a multiple of latest twelve months sales;

 

   

enterprise value as a multiple of latest twelve months EBITDA; and

 

   

enterprise value as a multiple of estimated calendar year 2008 EBITDA.

The results of these analyses are summarized as follows:

 

      Selected Companies    APP as of

Enterprise Value as a multiple of:

   Range    Median    June 25,
2008
   July 3,
2008

LTM Sales

   1.4x–2.5x    2.1x    5.3x    5.5x

LTM EBITDA

   6.6x–10.8x    9.9x    13.5x    14.2x

2008 Estimated EBITDA

   6.7x–9.8x    8.0x    9.6x    10.0x

The financial co-advisors also calculated the selected companies’ estimated calendar year 2008 price/earnings ratios to the results for APP. The following table presents the results of this analysis:

 

      Selected Companies     APP as of  

Price/Earnings Ratio:

   Range     Median     June 25,
2008
    July 3,
2008
 

2008 Estimated

   14.0x–25.2x *   15.5x *   15.8x **   16.8x **

 

* Based on IBES estimates.
** Using earnings estimates based on projections by management of APP.

Selected Transactions Analysis. The financial co-advisors analyzed certain information relating to the following selected transactions in the generic specialty pharmaceuticals industry over $500 million since 2002:

 

   

Novartis’ acquisition of LEK announced in August 2002;

 

   

Teva’s acquisition of Sicor announced in October 2003;

 

   

Novartis’ acquisition of Sabex announced in June 2004;

 

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Perrigo’s acquisition of Agis announced in November 2004;

 

   

Novartis’ acquisition of Hexal announced in February 2005;

 

   

Novartis’ acquisition of Eon Labs announced in February 2005;

 

   

Actavis’ acquisition of Amide Pharmaceutical announced in May 2005;

 

   

Teva’s acquisition of Ivax announced in July 2005;

 

   

Actavis’ acquisition of Alphama’s Human Generics Business announced in October 2005;

 

   

Dr. Reddy’s acquisition of Betapharm announced in February 2006;

 

   

Watson’s acquisition of Andrx announced in March 2006;

 

   

Barr’s acquisition of Pliva announced in June 2006;

 

   

Mylan’s acquisition of Matrix Labs’ 71.5% interest announced in August 2006;

 

   

Hospira’s acquisition of Mayne Pharma announced in September 2006;

 

   

Mylan’s pending acquisition of Merck KGaA Generics Business announced in May 2007;

 

   

Novator’s acquisition of Actavis announced in July 2007;

 

   

Apax Partners’ pending acquisition of Qualitest and Vintage Pharma announced in September 2007;

 

   

Gedeon Richter’s pending acquisition of Polpharma announced in November 2007; and

 

   

Daiichi Sankyo’s pending acquisition of Ranbaxy announced in June 2008.

For each of the selected transactions, the financial co-advisors calculated and compared enterprise value as a multiple of latest twelve months revenues, and enterprise value as a multiple of latest twelve months EBITDA.

The following table presents the results of this analysis:

 

     Selected Transactions

Enterprise Value as a Multiple of:

   Range    Median

LTM Sales

   0.8x–6.3x    3.4x

LTM EBITDA

   8.6x–31.2x    14.8x

The financial co-advisors also calculated the premiums to prices of target’s stock one day and one month prior to the announcement of the transaction applicable to each of the selected transactions. The following table presents the results of this analysis:

 

     Selected Transactions  

Premium to Target Stock Price:

   Range      Median  

1 Day Prior Price

   10.1%–31.8%      15.8 %

1 Month Prior Price

   19.5%–55.8%      35.4 %

Discounted Cash Flow Analysis. The financial co-advisors performed a discounted cash flow, which we refer to as DCF, analysis on APP using the internal financial analyses and forecasts prepared by APP’s management to determine a range of implied values per share of APP’s common stock. The financial co-advisors discounted back to June 30, 2008 the probability-adjusted projected unlevered free cash flows for APP through the end of 2012, using a range of discount rates ranging from 9.5% to 11.5%. The analysis was based upon perpetuity growth rates ranging from 2.0% to 4.0% and resulted in illustrative per share value indications ranging from $16.00 to $30.03 per share of APP common stock.

 

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Using the same internal financial analyses and forecasts prepared by APP’s management, the financial co-advisors also performed sensitivity analyses on the base case DCF analysis. First, the financial co-advisors calculated the sensitivity of the DCF analysis to the launch of new products. The sensitivity analysis utilized a range of probabilities of achieving projected net revenues for new products ranging from 80% to 100% and a range of probabilities of approval of new products ranging from 85% to 100%. The analysis assumed a 10.5% discount rate and a 3.0% perpetuity growth rate and resulted in illustrative per share value indications ranging from $18.84 to $23.69 per share of APP common stock. Additionally, the financial co-advisors calculated the sensitivity of the DCF analysis to various assumptions related to the contribution of sales of heparin sodium to the financial performance of APP. The analysis utilized a range of base business (assuming product sales without heparin sodium or any other new products) revenue growth rates ranging from (5.0%) to 5.0% and a range of percentages of revenue (derived from heparin sodium sales) achieved ranging from 40% to 100%. The analysis assumed a 10.5% discount rate and a 3.0% perpetuity growth rate. This analysis resulted in illustrative per share value indications ranging from $17.90 to $25.90 per share of APP common stock.

The following table presents the results of these analyses:

 

     Illustrative Per
Share Value
Indications

Based on Management’s Probability-Adjusted Projections for Unlevered Free Cash Flow through 2012 Discounted Back to June 30, 2008, and Using Discount Rates of 9.5% to 11.5% and Perpetuity Growth Rates of 2.0% to 4.0%

   $ 16.00–$30.03

Sensitivity Analysis Using a Range of Probabilities of Achieving Projected Net Revenues Ranging from 80% to 100% and a Range of Probabilities of Approval of New Product Ranging from 85% to 100%

   $ 18.84–$23.69

Sensitivity Analysis Using a Range of Base Business Revenue Growth Rates Ranging from (5.0%) to 5.0% and a Range of Percentage of Heparin Sodium Revenue Achieved Ranging from 40% to 100%

   $ 17.90–$25.90

In addition, the financial co-advisors performed similar analyses using the full probability projections prepared by management of APP. These projections assumed that the underlying reasonable best case revenue and probabilities objectives for all products are achieved.

The following table presents the results of these analyses:

 

     Illustrative Per
Share Equity
Value
Indications

Based on Management’s Full Probability Projections for Unlevered Free Cash Flow through 2012 Discounted Back to June 30, 2008, and Using Discount Rates of 9.5% to 11.5% and Perpetuity Growth Rates of 2.0% to 4.0%

   $ 20.66–$36.86

Sensitivity Analysis Using a Range of Probabilities of Achieving Projected Net Revenues Ranging from 80% to 100% and a Range of Probabilities of Approval of New Product Ranging from 85% to 100%

   $ 21.78–$26.62

Sensitivity Analysis Using a Range of Base Business Revenue Growth Rates Ranging from (5.0%) to 5.0% and a Range of Percentage of Heparin Sodium Revenue Achieved Ranging from 40% to 100%

   $ 20.35–$29.82

 

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Certain Projected Financial Information of APP

In connection with the transaction process, APP senior management prepared various projections of the future financial performance of APP on a stand-alone basis. Although these projections were not prepared with a view towards public disclosure, APP is including excerpts of these projections below because these projections were made available to potential acquirors, including Fresenius and its financing sources in connection with their due diligence review of APP, to the APP board of directors, the special committee of independent directors and their respective advisors as part of their review of the transaction and to Goldman Sachs and Lazard in connection with the preparation of their respective fairness opinions and their associated financial analyses described above under “The Merger—Opinions of Financial Advisors to APP.”

In April 2008, APP provided potential acquirors, including Fresenius, with a confidential information memorandum that included financial projections for APP on a stand-alone basis. These financial projections were initially prepared by management of APP in June 2007 in connection with the financing transaction entered into by APP in connection with its spin-off of Abraxis BioScience, Inc. and updated in April 2008. Excerpts from these projections are set forth below.

 

     Years Ending
December 31,
     2008    2009    2010
     (in millions)

Net revenue

   $ 766    $ 1,007    $ 1,178

EBITDA

   $ 291    $ 428    $ 513

Adjusted EBITDA*

   $ 316    $ 439    $ 513

 

* Adjusted for estimated expenses associated with the launch of APP’s Puerto Rico facility, the transfer of production to new facilities, the modernization of certain marketed products, and stock compensation-related expenses.

In May 2008, APP senior management developed financial projections for APP on a stand-alone basis. These projections were prepared based upon APP senior management’s view of the probability of (i) increasing competition impacting the market dynamics of supply of acute care products, including heparin, and APP’s anesthetic line of products, (ii) APP receiving regulatory approval on all new products proposed by APP in the time frames anticipated, and (iii) APP launching successfully all new products anticipated to be launched by APP in the time frames anticipated. These projections were provided to Goldman Sachs and Lazard in connection with the preparation of their respective fairness opinions and their associated financial analyses described above under “The Merger—Opinions of Financial Advisors to APP.” Excerpts from these projections are set forth below.

 

     Years Ending
December 31,
     2008    2009    2010
     (in millions)

Net revenue

   $ 854    $ 1,039    $ 1,217

EBITDA

   $ 344    $ 463    $ 570

Adjusted EBITDA*

   $ 380    $ 474    $ 570

 

* Adjusted for estimated expenses associated with the launch of APP’s Puerto Rico facility, the transfer of production to new facilities, the modernization of certain marketed products, and stock compensation-related expenses.

Although the projections summarized above are presented with numerical specificity, the projections were prepared based on, and therefore reflect, estimates and assumptions that are subject to significant uncertainties and contingencies, all of which are difficult to predict and many of which are beyond APP’s and FK Holdings’ control. Consequently, there can be no assurance that the underlying assumptions will prove to be accurate, that the results reflected therein will be realized or that actual results will not be significantly higher or lower than

 

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those projected. The projections cover multiple years and such information by its nature becomes less reliable with each successive year. In the view of APP’s management, the projections summarized above were prepared on a reasonable basis. However, the projections are not fact and should not be relied upon as being necessarily indicative of future results, and readers of this document are cautioned not to place undue reliance on these projections. None of the projections reflects any impact of the proposed merger. The projections summarized above are forward-looking statements and are subject to a number of risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.”

The projections summarized above were prepared solely for internal use, and not for publication or with a view of complying with U.S. GAAP, the published guidelines of the SEC regarding forecasts and projections or with guidelines established by the American Institute for Certified Public Accountants for preparation and presentation of prospective financial information. None of APP, Fresenius, FK Holdings or any of their respective representatives has made or makes any representation to any person regarding the ultimate performance of APP compared to the information contained in the projections.

Neither Fresenius, FK Holdings, nor their respective managements participated in preparing, nor expresses any view on, the projections summarized above, or the assumptions underlying such information. The summary of the APP projections is not included in this information statement/prospectus in order to influence any APP stockholder to make any investment decision with respect to the merger, including whether or not to seek appraisal rights with respect to shares of APP common stock.

BY INCLUDING IN THIS INFORMATION STATEMENT/PROSPECTUS A SUMMARY OF CERTAIN APP PROJECTIONS, NONE OF APP, FRESENIUS OR FK HOLDINGS UNDERTAKES ANY OBLIGATION, EXCEPT AS REQUIRED BY LAW, TO UPDATE, OR PUBLICLY DISCLOSE ANY UPDATE TO, THE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE DATE SUCH INFORMATION WAS PREPARED, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE SHOWN TO BE IN ERROR.

Neither APP’s, Fresenius’ or FK Holdings’ independent registered public accounting firms, nor any other independent accountants, have examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in these projections nor have they expressed any opinion or given any other form of assurance on this information or its achievability.

Interests of APP’s Directors and Executive Officers in the Merger

When reading this information statement/prospectus, you should be aware that the executive officers and directors of APP may have interests in the merger that may be different from, or in addition to, the interests of other APP stockholders generally. The special committee of APP’s independent directors was aware of these interests and considered them, among other factors, in unanimously recommending to APP’s board of directors to adopt the merger agreement and approve the merger. APP’s board of directors was also aware of these interests and considered them, among other factors, in adopting the merger agreement and approving the merger. A description of these interests is set forth below.

Retention and Employment Agreements with Executive Officers

Each executive officer of APP (other than the chief financial officer) is party to a retention agreement. Under the retention agreements, in the event of a qualifying termination (which includes a reduction in base salary or benefits that does not apply to similarly-situated employees, an involuntary relocation of the executive officer to any office 50 or more miles away from his principal office, or a termination of the executive officer’s employment by APP other than for “cause” or by reason of disability or death) following a change of control transaction (including the merger described in this information statement/prospectus) on or before May 23, 2010, the executive officer will be entitled to receive (i) severance pay equal to two times his then-current base salary plus the amount of his incentive cash bonus for 2007 and (ii) health and dental benefits through May 23, 2010, in

 

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each case, in the event of a change of control and a qualifying termination. The severance payments are required to be made in substantially equal installments through the first anniversary of the executive officer’s termination date, and are conditioned upon the executive officer signing a general release and complying with certain confidentiality, non-competition and non-solicitation covenants.

The chief financial officer of APP is party to an employment agreement. Under the terms of his employment agreement, he will be entitled to receive severance payments equal to (i) his then-current base salary for eighteen months, plus (ii) a severance bonus payment, plus (iii) $50,000, if his signing bonus is not paid as contemplated on March 31, 2009. He is entitled to these severance payments if his employment is terminated by APP without “cause” or he voluntarily resigns for “good reason” (which includes a material and adverse change in his status or responsibilities, an involuntary relocation to any office 50 or more miles away from Schaumburg, Illinois, a reduction in base salary or benefits that does not apply to other similarly situated employees, or any failure by a successor to perform APP’s obligations under his employment agreement), and in each case whether or not in connection with a change of control transaction. The severance payments are required to be made in substantially equal installments over the 18 months following the chief financial officer’s termination date, and are conditioned upon the chief financial officer signing a general release and complying with certain confidentiality, non-competition and non-solicitation covenants.

The chief financial officer’s severance bonus amount will be calculated as follows:

 

   

if the termination date occurs prior to the payment of the incentive cash bonus with respect to 2008, an amount equal to his target incentive cash bonus for 2008, prorated over the number of days of employment in the calendar year in which the termination date occurs;

 

   

if the termination date occurs after the payment of the incentive cash bonus with respect to 2008 (but prior to the payment with respect to 2009), an amount equal to the incentive cash bonus for 2008, prorated over the number of days of employment in the calendar year in which the termination date occurs; or

 

   

if the termination date occurs after the payment of the incentive cash bonus with respect to 2009, an amount equal to the average of his last two incentive cash bonuses prior to the termination date, prorated over the number of days of employment in the calendar year in which the termination date occurs.

The following table sets forth for each executive officer of APP the estimated amount of cash severance pay and the value of health and dental benefits to which the executive officer would be entitled assuming that the merger is completed on December 31, 2008, and all executive officers are terminated immediately after closing in a “qualifying termination” or without “cause” or for “good reason,” as applicable.

 

Name and Title

   Estimated
Severance
Payments
    Estimated
Health and
Dental Benefits
  Other     Total

Frank Harmon

Executive Vice President and Chief Operating Officer

   $ 937,500 (1)   $ 16,150     N/A         $ 953,650

Richard E. Maroun

Chief Administrative Officer, General Counsel and Corporate Secretary

   $ 1,125,000 (1)   $ 16,150     N/A         $ 1,141,150

Thomas Silberg

Chief Executive Officer and President

   $ 1,360,000 (1)   $ 950     N/A         $ 1,360,950

Richard J. Tajak

Executive Vice President and Chief Financial Officer

   $ 656,250 (2)     N/A   $ 50,000 (3)   $ 706,250

 

(1) Represents two times the executive officer’s current base salary plus the amount of his incentive cash bonus for 2007.

 

(2) Represents eighteen months of the executive officer’s current base salary plus the 50% target bonus amount, prorated for the number of days employed through the end of 2008.

 

(3) Represents signing bonus of $50,000 to be paid on March 31, 2009.

 

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Value of Equity Awards

Each executive officer and director of APP holds stock options and/or restricted stock units of APP which, whether or not vested, will immediately vest and be cancelled in exchange for the merger consideration. The following table sets forth the total amount that executive officers and directors of APP would receive in respect of their vested and unvested equity awards assuming the merger is completed on December 31, 2008, and no vested equity awards are disposed of prior to that time. For purposes of this table, no value has been attributed to the CVRs.

 

Name

 

Number of Shares
Underlying Vested and
Unvested Options
(Exercise Price)

 

Number or Value of

Unvested Restricted

Stock Units

  Total(1)

Directors

     

Michael Blaszyk

  10,000 ($10.28) 14,649 ($10.27)   N/A       $ 313,682

Stuart DePina

  7,500 ($10.28)   N/A       $ 95,400

Joseph Pizza

  7,500 ($10.28)   N/A       $ 95,400

Michael S. Sitrick

  10,000 ($10.28) 14,649 ($10.27)   N/A       $ 313,682

Patrick Soon-Shiong(2)

  N/A   N/A         N/A

Executive Officers

     

Frank Harmon

Executive Vice President and Chief Operating Officer

  78,131 ($15.17)   9,953 RSUs + $90,000(3)   $ 930,684

Richard E. Maroun

Chief Administrative Officer, General Counsel and Corporate Secretary

  68,364 ($15.34)   $2,500,000(4)   $ 3,023,668

Thomas Silberg

Chief Executive Officer and President

  68,364 ($15.17)   10,616 RSUs(5)   $ 779,458

Richard J. Tajak

Executive Vice President and Chief Financial Officer

  35,000 ($12.80)   N/A       $ 357,000

 

(1) Represents (a) the difference between $23.00 and the exercise price multiplied by the number of underlying vested and unvested option, plus (b) the value of the restricted stock units based on the $23.00 cash portion of the merger consideration.

 

(2) Dr. Soon-Shiong does not hold any stock options or restricted stock units in APP.

 

(3) Restricted stock units for 9,953 shares scheduled to vest on December 12, 2008. Restricted stock units representing $90,000 of stock scheduled to vest on May 21, 2009.

 

(4) Restricted stock units scheduled to vest on April 18, 2010.

 

(5) Restricted stock units scheduled to vest on December 12, 2008.

Directors’ and Officers’ Indemnification and Continuation of Insurance

Fresenius has agreed, for a period of six years following the closing of the merger, to cause APP, as the surviving corporation in the merger, to maintain all indemnification provisions for the benefit of APP’s and its subsidiaries’ former and current officers, directors, employees and agents in the charter documents and bylaws of APP and its subsidiaries. In addition, Fresenius, FK Holdings and APP (as the surviving corporation) have agreed to cause APP to indemnify and hold harmless, and provide advancement of expenses to, all current and former directors and officers of APP and its subsidiaries and any fiduciaries under any APP employee benefit plan in respect of acts or omissions occurring at or prior to the closing of the merger, to the fullest extent permitted by applicable law. We refer to each of the persons entitled to indemnification as an “indemnified person.”

Fresenius has agreed to cause APP to maintain, for a period of six years after the closing of the merger, at no expense to the beneficiaries, the current policies of directors’ and officers’ liability insurance and fiduciary

 

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liability insurance maintained by APP with respect to matters existing or occurring at or prior to the merger (Fresenius may, however, substitute policies of at least the same coverage and amounts containing terms and conditions that are no less advantageous to the directors and officers than the current policies) for a claims-reporting or discovery period of at least such six-year period with respect to matters arising on or before the closing of the merger. In lieu of the purchase of such insurance by Fresenius, APP may purchase a six-year extended reporting period endorsement under its existing directors’ and officers’ liability insurance coverage effective for claims asserted for the full six-year period referred to above. During this six-year period, Fresenius is not required to procure any coverage in excess of the amount that can be obtained for the remainder of the period for an annual premium of 250% of the current annual premium paid by APP for existing coverage.

The rights of each indemnified person under the merger agreement are in addition to any rights each indemnified person may have under the certificate of incorporation or bylaws of APP or any of its subsidiaries, under Delaware law or any other applicable law or under any agreement of any indemnified person with APP or any of its subsidiaries.

Fresenius has agreed that, if Fresenius, APP or any of its successors or assigns consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of the consolidation or merger, or transfers or conveys all or substantially all of its properties and assets to any person, then, and in each case, to the extent necessary, proper provision will be made so that the successors and assigns of Fresenius or the surviving corporation, as the case may be, will assume the indemnification obligations of Fresenius, APP or any of its successors or assigns, as the case may be, as set forth in the merger agreement.

Continuation of Benefit Plans under the Merger Agreement

After the completion of the merger and ending not less than two years following the effective time of the merger, Fresenius has agreed to cause the surviving corporation (i) to maintain at least the base salary or base wages of the employees of APP and its subsidiaries, and (ii) either maintain the material employee benefit plans (other than equity-based benefits) in effect on the date of the merger agreement or provide employee benefits (other than equity-based benefits) to each current employee of APP and its subsidiaries that are substantially similar in the aggregate to those benefits in effect for such employees on the date of the merger agreement. For a period of two years from the closing of the merger, Fresenius has agreed to provide to the employees of the surviving corporation equity-based awards substantially similar to those which are provided by Fresenius to its similarly situated employees.

Following completion of the merger, Fresenius has agreed to cause APP (as the surviving corporation) to honor the obligations of APP and its subsidiaries under material employee benefit plans and employment agreements and APP (as the surviving corporation) must perform the obligations of APP and its subsidiaries under such material employee benefit plans and employment agreements, including APP’s severance, retention, change in control and bonus plans and policies. In addition, each of Fresenius, FK Holdings, and APP (as the surviving corporation) has agreed to assume the obligations of APP under all existing indemnification agreements between APP and its directors, officers and employees. Fresenius has agreed to, or to cause APP (as the surviving corporation) to, pay to participating and eligible employees of APP and its subsidiaries annual bonuses for the calendar year in which the closing of the merger occurs, at target levels in accordance with APP’s management incentive plan.

To the extent that employees of APP and its subsidiaries become eligible to participate in any employee benefit plan, program or arrangement maintained by Fresenius or any of its subsidiaries (including any severance plan), then for all purposes, including determining eligibility to participate, vesting, early retirement and benefit accrual, service with APP or any of its subsidiaries prior to the effective time will be treated as service with Fresenius or any of its subsidiaries so long as such treatment does not result in a duplication of benefits.

 

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Stock Options

All options to purchase APP common stock outstanding immediately prior to the effective time under any APP stock option or equity incentive plan, whether or not then vested and exercisable, shall immediately vest and be cancelled at the time of the closing of the merger and:

(i) each holder of an option with a per share exercise price that is less than $23.00 will be entitled to receive, for each share of common stock subject to such option, (A) an amount in cash equal to the excess of $23.00 over the per share exercise price of such option, without interest, and (B) one CVR; and

(ii) each holder of an option with a per share exercise price that is equal to or greater than the $23.00 will be entitled, upon payout of the CVRs in accordance with their terms, to receive, for each share of common stock subject to such option, an amount in cash, without interest, equal to the excess, if any, of (x) $23.00 plus the amount of cash per CVR paid to the CVR holders in accordance with the terms of the CVR indenture over (y) the per share exercise price of such option.

Each holder of an option with a per share exercise price that is greater than $29.00 will not be entitled to receive any merger consideration for such option.

Restricted Stock Units

Each RSU granted by APP under any company equity incentive plan, which is outstanding immediately prior to the effective time, will vest and become free of such restrictions as of the effective time, and the holders of RSUs will be entitled to receive, for each RSU, (i) $23.00 in cash, without interest, and (ii) one CVR.

Consulting Agreement and Non-Competition Agreement

Concurrently with the execution of the merger agreement, Dr. Soon-Shiong entered into the consulting agreement with Fresenius and FK Holdings, pursuant to which Dr. Soon-Shiong will act as a consultant to FK Holdings for a period of one year, subject to extension by agreement of the parties, effective only upon completion of the merger. Dr. Soon-Shiong will receive an annual consultancy fee equal to $600,000 and is entitled to additional compensation of $600,000 for each calendar year while the consulting agreement is in effect that the Adjusted EBITDA of FK Holdings and APP exceeds by ten percent APP management’s projected Adjusted EBITDA set forth in its three year business plan.

In the consulting agreement Fresenius and FK Holdings acknowledge Dr. Soon-Shiong’s obligations and duties with respect to Abraxis Bioscience and the agreement does not require Dr. Soon-Shiong to provide any consulting service or to take any action or refrain from taking any action as a member of the board of directors of FK Holdings, if such action or inaction would be inconsistent with his duties to Abraxis BioScience and its stockholders, as determined by Dr. Soon-Shiong in his reasonable judgment. In addition, Dr. Soon-Shiong and his affiliates have no duty or obligation to communicate or present any investment or business opportunity or prospective economic or competitive advantage in which FK Holdings, Fresenius or any of their affiliates could have an interest or expectancy.

Fresenius has agreed to take all reasonable actions necessary to appoint Dr. Soon-Shiong as a member of FK Holdings’ board of directors and to maintain such appointment through June 30, 2011.

Concurrently with the execution of the merger agreement, Dr. Soon-Shiong entered into the non-competition agreement with Fresenius, pursuant to which Dr. Soon-Shiong will be generally prohibited for four years after completion of the merger, subject to certain exceptions, from owning or otherwise engaging in business activities involving any substantive part of the business in which APP is engaged at the time of the merger, including injectable generic pharmaceutical products and certain other specified oral generic products in competition with FK Holdings or its affiliates in the United States and Canada. The non-competition restrictions are subject to exceptions for, among other things, activities related to biosimilar, follow-on biologics, generic

 

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biologics and other specified products, certain contract manufacturing activities, developing APP generic pharmaceutical products with the consent of APP (as the surviving corporation), such consent not to be unreasonably withheld, and serving as a consultant, director and advisor to Fresenius.

The non-competition agreement further prohibits Dr. Soon-Shiong, for four years after completion of the merger subject to certain exceptions, from (i) soliciting employees of APP or any controlled affiliate of APP to leave such employment, (ii) inducing or attempting to induce any raw material or finished dosage form supplier, or any customer or client, of APP, Fresenius or their respective affiliates to cease doing business in whole or in part with APP, Fresenius or their respective affiliates with respect to the generic injectable pharmaceuticals business in the United States or Canada, (iii) attempting to limit or interfere in any material respect with any business agreement existing between APP or Fresenius and/or affiliates of Fresenius and any third party of which he is aware or put on notice; or (iv) making any public oral or written statements that disparage the business reputation of APP or Fresenius (or its management team). In addition, the non-competition agreement prohibits for twelve months, Dr. Soon-Shiong from using for his own account, or disclosing to any person, firm or corporation, other than in the performance of services to APP or Fresenius, any non-public information about APP and/or Fresenius of any kind, nature or description which are disclosed to or otherwise known to Dr. Soon-Shiong as a direct or indirect consequence of his association with APP and his association with Fresenius in the context of and subsequent to the merger.

Following the date of the merger agreement, Dr. Soon-Shiong and certain entities affiliated with him agreed to purchase €100 million of the Mandatory Exchangeable Bonds offered by Fresenius as part of the financing for the merger. See “The Merger—Financing of the Merger—Mandatory Exchangeable Bonds.”

Regulatory Approvals

Under the provisions of the HSR Act, the merger may not be completed until APP and Fresenius have filed notification and report forms with the FTC and the Antitrust Division and the applicable waiting period has expired or been terminated. On July 14, 2008, APP and on July 15, 2008, Fresenius, each filed their respective notification and report forms under the HSR Act with the FTC and the Antitrust Division. On August 13, 2008,

Fresenius, with the concurrence of APP, voluntarily withdrew and refiled its notification and report form under the HSR Act. The purpose of the withdrawal and re-filing was to provide federal antitrust authorities with additional time to review the proposed merger.

At any time before or after the completion of the merger, the Antitrust Division, the FTC, or a state attorney general could take any action under U.S. federal or state antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the merger or seeking the divestiture of substantial assets of APP, Fresenius, or their subsidiaries and affiliates. Private parties may also bring legal actions under U.S. federal or state antitrust laws under certain circumstances. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, of the result of the challenge.

Fresenius and APP have agreed to use their reasonable best efforts to take any and all actions necessary to avoid the entry of, or to effect the dissolution of, any order that would restrain, prevent or delay the closing from occurring on or before the termination date and to avoid or eliminate each and every impediment under any regulatory law so as to enable the closing to occur no later than the termination date. Fresenius and APP have agreed to use reasonable best efforts to obtain the required regulatory approvals, including negotiating and committing to the sale, divestiture or disposition of such assets or businesses or any action it is capable of taking, whether or not such action imposes limits on its operations or its ability to retain any businesses, services or assets, provided that Fresenius will not be required to take or consent to take any action to restrict, hold separate or dispose of (A) any assets or businesses of APP or its subsidiaries, or (B) any assets or businesses of Fresenius, its subsidiaries or affiliates, in either case, to the extent that such action would have a material adverse effect on the business, operations, financial condition or results of operations of the combined business of Fresenius Kabi AG and APP after giving effect to the merger.

 

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Although not a condition to closing under the terms of the merger agreement, on July 29, 2008, Fresenius filed a notification with the German Bundeskartellamt under the Act Against Restraints on Competition. APP and Fresenius are in the process of verifying that no other antitrust merger control filings will be made.

Litigation Related to the Merger

On August 12, 2008, a putative class action complaint was filed against APP and four of APP’s current directors (Dr. Soon-Shiong, Michael Blaszyk, Michael Sitrick, and Joseph Pizza) in the Circuit Court of Cook County, Illinois: Buggs v. APP Pharmaceuticals, Inc., Patrick Soon-Shiong, Michael D. Blaszyk, Michael S. Sitrick, and Joseph M. Pizza, Case No. 08CH29335.

The plaintiff purports to represent all stockholders of APP, other than the defendants and related persons or entities. The complaint asserts claims for breach of fiduciary duty against the defendants relating to the merger agreement between APP and Fresenius, based on the allegation that defendants have engaged in self-dealing and obtained for themselves personal benefits, and causes of action of aiding and abetting breach of fiduciary duty.

Plaintiffs also allege that the information statement/prospectus is materially misleading because, among other things, it omits or fails to fully and fairly disclose material information about (i) alleged conflicts of interest that burdened APP’s board of directors and its advisors; (ii) the purported unfair sales process for APP; and (iii) APP’s prospects as a standalone entity and the “true value” of APP.

The complaint seeks a declaration that the action is maintainable as a class action, a declaration that the defendants have breached their fiduciary duties to the putative class of plaintiffs, to enjoin the defendants from consummating the merger unless and until APP adopts and implements a procedure that represents a true fiduciary out designed to encourage other bidders and to allow APP’s board of directors to exercise its fiduciary discretion, to direct the individual defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests of APP’s stockholders, and to rescind, to the extent already implemented, the proposed merger. The complaint also seeks attorneys’ fees and costs, and further relief as determined by the court. The defendants deny any wrongdoing and intend to defend against the complaint vigorously.

Accounting Treatment

The merger will be accounted for as a “purchase” by FK Holdings of APP, as that term is used under U.S. GAAP for accounting and financing reporting purposes. The assets (including identifiable intangible assets) and liabilities of APP as of the closing of the merger will be recorded at their respective fair values and added to those of FK Holdings. Any excess of the purchase price over the net fair values of assets and liabilities of APP will be recorded as goodwill. Financial statements of FK Holdings issued after the merger will reflect such fair values and will not be restated retroactively to reflect the historical financial position or results of operations of APP. The results of operations of APP will be included in the results of operations of FK Holdings beginning on the closing date of the merger.

Delisting and Deregistration of APP Common Stock

If the merger is completed, APP’s common stock will be delisted from NASDAQ and deregistered under the Exchange Act, and APP will no longer file periodic reports with the SEC on account of APP’s common stock.

Stock Exchange Listing of CVR

Application will be made to the NASDAQ Global Market to list and trade the CVRs on the NASDAQ Global Market. If the CVRs are not accepted for listing on the NASDAQ Global Market, application will be made to list the CVRs on such other exchange(s), electronic trading networks or other suitable trading platforms as mutually agreed by Fresenius and APP, or such other suitable trading platforms as mutually agreed by Fresenius and APP, at or prior to the effective time of the merger.

 

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Financing of the Merger

Debt Financing

Fresenius has received a commitment letter pursuant to which, subject to the conditions set forth therein, Deutsche Bank AG, London Branch, JPMorgan Chase Bank, N.A., J.P. Morgan plc and Credit Suisse, London Branch, have committed to (i) provide an aggregate of $2.20 billion in principal amount of term and revolving facilities, which we refer to as the Senior Credit Facilities, plus a $200 million uncommitted revolving credit facility and (ii) provide up to $1.65 billion equivalent of loans under a bridge facility, which we refer to as the Bridge Facility. The documentation governing the Senior Credit Facilities and the Bridge Facility has not been finalized. Accordingly, the actual terms of these financing arrangements may differ from those described in this information statement/prospectus. In addition, subject to market conditions, Fresenius will pursue high yield financing opportunities. If issued on or prior to the closing date, the proceeds from the high yield financing will be used to finance a portion of the purchase price for the merger and to pay related fees and expenses in connection with the transaction. To the extent that the high yield financing is obtained, the Bridge Facility would not be drawn.

Senior Credit Facilities

The Senior Credit Facilities will consist of a five year $900 million term loan A facility and a six year $850 million term loan B facility to be made available to APP and a direct or indirect special purpose financing subsidiary of Fresenius, which we refer to as SPV I, a five-year $150 million revolving credit facility, to be made available to APP, which we refer to as the APP revolver, and a five-year $300 million revolving credit facility, to be made available to another financing subsidiary of Fresenius, which we refer to as SPV II, which may be increased to $500 million.

The proceeds of the term loans borrowed by APP will be used to refinance the outstanding indebtedness under APP’s existing senior credit facility, which we refer to as the existing APP credit facility. The APP revolver will be used to finance general corporate and working capital purposes of APP and its subsidiaries. SPV I will on- lend the term loans borrowed by it under the Senior Credit Facilities to certain subsidiaries of Fresenius to pay the consideration for the merger and related costs pursuant to inter-company loans secured by, among other things, the assets of FK Holdings, APP and their respective subsidiaries. These intercompany loans will be guaranteed by certain subsidiaries of Fresenius. SPV II will on-lend the amounts borrowed by it to a subsidiary of Fresenius to finance general corporate and working capital purposes of the Fresenius group pursuant to inter-company loans secured by, among other things, the assets of FK Holdings, APP and its subsidiaries. These intercompany loans will also be guaranteed by certain subsidiaries of Fresenius.

The Senior Credit Facilities will include financial covenants that require Fresenius and its subsidiaries (other than Fresenius Medical Care and its subsidiaries) to maintain a certain consolidated leverage ratio, a certain consolidated fixed charge coverage ratio, a certain interest expense coverage ratio and limits amounts spent on capital expenditure. The Senior Credit Facilities will also include affirmative and negative covenants that are customary and appropriate for transactions of this type, with modifications as required in the context of the transaction. Among other negative covenants, there will be limitations on liens, mergers, sale of assets, incurrence of debt and capital expenditures, prepayment of certain other debt, investments and acquisitions, and transactions with affiliates. The Senior Credit Facilities will be guaranteed on a senior basis by Fresenius, Fresenius ProServe GmbH, the holding company comprising Fresenius’ service business, and Fresenius Kabi AG. The APP revolver and the portions of the term loans that refinance outstanding indebtedness under the existing APP credit facility will be secured by the assets of APP and its subsidiaries and guaranteed by APP’s subsidiaries on the same basis as the existing APP credit facility.

The closing of the Senior Credit Facilities will be subject, among other things, to the negotiation and execution of definitive documents and satisfaction of all conditions to the acquisition of APP.

Bridge Facility

The Bridge Facility will be made available to a direct or indirect special purpose financing subsidiary of Fresenius, which we refer to as SPV III. The Bridge Facility will be available for a single-drawing of bridge

 

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loans simultaneously with the first draw-down under the Senior Credit Facilities on the closing date of the merger. The bridge loans will be used to finance a portion of the purchase price for the acquisition of APP and to pay related fees and expenses. SPV III will on-lend the bridge loans borrowed by it to certain subsidiaries of Fresenius pursuant to secured inter-company loans secured by, among other things, the assets of FK Holdings, APP and its subsidiaries. These inter-company loans will be secured by liens junior to the liens securing a portion of the Senior Credit Facilities and the liens securing the intercompany loans created with a portion of the Senior Credit Facilities. These inter-company loans will also be guaranteed by certain subsidiaries of Fresenius. The bridge loans will contain covenants substantially identical to those contained in the Senior Credit Facilities. If the bridge loans are not paid in full on or before their initial maturity date, which is the earlier of (i) the date that is 12 months after the closing date of the merger and (ii) October 31, 2009, the bridge loans will convert into extended term loan loans maturing on the seventh anniversary of the closing date of the merger, provided that certain events of default have not occurred. Holders of any of the extended term loans may choose to exchange the loans for exchange notes maturing on the seventh anniversary of the closing date of the merger. The exchange notes would be issued under an indenture that contains covenants customary for European high yield indentures as adjusted for market conditions at the time of issuance. The borrower will be required to prepay or offer to prepay the bridge or extended loans or to redeem or offer to purchase the exchange notes under specified circumstances, including upon specified non-ordinary course asset sales, specified incurrences of debt, and equity issuances by Fresenius or its subsidiaries (in each case, other than by Fresenius Medical Care or any of its subsidiaries) and upon a change of control or the issuance of debt securities for the purpose of refinancing the Bridge Facility.

The bridge loans will be guaranteed on a senior basis by Fresenius, Fresenius Kabi AG and Fresenius ProServe GmbH.

The closing of the Bridge Facility is subject to similar conditions as the closing of the Senior Credit Facilities.

Mandatory Exchangeable Bonds

In July 2008, following the execution of the merger agreement, Fresenius launched an issue of mandatory exchangeable bonds with up to 16.8 million ordinary bearer shares of Fresenius Medical Care underlying the bonds. The issue size of the bonds was approximately €454 million plus an additional €100 million of mandatory exchangeable bonds that Dr. Soon-Shiong and certain entities affiliated with him have agreed to purchase, which have identical terms to the other bonds, with settlement subject to the closing of the acquisition of APP.

The bonds were issued by Fresenius Finance (Jersey) Ltd. at 100% of their principal amount to Fresenius B.V., which on-lent the bonds to Fresenius. The bonds were sold by Fresenius only to institutional investors.

The bonds carry a coupon of 5-5/8% and will mature in 2011. At maturity, a maximum of 16.80 million and a minimum of 14.24 million ordinary bearer shares of Fresenius Medical Care will be delivered to bond holders.

The minimum exchange price is €33.00, which reflects the reference share price. The maximum exchange price is €38.94, which reflects an initial exchange premium of 18%. The exchange price and the amount of the deliverable shares are subject to anti-dilution adjustments.

The funds raised through the €554 million mandatory exchangeable bond issue will be used to finance a portion of the merger. The issue of the bonds was settled on August 14, 2008.

Capital Increase

In August 2008, Fresenius complemented the issuance of the mandatory exchangeable bonds with a capital increase of €289 million from authorized capital without subscription rights by issuing 2,748,057 new ordinary shares and 2,748,057 new preference shares.

The ordinary shares were issued at a price of €52 and the preference shares at a price of €53. The new shares have been placed with institutional investors by way of an accelerated bookbuilt offering. There was no public offering.

Following the consummation of the capital increase on August 15, 2008, the total number of outstanding ordinary shares and of preference shares of Fresenius each increased from 77,678,718 to 80,426,775.

 

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THE MERGER AGREEMENT

The following summary describes certain material provisions of the merger agreement and is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this information statement/prospectus as Annex A and which is incorporated by reference into this information statement/prospectus. This summary may not contain all of the information about the merger agreement that may be important to you. We encourage you to read the merger agreement carefully and in its entirety.

The Merger

The merger agreement provides for the merger of Merger Sub with and into APP upon the terms and subject to the conditions of the merger agreement, with APP being the surviving corporation. As a result of the merger, APP will become a direct, wholly-owned subsidiary of FK Holdings and an indirect, wholly-owned subsidiary of Fresenius, and all outstanding shares of APP common stock will be delisted and deregistered. Upon completion of the merger, the officers of APP immediately prior to the effective time will be the initial officers of APP, as the surviving corporation.

Effective Time

The effective time of the merger, which we refer to in this information statement/prospectus as the effective time, will occur at the time that APP files a certificate of merger with the Secretary of State of the State of Delaware on the closing date of the merger. The closing date will occur on the day that is no later than the fourth business day following the satisfaction or waiver (to the extent permitted under applicable laws and the terms of the merger agreement) of the conditions described under “The Merger Agreement—Conditions to the Merger,” or another date as APP and Fresenius may agree in writing.

Merger Consideration

Each share of APP common stock, other than shares held by stockholders who properly demand and perfect appraisal rights and shares held in the treasury of APP or owned by Fresenius, FK Holdings or Merger Sub, will be converted in the merger into the right to receive (i) $23.00 in cash, without interest, and (ii) one CVR, issued by FK Holdings and representing the right to receive a cash payment, without interest, of up to $6.00, as determined in accordance with the terms of the CVR indenture. We refer to the consideration for the merger in foregoing clauses (i) and (ii) as the merger consideration.

Dissenters’ Shares and Appraisal Rights

Shares of APP common stock held by any stockholder who properly demands appraisal with respect to the shares of APP common stock in compliance with Section 262 of the DGCL will not be converted into the right to receive the merger consideration. APP stockholders properly exercising appraisal rights will be entitled to receive payment of the value of such shares determined in accordance with the applicable provisions of the DGCL and as further described in the section of this information statement/prospectus entitled “Rights of Appraisal.” However, if any APP stockholder withdraws his or her demand for appraisal in accordance with Delaware law, fails to perfect, or otherwise loses, his or her right of appraisal, then that stockholder will not receive payment for his or her shares in accordance with Section 262 of the DGCL, and the shares of APP common stock held by that stockholder will be converted into the right to receive the merger consideration.

Treatment of APP Stock Options and Other Equity Awards

Stock Options

All options to purchase APP common stock outstanding immediately prior to the effective time under any APP stock option or equity incentive plan, whether or not then vested and exercisable, shall immediately vest and be canceled at the effective time and:

(i) each holder of an option with a per share exercise price that is less than $23.00 will be entitled to receive, for each share of common stock subject to such option, (A) an amount in cash equal to the excess of $23.00 over the per share exercise price of such option, without interest, and (B) one CVR; and

 

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(ii) each holder of an option with a per share exercise price that is equal to or greater than $23.00 will be entitled, upon payout of the CVRs in accordance with their terms, to receive, for each share of common stock subject to such option, an amount in cash, without interest, equal to the excess, if any, of (x) $23.00 plus the amount of cash per CVR paid to the CVR holders in accordance with the terms of the CVR over (y) the per share exercise price of such option.

Each holder of an option with a per share exercise price that is greater than $29.00 will not be entitled to receive any portion of the merger consideration.

Restricted Stock Units.

Each RSU granted by APP under any company equity incentive plan, which is outstanding immediately prior to the effective time, will vest and become free of such restrictions as of the effective time, and the holders of RSUs will be entitled to receive, for each RSU, (i) $23.00 in cash, without interest, and (ii) one CVR.

Exchange and Payment Procedures

At the closing of the merger, Fresenius will cause to be deposited with BNY Mellon Shareowner Services, the paying agent appointed by Fresenius, referred to in this information statement/prospectus as the paying agent, (a) cash in U.S. dollars sufficient to pay the aggregate cash consideration to be paid to stockholders in connection with the merger and (b) CVR certificates representing the CVRs issuable to stockholders and subject to the terms of the CVR indenture.

Promptly after the effective time, the paying agent shall mail to each record holder of APP common stock a letter of transmittal and instructions (which will specify that the delivery will be effected, and risk of loss and title will pass, only upon proper delivery of the certificates or transfer of the uncertificated shares to the paying agent) for use in the exchange of APP common stock for the merger consideration. You should not forward your stock certificates to the paying agent without a letter of transmittal.

You will not be entitled to receive the merger consideration until you surrender your stock certificate(s) to the paying agent together with a duly completed and executed letter of transmittal. After the effective time, the paying agent will mail to each holder of shares of common stock represented by book-entry on the records of APP a check in the amount of cash and CVR certificates representing the number of CVRs into which such book-entry shares have been converted. The merger consideration may be paid to a person other than the person in whose name the corresponding certificate is registered if the certificate is properly endorsed or is otherwise in the proper form for transfer.

No interest will be paid or will accrue on the cash payable upon surrender of the shares of APP common stock. The paying agent will be entitled to deduct, withhold, and pay to the appropriate taxing authorities, any applicable taxes from the merger consideration. Any amounts that are withheld or deducted and paid to a taxing authority by the exchange agent will be deemed to have been paid to the person in respect of which the deduction or withholding was made.

After the effective time, APP’s stock transfer books will be closed and there will be no further transfers on APP’s stock transfer books of shares of APP common stock that were outstanding immediately prior to the effective time. If, after the effective time, stock certificates or uncertificated shares are presented to the surviving corporation, they will be cancelled and exchanged for the merger consideration.

Any portion of the merger consideration deposited with the paying agent that remains unclaimed by former holders of APP common stock for twelve months after the effective time will be delivered, upon demand, to Fresenius. Former holders of APP common stock who have not complied with the above-described exchange and

 

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payment procedures may thereafter only look to Fresenius, as a general creditor thereof, for payment of the merger consideration (without interest thereon).

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the merger consideration, you must deliver an affidavit, in form and substance reasonably acceptable to the paying agent or APP’s transfer agent, regarding the loss, theft or destruction, and if required by the paying agent or APP’s transfer agent, post an indemnity agreement in a customary amount as indemnity against any claim that may be made against it or the surviving corporation with respect to that certificate. These procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.

Representations and Warranties

The merger agreement contains representations and warranties which the parties made to each other. The statements embodied in those representations and warranties were made for purposes of the contract between the parties and are subject to qualifications and limitations agreed to by the parties in connection with negotiating the terms of that contract. Certain representations and warranties were made as of the date of the merger agreement (or other date specified in the merger agreement), may be subject to contractual standards of materiality different from those generally applicable to stockholders or may have been used for the purpose of allocating risk between the parties rather than establishing matters of fact. In addition, the representations and warranties are qualified by information in a confidential disclosure letter that APP provided to Fresenius in connection with signing the merger agreement. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts, since they are qualified as described above. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement, and these changes may or may not be fully reflected in our public disclosures. The merger agreement should not be read alone, but should instead be read in conjunction with the other information regarding APP, Fresenius and the merger that is contained in this information statement/prospectus as well as in the filings that APP and FK Holdings make and have made with the SEC. The representations and warranties contained in the merger agreement may or may not have been accurate as of the date they were made and we make no assertion herein that they are accurate as of the date of this information statement/prospectus.

In the merger agreement, APP made various representations and warranties that are subject, in some cases, to specified exceptions and qualifications. APP’s representations and warranties relate to, among other things:

 

   

APP’s and APP’s subsidiaries’ organization, good standing, and qualification to do business;

 

   

APP’s capitalization, including the particular number of outstanding shares of APP common stock, stock options and other equity-based interests;

 

   

APP’s corporate power and authority to enter into the merger agreement and to consummate the transactions contemplated by the merger agreement;

 

   

the approval and authorization by the APP board of directors of the merger agreement and the other transactions contemplated by the merger agreement;

 

   

the enforceability of the merger agreement against APP;

 

   

the vote of the holders of APP common stock required to approve and adopt the merger agreement (this was satisfied upon delivery of the written consent of the principal stockholders);

 

   

the absence of any violation or conflict with APP’s or APP’s subsidiaries’ governing documents, applicable law or certain agreements as a result of the execution of the merger agreement and consummation of the transactions contemplated by the merger agreement;

 

   

the required consents and approvals of governmental entities in connection with the transactions contemplated by the merger;

 

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APP’s filings with the SEC since January 1, 2007, including financial statements, Sarbanes-Oxley certifications and controls over financial reporting;

 

   

information supplied by APP for this document;

 

   

the absence of a “material adverse effect” on APP since March 31, 2008;

 

   

the absence of investigations, legal proceedings and governmental orders;

 

   

APP’s and APP’s subsidiaries’ permits and compliance with applicable requirements;

 

   

tax matters;

 

   

employee benefit and labor matters;

 

   

environmental matters;

 

   

the absence of related-party transactions;

 

   

intellectual property matters;

 

   

inapplicability of takeover statutes;

 

   

owned and leased real property;

 

   

material contracts and performance of obligations thereunder;

 

   

receipt by the APP board of directors of a fairness opinion from Goldman Sachs and Lazard;

 

   

regulatory issues related to pharmaceutical matters;

 

   

consummation of the spin-off of Abraxis BioScience, Inc.;

 

   

insurance coverage; and

 

   

the absence of undisclosed broker’s fees.

The representations and warranties of APP will not survive the closing of the merger or the termination of the merger agreement.

Many of APP’s representations and warranties are qualified by reference to a “material adverse effect” standard; that is, they will not be deemed to be untrue or incorrect unless their failure to be true and correct, individually or in the aggregate, would reasonably be expected to have a “material adverse effect on APP.” For purposes of the merger agreement, a material adverse effect on APP means any change or effect, either individually or in the aggregate, that is materially adverse to the business, assets, financial condition or results of operations of APP and APP’s subsidiaries taken as a whole.

Generally, a material adverse effect on APP will not have occurred as a result of any change, event, circumstance or effect resulting from, among other things, any of the following:

 

   

changes or effects relating to local, regional, national or foreign political, economic or financial conditions or resulting from or arising out of developments or conditions in credit, financial, banking or securities markets;

 

   

changes or effects generally affecting the industries, geographic areas or business segments in which APP and its subsidiaries operate;

 

   

changes or effects resulting from hurricanes, earthquakes or other natural disasters;

 

   

changes in the share price or trading volume of APP’s common stock;

 

   

changes in applicable law, rules or regulations;

 

   

changes in U.S. GAAP or interpretations of U.S. GAAP;

 

   

any failure by APP to meet any budgets, projections or forecasts for any period, in and of itself; or

 

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changes attributable to the execution, performance or announcement of the merger agreement, including impact on relationships with customers, suppliers, licensors, licensees, distributors, partners or employees;

except to the extent that, in the case of the first, second, third and fifth bullets above, these changes materially and disproportionately have a greater adverse impact on APP and its subsidiaries as compared to the adverse impact these changes have on other persons operating in U.S. generic pharmaceutical industry.

In the merger agreement, Fresenius, FK Holdings and Merger Sub also made various representations and warranties that are subject, in some cases, to specified exceptions and qualifications. Fresenius’, FK Holdings’ and Merger Sub’s representations and warranties relate to, among other things:

 

   

Fresenius’, FK Holdings’ and Merger Sub’s organization, good standing, and qualification to do business;

 

   

Fresenius’ equity interest in FK Holdings and the operations of FK Holdings;

 

   

Fresenius’ equity interest in Merger Sub and the operations of Merger Sub;

 

   

Fresenius’, FK Holdings’ and Merger Sub’s corporate power and authority to enter into the merger agreement and to consummate the transactions contemplated by the merger agreement;

 

   

the enforceability of the merger agreement against Fresenius, FK Holdings and Merger Sub;

 

   

execution and delivery of the merger agreement by each of Fresenius, FK Holdings and Merger Sub;

 

   

the absence of any violation or conflict with Fresenius’, FK Holdings’ and Merger Sub’s governing documents, applicable law or certain agreements as a result of the execution of the merger agreement and the completion of the transactions contemplated by the merger agreement;

 

   

the required consents and approvals of governmental entities in connection with the transactions contemplated by the merger;

 

   

information supplied by Fresenius for this document;

 

   

Fresenius’ ability to pay the merger consideration at the closing of the merger;

 

   

the absence of investigations, legal proceedings and governmental orders;

 

   

the absence of undisclosed brokers’ fees;

 

   

acknowledgement by Fresenius, FK Holdings and Merger Sub that certain information it receives from APP contains forward looking statements upon which they cannot assert claims;

 

   

solvency of FK Holdings and APP as the surviving corporation following the merger; and

 

   

non-ownership by Fresenius, FK Holdings or Merger Sub of any shares of APP common stock as of the date of the merger agreement.

The representations and warranties of Fresenius, FK Holdings and Merger Sub do not survive the closing of the merger or the termination of the merger agreement.

Conduct of APP’s Business Pending the Merger

Under the merger agreement, APP has agreed that, subject to specified exceptions and unless Fresenius gives its prior consent (which consent will not be unreasonably withheld or delayed), between the date of the merger agreement and the earlier of the effective time and the date, if any, on which the merger agreement is terminated, APP will, and will cause each of its subsidiaries to:

 

   

carry on its respective businesses in the ordinary course in all material respects;

 

   

use commercially reasonable efforts to maintain and preserve intact its respective business organization;

 

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use commercially reasonable efforts to keep available the services of its current officers and employees; and

 

   

use commercially reasonable efforts to preserve its relationships with customers, suppliers and others having significant business dealings with it.

APP has also agreed that, between the date of the merger agreement and the earlier of the effective time and the date, if any, on which the merger agreement is terminated, subject to specified exceptions or unless Fresenius gives its prior consent (which consent will not be unreasonably withheld or delayed), it will not, and will cause each of its subsidiaries not to:

 

   

split, combine or reclassify its outstanding shares of its capital stock; declare or pay any dividends; or acquire any shares of APP’s capital stock;

 

   

issue, deliver, sell, pledge or dispose of any shares of its capital stock or any securities convertible into any such shares (other than certain options and RSUs issuable upon new-hire grants);

 

   

amend any charter, by-laws or other organizational documents of APP or its subsidiaries;

 

   

merge or consolidate with any third party or make any acquisition of any business, by merger or otherwise;

 

   

dispose of or agree to dispose of any of its assets that have a value in excess of $1,000,000 individually and $5,000,000 in the aggregate in any three-month period after the date of the merger agreement;

 

   

incur any additional indebtedness other than in the ordinary course of business;

 

   

change any methods of accounting other than as required by U.S. GAAP or regulatory guidelines;

 

   

settle or compromise any material pending or threatened litigation;

 

   

terminate, establish, adopt, enter into, make any new grants or awards of stock based compensation or other benefits under, amend or otherwise modify, any company stock plans, employee benefit plans or material employment agreements or increase the salary, wage, bonus or other compensation of any employee;

 

   

make any material tax election, amend any tax return or compromise or settle any material tax claim or assessment other than as required by applicable law;

 

   

liquidate or dissolve APP or any of its material subsidiaries;

 

   

incur or commit to any capital expenditures in excesses of 110% of its capital expenditure budget;

 

   

acquire or dispose of any manufacturing facility;

 

   

take or fail to take any action the result of which is to adversely affect the tax treatment of APP’s spin-off of Abraxis BioScience;

 

   

grant or acquire, agree to grant or to acquire from any third party, or dispose of or permit to lapse any rights to, any material intellectual property or disclose or agree to disclose to any third party, other than representatives of Fresenius, any material trade secret;

 

   

make any investments, loans, advances, or capital contributions in any third party or make loans to directors, officers or employees;

 

   

approve or authorize any action to be submitted to the stockholders of APP for approval that is intended or would reasonably be expected to prevent, impede, interfere with, delay, postpone or adversely affect the transactions contemplated by the merger agreement;

 

   

enter into, amend or terminate any material contract, including long-term supplier contracts and, with respect to territories outside the US and Canada, any pharmaceutical distribution agreements or license of APP’s intellectual property; and

 

   

agree in writing or otherwise to take any of the foregoing actions.

 

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Restrictions on Solicitation of Third Party Acquisition Proposals

From and after the date of the merger agreement until the earlier of the closing and the termination of the merger agreement, APP has agreed not to:

 

   

solicit, initiate, encourage, or induce any inquiry with respect to, or the making, submission or announcement of, any proposal or offer which would reasonably be expected to lead to a merger, acquisition, consolidation, tender offer, exchange offer or similar transaction involving, or any proposal or offer to purchase (A) assets representing 15% or more of the assets of APP and its subsidiaries, taken as a whole, or (B) an equity interest in 15% or more of the voting securities of APP or of any of its subsidiaries if such subsidiaries own directly or indirectly 15% or more of the assets referred to in clause (A);

 

   

enter into, participate, continue or otherwise engage in discussions or negotiations with, or provide any non-public information to any third party with respect to any inquiries regarding, or the making of, an acquisition proposal or that would otherwise reasonably be expected to lead to any acquisition proposal;

 

   

approve, endorse or recommend any acquisition proposal; or

 

   

enter into or approve any letter of intent, agreement in principle, acquisition agreement or similar agreement relating to an acquisition proposal.

Notwithstanding the restrictions described above, within twenty-five days of the signing of the merger agreement, APP had the right to (A) provide information in response to a request by a person who had made a bona fide written acquisition proposal that was not initiated or solicited in violation of the merger agreement if APP received from the person so requesting the information an executed confidentiality agreement no more favorable in any material respect to such person than the confidentiality agreement that applies to Fresenius, and/or (B) engage in discussions or negotiations with any person who had made a bona fide written acquisition proposal that was not initiated or solicited in violation the merger agreement, if:

 

   

in each case, the APP board of directors determined in good faith that failure to take such action would be inconsistent with its fiduciary duties under applicable law; and

 

   

in the case referred to in clause (B) above, the APP Board of Directors determined in good faith that the acquisition proposal either constituted a superior proposal or was reasonably likely to lead to a superior proposal.

From and after the date of the merger agreement, APP has agreed to promptly (within three business days) notify Fresenius in the event that APP receives any acquisition proposal. APP has also agreed to inform Fresenius of any material change in the material terms or conditions of any acquisition proposal and promptly provide Fresenius with copies of any substantive written communications and documents setting forth the terms of such acquisition proposal. In addition, APP must promptly notify Fresenius orally and in writing upon determination by APP’s board of directors that an acquisition proposal is a superior proposal.

During the twenty-five business day period referred to above, APP did not receive any acquisition proposals that the Board of Directors determined to be a superior proposal or reasonably likely to lead to a superior proposal.

As used in this information statement/prospectus, “acquisition proposal” means any proposal or offer to purchase or acquire in any manner (A) assets representing 15% or more of the assets of APP and its subsidiaries, taken as a whole, or (B) an equity interest in 15% or more of the voting securities of APP or any of its subsidiaries if such subsidiaries own directly or indirectly 15% or more of the assets referred to in clause (A).

As used in this information statement/prospectus, “superior proposal” means a bona fide acquisition proposal that the APP Board of Directors determines in good faith (after consultation with its financial advisor and legal counsel) is reasonably expected to be consummated in accordance with its terms, taking into account all legal, financial and regulatory aspects of the proposal and the person making the proposal, and if consummated, would result in a transaction that is more favorable to the stockholders of APP from a financial point of view than

 

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the merger and other transactions contemplated by the merger agreement (taking into account any changes proposed by Fresenius to the terms of the merger agreement in response to the acquisition proposal), where the APP board of directors has concluded, in good faith, that the failure of the APP board of directors to identify such acquisition proposal as a superior proposal would be inconsistent with its fiduciary duties under applicable law. For the purposes of the definition of “superior proposal,” the references to “15% or more” in the definition of “acquisition proposal” are deemed to be references to “60% or more.”

Termination in Connection with a Superior Proposal

The merger agreement permitted APP to terminate the merger agreement within twenty-five business days after the date of the merger agreement to enter into a letter of intent, agreement in principle, acquisition agreement or similar agreement with respect to any superior proposal if APP complied with certain notice and other requirements set forth in the merger agreement. APP cannot terminate the merger agreement to enter into an agreement for an alternative business combination transaction with a party that first proposes a transaction after such twenty-five business day period. However, if APP had received an unsolicited acquisition proposal from a third party during the twenty-five business day period, and APP’s board of directors had determined that the proposal constituted or was reasonably likely to lead to a superior proposal, such termination right could have been exercised up to forty business days after the date of the merger agreement to enter into an agreement for an alternative business combination transaction that constituted a superior proposal with that third party. Before APP could have terminated the merger agreement to enter into an agreement for a superior proposal, APP was required to notify Fresenius of the terms of the superior proposal and APP could not exercise its right to terminate the merger agreement until after the fifth business day following Fresenius’ receipt of such written notice. During this five business day period, Fresenius was permitted to propose to APP revisions to the terms of the transactions contemplated by the merger agreement, and APP was obligated to, if requested by Fresenius, negotiate in good faith with Fresenius regarding any revisions it proposed to the terms of the transactions contemplated by the merger agreement. Upon termination of the merger agreement by APP to accept a superior proposal, APP would have been required to pay to Fresenius a termination fee of $140,000,000 described below under the section entitled “The Merger Agreement—Termination Fees and Expenses.”

The twenty-five business day period during which APP could have terminated the merger agreement pursuant to the circumstances described above has expired without extension.

Agreement to Take Further Action and Use Reasonable Best Efforts

Fresenius, Merger Sub, FK Holdings, and APP will use their reasonable best efforts to complete the merger, including (i) obtaining the consents and registrations required under the merger agreement, (ii) obtaining necessary approvals or waivers from third parties, (iii) defending any lawsuits or other proceedings challenging the merger, and (iv) executing and delivering any additional instruments necessary to complete the merger. Fresenius and its subsidiaries will not take or agree to take any action that would reasonably be expected to delay or prevent the completion of the merger.

On July 15, 2008, Fresenius and APP filed the appropriate pre-merger notification forms under the HSR Act. On August 13, 2008, Fresenius, with the concurrence of APP, voluntarily withdrew and refiled its notification and report form under the HSR Act. The purpose of the withdrawal and re-filing was to provide federal antitrust authorities with additional time to review the proposed merger. Fresenius and APP have agreed to (i) respond as promptly as practicable to any inquiries received from the applicable governmental entities for additional information or documentation in connection with antitrust matters, and (ii) not extend any waiting period under the HSR Act or enter into any agreement with the applicable governmental entities not to complete the transactions contemplated by the merger agreement, except with the prior written consent of the other party. In addition, Fresenius and APP have agreed to use their reasonable best efforts to take any and all actions necessary to avoid the entry of, or to effect the dissolution of, any order that would restrain, prevent or delay the closing from occurring on or before the termination date and to avoid or eliminate each and every impediment

 

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under any regulatory law so as to enable the closing to occur no later than the termination date. Fresenius and APP are required to use reasonable best efforts to obtain the required regulatory approvals, including negotiating and committing to the sale, divestiture or disposition of such assets or businesses or any action it is capable of taking, whether or not such action imposes limits on its operations or its ability to retain any businesses, services or assets, provided that Fresenius will not be required to take or consent to take any action to restrict, hold separate or dispose of (A) any assets or businesses of APP or its subsidiaries, or (B) any assets or businesses of Fresenius, its subsidiaries or affiliates, in either case, to the extent that such action would have a material adverse effect on the business, operations, financial condition or results of operations of the combined business of Fresenius Kabi AG and APP after giving effect to the completion of the merger.

APP and Fresenius have agreed to provide promptly to each other copies of all filings made by such party with the SEC or any other governmental entity in connection with the merger and the merger agreement. The parties to the merger agreement have agreed to keep each other reasonably apprised of the status of matters relating to the completion of the merger and the other transactions contemplated by the merger agreement, including promptly furnishing each other with copies of notices or other written communications received from any third party and/or any governmental entity. The parties have also agreed to give each other a reasonable opportunity to review in advance, and will consider in good faith the views of the other party in connection with, any proposed written communication to a governmental entity. To the extent practicable under the circumstances, the parties will not participate in any substantive meeting or discussion with a governmental entity in connection with the merger without consulting with the other party in advance and, to the extent permitted, giving the other party the opportunity to attend and participate.

 Employee Benefits

After the completion of the merger and ending not less than two years following the effective time of the merger, Fresenius has agreed to cause the surviving corporation (i) to at least maintain the base salary or base wages of the employees of APP and its subsidiaries, and (ii) either maintain the material employee benefit plans (other than equity-based benefits) in effect on the date of the merger agreement or (y) provide employee benefits (other than equity-based benefits) to each current employee of APP and its subsidiaries that are substantially similar in the aggregate to those benefits in effect for such employees on the date of the merger agreement. For a period of two years from the closing of the merger, Fresenius has agreed to provide to the employees of the surviving corporation equity-based awards substantially similar to those which are provided by Fresenius to its similarly situated employees.

Following completion of the merger, Fresenius has agreed to cause APP (as the surviving corporation) to honor the obligations of APP and its subsidiaries under its material employee benefit plans and employment agreements and APP or the surviving corporation, as applicable, must perform the obligations of APP and its subsidiaries under such material employee benefit plans and employment agreements, including APP’s severance, retention, change in control and bonus plans and policies. In addition, each of Fresenius, FK Holdings, and the surviving corporation will assume the obligations of APP under all existing indemnification agreements between APP and its directors, officers and employees. Fresenius has agreed to, or to cause APP (as the surviving corporation) to, pay to participating and eligible employees of APP and its subsidiaries annual bonuses for the calendar year in which the closing of the merger occurs, at target levels in accordance with APP’s management incentive plan.

To the extent that employees of APP and its subsidiaries become eligible to participate in any employee benefit plan, program or arrangement maintained by Fresenius or any of its subsidiaries (including any severance plan), then for all purposes, including determining eligibility to participate, vesting, early retirement and benefit accrual, service with APP or any of its subsidiaries prior to the effective time will be treated as service with Fresenius or any of its subsidiaries so long as such treatment does not result in a duplication of benefits.

 

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Director and Officer Indemnification and Insurance

Fresenius has agreed, for a period of six years following the closing of the merger, to cause APP, as the surviving corporation in the merger, to maintain all indemnification provisions for the benefit of APP’s and its subsidiaries’ former and current officers, directors, employees and agents in the charter documents and bylaws of APP and its subsidiaries. In addition, Fresenius, FK Holdings and APP (as the surviving corporation) have agreed to cause APP to indemnify and hold harmless, and provide advancement of expenses to, all current and former directors and officers of APP and its subsidiaries and any fiduciaries under any APP employee benefit plan in respect of acts or omissions occurring at or prior to the closing of the merger, to the fullest extent permitted by applicable law. We refer to each of the persons entitled to indemnification as an “indemnified person.”

Fresenius has agreed to cause APP to maintain, for a period of six years after the closing of the merger, at no expense to the beneficiaries, the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by APP with respect to matters existing or occurring at or prior to the merger (Fresenius may, however, substitute policies of at least the same coverage and amounts containing terms and conditions that are no less advantageous to the directors and officers than the current policies) for a claims-reporting or discovery period of at least such six-year period with respect to matters arising on or before the closing of the merger. In lieu of the purchase of such insurance by Fresenius, APP may purchase a six-year extended reporting period endorsement under its existing directors’ and officers’ liability insurance coverage effective for claims asserted for the full six-year period referred to above. During this six-year period, Fresenius is not required to procure any coverage in excess of the amount that can be obtained for the remainder of the period for an annual premium of 250% of the current annual premium paid by APP for existing coverage.

The rights of each indemnified person under the merger agreement are in addition to any rights each indemnified person may have under the certificate of incorporation or bylaws of APP or any of its subsidiaries, under Delaware law or any other applicable law or under any agreement of any indemnified person with APP or any of its subsidiaries.

Fresenius has agreed that, if Fresenius, APP or any of its successors or assigns consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of the consolidation or merger, or transfers or conveys all or substantially all of its properties and assets to any person, then, and in each case, to the extent necessary, proper provision will be made so that the successors and assigns of Fresenius or the surviving corporation, as the case may be, will assume the indemnification obligations of Fresenius, APP or any of its successors or assigns, as the case may be, as set forth in the merger agreement.

Other Covenants and Agreements

The merger agreement contains additional agreements among APP, Fresenius, FK Holdings and Merger Sub relating to, among other things:

 

   

the filing of the registration statement and this information statement/prospectus with the SEC, and cooperation in preparing the registration statement and information statement/prospectus and in responding to any comments received from the SEC on these documents;

 

   

coordination of press releases and other public statements about the merger and the merger agreement;

 

   

APP’s providing Fresenius and its representative and advisors reasonable access to APP’s properties, contracts, books, records and commitments;

 

   

Fresenius’ using its reasonable best efforts to arrange and consummate the financing, including extending the financing to June 30, 2009, keeping APP informed with respect to material activity concerning the status of the financing, and using reasonable best efforts to obtain alternative financing if the original financing becomes unavailable;

 

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APP’s using its reasonable best efforts in connection with the debt and equity financing necessary to complete the merger, including by cooperating with Fresenius’ reasonable requests, assisting with the preparation of materials related to the financing, furnishing pertinent information, procuring appropriate documentation, providing necessary documentation, and taking necessary corporate actions, in each case with respect to the financing;

 

   

APP’s using its reasonable best efforts to effect, as promptly as practicable, the transfers and distributions, divestitures, and dissolutions in accordance with the separation agreement governing the terms of the spin-off of Abraxis Bioscience from APP;

 

   

actions by Fresenius to cause FK Holdings and Merger Sub to fulfill their respective obligations under the merger agreement and ensure that, prior to the effective time, FK Holdings and Merger Sub do not conduct any business or make any investment other than as specifically contemplated by the merger agreement;

 

   

Fresenius and FK Holdings adopting and ensuring that a duly qualified trustee executes and delivers the CVR indenture, subject to any reasonable revisions to the CVR indenture requested by such trustee;

 

   

Fresenius causing to be repaid all amounts outstanding under APP’s credit agreement entered into in connection with the spin-off of Abraxis BioScience; and

 

   

Fresenius causing FK Holdings to as promptly as practicable after the date of the merger agreement prepare and submit to NASDAQ Capital Market (or such other exchange(s), electronic trading networks or other suitable trading platforms as agreed by Fresenius and APP) an application to list the CVRs and Fresenius using its reasonable best efforts to cause the CVRs to be approved for listing for trading on NASDAQ Capital Market (or such other exchange(s), electronic trading networks or other suitable trading platforms as agreed by Fresenius and APP) at or prior to the effective time.

Conditions to the Merger

The obligations of each of the parties to complete the merger are subject to the satisfaction (or, to the extent permitted under applicable laws and the terms of the merger agreement, waiver), at or prior to the closing, of the following mutual conditions:

 

   

Stockholder Approval. The merger agreement is to have been approved and adopted by the requisite vote of the APP stockholders in accordance with the DGCL (this condition was satisfied upon delivery of the written consent of the principal stockholders).

 

   

Registration Statement; Qualification of CVR Indenture. The registration statement on Form S-4, of which this information statement/prospectus forms a part, must have been filed with the SEC and declared effective and no stop order suspending the effectiveness of the registration statement will be in effect and, if required by law, the CVR indenture must have been duly qualified under the Trust Indenture Act.

 

   

Information Statement/Prospectus. This information statement/prospectus must have been sent or given to the APP’s stockholders and twenty calendar days must have elapsed before the closing.

 

   

No Injunctions or Orders. No executive order, decree, ruling or injunction will have been entered or enforced by any court or governmental entity, in each case of the United States or Canada, which prohibits the completion of the merger, and will continue to be in effect.

 

   

HSR Act. The waiting period under the HSR Act (and any extension thereof) applicable to the completion of the merger must have expired or been terminated.

 

   

Tax Opinion. Counsel to APP must have issued a tax opinion in accordance with the merger agreement and the tax allocation agreement entered into by APP, APP Pharmaceuticals, LLC, Abraxis BioScience, Inc. and Abraxis BioScience, LLC pursuant to the spin-off.

 

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Fresenius’, FK Holdings’ and Merger Sub’s obligation to complete the merger is subject to the satisfaction (or, to the extent permitted under applicable laws and the terms of the merger agreement, waiver), at or prior to the closing, of several additional conditions, including:

 

   

Representations and Warranties. Generally, the representations and warranties of APP must be true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect on APP” set forth therein) as of the date of the merger agreement and as of the closing date (except that, to the extent any representations and warranties speak as of an earlier date, these representations and warranties need only be true and correct as of that earlier date), except where the failure of the representations and warranties to so be true and correct would not reasonably be expected to have a material adverse effect on APP.

 

   

Performance of Covenants. APP must have performed and complied with, in all material respects, all of the obligations and covenants required to be performed or to be complied with by it under the merger agreement at or prior to the closing.

 

   

Related Agreements. The non-competition agreement with Dr. Soon-Shiong must be in full force and effect.

 

   

Absence of Material Adverse Effect. Since the date of the merger agreement, there has not been any event, change, effect or development that, individually or in the aggregate, has had, or would reasonably be expected to have, a material adverse effect on APP.

APP’s obligation to complete the merger is subject to the satisfaction (or, to the extent permitted under applicable laws and the terms of the merger agreement, waiver), at or prior to the closing, of several additional conditions, including:

 

   

Representations and Warranties. Generally, the representations and warranties of Fresenius, FK Holdings and Merger Sub must be true and correct in all material respects (without giving effect to any limitation as to “materiality” set forth therein) as of the date of the merger agreement and as of the closing date (except that, to the extent any representations and warranties speak as of an earlier date, these representations and warranties need only be true and correct as of that earlier date).

 

   

Performance of Covenants. Fresenius, FK Holdings and Merger Sub must have performed and complied with, in all material respects, all of the obligations and covenants required to be performed or to be complied with by them under the merger agreement at or prior to the closing.

 

   

Listing. The CVRs must have been approved for listing (subject to notice of issuance) for trading on the NASDAQ Capital Market (or such other exchange(s), electronic trading networks or other suitable trading platforms as agreed by Fresenius and APP).

 

   

Related Agreements. The CVR indenture must have been duly executed and delivered by FK Holdings and the trustee and be in full force and effect; and the equity commitment letter between Fresenius and FK Holdings must be in full force and effect.

Termination

APP and Fresenius may terminate the merger agreement by mutual written consent at any time before the effective time of the merger (including after APP stockholders have adopted the merger agreement). In addition, either APP or Fresenius may terminate the merger agreement if:

 

   

the merger has not been completed on or prior to the termination date specified in the merger agreement; this date is March 31, 2009. However, if any of the conditions to closing relating to the injunctions and antitrust approvals (described in the fourth and fifth bullet points under the section entitled “The Merger Agreement—Conditions to the Merger”) have not been satisfied by March 31, 2009, but all other conditions to closing set forth in the merger agreement are satisfied or are capable of

 

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being satisfied by March 31, 2009, then Fresenius or APP may extend the termination date to June 30, 2009, if Fresenius is able to extend the applicable financing commitment of the debt portion of its financing for the merger on commercially reasonable terms to June 30, 2009; or

 

   

any judgment, injunction, ruling, decree or order issued by any court of competent jurisdiction in the United States preventing the completion of the merger has become final and non-appealable. However, the right to terminate the merger agreement on these grounds is not available to any party whose breach of any provision of the merger agreement resulted in the imposition of the judgment, injunction, ruling, decree or order.

APP may terminate the merger agreement if Fresenius breaches or fails to perform any of its representations, warranties, covenants or obligations in the merger agreement, a result of which is that the conditions relating to the accuracy of its representations and warranties or the performance of its obligations and covenants to the merger agreement are incapable of being satisfied by the termination date.

Also, until August 8, 2008, APP had the right to terminate the merger agreement in order to concurrently enter into a letter of intent, agreement in principle, acquisition agreement or similar agreement with respect to any superior proposal, provided that APP had complied with the terms the merger agreement; provided further, that if APP had received an acquisition proposal that APP’s board of directors determined in good faith, during such 25-business day period, constituted or was likely to have lead to a superior proposal, APP had the right to terminate the merger agreement after the initial 25-business day period in order to enter into a letter of intent, agreement in principle, acquisition agreement or other similar agreement with the third party that made such superior proposal. See “The Merger Agreement—Termination in Connection with a Superior Proposal.” This right to terminate the merger agreement has now expired without extension.

In addition, Fresenius may terminate the merger agreement if APP breaches or fails to perform any of its representations, warranties, covenants or obligations in the merger agreement, a result of which is that the conditions relating to the accuracy of its representations and warranties or the performance of its obligations and covenants to the merger agreement are incapable of being satisfied by the termination date.

Termination Fees and Expenses

Expenses incurred by the parties to the merger agreement in connection with the merger and other transactions contemplated by the merger agreement are the responsibility of the party incurring such expenses. APP would have been obligated to pay promptly a $140 million break-up fee to Fresenius as described under the section entitled “The Merger Agreement—Termination in Connection with a Superior Proposal” if APP had terminated the merger agreement in connection with entering into an agreement for a superior proposal.

Amendment and Waiver

The merger agreement may be amended by a written instrument signed by APP, Fresenius, FK Holdings and Merger Sub at any time before or after the APP stockholders have approved the merger agreement.

 

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VOTING AGREEMENT AND WRITTEN CONSENT

The following summary describes certain material provisions of the voting agreement and is qualified in its entirety by reference to the written consent and voting agreement, a copy of which is attached to this information statement/prospectus as Annex C and which is incorporated by reference into this information statement/prospectus. This summary may not contain all of the information about the voting agreement that is important to you. We encourage you to read the voting agreement carefully and in its entirety.

Voting Covenants

Under the voting agreement, the principal stockholders agreed to vote all of their shares of APP common stock (representing approximately 81.1% of the outstanding shares of APP common stock as of the date of that agreement) in favor of adoption of the merger agreement, the merger and the other transactions contemplated by the merger agreement, and agreed to take such action by written consent in accordance with the provisions of the DGCL immediately following the execution and delivery of the merger agreement.

Each of the principal stockholders also agreed, while the voting agreement remains in effect and subject to certain exceptions, to vote or execute consents, as applicable, with respect to their shares of APP common stock, against:

 

   

any merger agreement or merger (other than the merger, the merger agreement, or any business combination or transaction with Fresenius or any of its affiliates), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by APP or any business combination involving APP;

 

   

any action, proposal, transaction or agreement that would reasonably be expected to result in a breach in any respect of any covenant, representation or warranty or any other obligation or agreement of APP contained in the merger agreement or of such principal stockholder contained in the voting agreement;

 

   

any action, proposal, transaction or agreement involving APP or any of its subsidiaries that would reasonably be expected to prevent, impede, frustrate, interfere with, delay, postpone or adversely affect the merger and the other transactions contemplated by the merger agreement, in contravention of the terms and conditions set forth in the merger agreement; and

 

   

any third party “acquisition proposal” (as defined in the merger agreement) made prior to the termination of the merger agreement, other than the merger.

In connection with the foregoing voting covenants and to secure their duties under the voting agreement, each of the principal stockholders irrevocably appointed Fresenius and any designee of Fresenius, and each of them individually, as such principal stockholder’s proxy and attorney-in-fact, with full power of substitution and re-substitution, with effect immediately following the execution of the written consent. This proxy and power of attorney is irrevocable during the period from and including the date of the voting agreement through and including the earliest to occur of either the effectiveness of the merger or the termination of the merger agreement.

While the voting agreement remains in effect, each of the principal stockholders is prohibited from transferring any shares of APP common stock that are subject to the voting agreement, subject to certain exceptions, including, transfers pursuant to the merger agreement, for charitable giving, among Dr. Soon-Shiong’s immediate family members and trusts established for their benefit, and pledges of up to 6 million shares of APP common stock as security for indebtedness.

 

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“No Shop” Obligations

Each of the principal stockholders agreed, subject to certain exceptions, that it will not, and will use reasonable best efforts to cause its respective representatives not to, directly or indirectly:

 

   

solicit or initiate any proposal or offer which would reasonably be expected to lead to a third party acquisition proposal, other than the transactions contemplated by the voting agreement;

 

   

enter into, participate, continue or otherwise engage in discussions or negotiations with, or provide any non-public information to any entity (other than Fresenius and its representatives) with respect to inquiries regarding, or the making of, a third party acquisition proposal; or

 

   

approve any letter of intent, agreement in principle, acquisition agreement or similar agreement relating to a third party acquisition proposal.

The foregoing restrictions do not prohibit the principal stockholders, or their respective representatives, from providing non-public information to, and participating in discussions or negotiations with, any person or entity if the principal stockholders have been notified by APP that its board of directors is permitted to provide non-public information to, or engage in discussions or negotiations with, such person or entity in accordance with the terms of the merger agreement. In addition, the principal stockholders are required to notify Fresenius within three business days after the receipt of any third party acquisition proposal, detailing the terms thereof and must keep Fresenius reasonably informed of any material changes with respect to such acquisition proposal.

Termination

The voting agreement will automatically terminate, and the written consent of each of the principal stockholders shall be automatically revoked, upon the earliest to occur of:

 

   

the effective time of the merger;

 

   

the effectiveness of any amendment, modification or supplement to, or waiver under, the merger agreement, which amendment, modification, supplement or waiver would reduce the amount of the merger consideration payable in the merger, unless consented to in writing by each of the principal stockholders; and

 

   

the termination of the merger agreement in accordance with its terms (unless the merger agreement is terminated as a result of breach of the voting agreement).

 

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DESCRIPTION OF THE CVRs

CVR Indenture

The following summary describes the material provisions of the CVRs. This summary may not contain all of the information about the CVRs that is important to you. The form of Contingent Value Rights Agreement is attached to this information statement/prospectus as Annex B and is incorporated by reference into this information statement/prospectus, and we encourage you to read it carefully for a more complete understanding of the CVRs.

Summary

The CVRs are intended to give stockholders of APP an opportunity to participate in any excess Adjusted EBITDA generated by APP for the three years ending December 31, 2010, referred to as the CVR measuring period, over and above a minimum threshold, without taking into account the merger and assuming that APP would have remained a stand-alone company with its existing assets. If the cumulative Adjusted EBITDA for the CVR measuring period does not exceed the threshold Adjusted EBITDA amount, then no amount will be payable or paid on the CVRs and the CVRs will expire valueless. The maximum amount payable under the CVR indenture is $6.00 per CVR.

The right to receive amounts payable under the CVRs, if any, will be subordinated to all senior obligations of FK Holdings. FK Holdings is registering the CVRs under the registration statement of which this information statement/prospectus forms a part.

There are many risks associated with the CVRs and there is no assurance that any payment on the CVRs will be made. See “Risk Factors” for a description of these risks.

Contingent Value Rights Agreement

The CVRs will be issued under the CVR indenture, to be entered into by FK Holdings and The Bank of New York Mellon Trust Company, N.A., as trustee, prior to the effective time of the merger. FK Holdings will cause the CVR indenture to be qualified under the Trust Indenture Act of 1939, as amended. The terms of the CVRs include those that will be stated in the CVR indenture and those that will be made part of the CVR indenture by reference to the Trust Indenture Act.

Characteristics of the CVRs

The CVRs are not equity or voting securities of FK Holdings, do not represent ownership interests in FK Holdings and holders of the CVRs are not entitled to any rights of a holder of limited liability company interests or other equity or voting security of FK Holdings, either at law or in equity. The rights of the CVR holders will be limited to those expressed in the CVR indenture.

CVR Payment

Subject to the maximum CVR payout of $6.00 per CVR, each CVR will represent the right to receive on June 30, 2011, in cash, the amount, if any, calculated according to the following formula:

 

CVR payment amount

    =     

2.5 * ((A+B) –C)

  
     D   

A = the aggregate Adjusted EBITDA for FK Holdings and its subsidiaries (or with respect to the period prior to the date of the CVR indenture, determined on a consolidated basis for APP and its subsidiaries) for the CVR measuring period;

 

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B = the aggregate amount of adjustments resulting from certain sales of assets of APP, FK Holdings or their subsidiaries during the CVR measuring period;

C = $1,267,700,000; and

D = the total number of CVRs issued in connection with the merger.

For more information regarding the calculation of Adjusted EBITDA for purposes of the CVRs, see “Description of the CVRs—Asset Sale Adjustments” and “Description of the CVRs—Selected Definitions Related to the CVR Indenture.”

Asset Sale Adjustments

To the extent there are certain dispositions of material assets of FK Holdings, APP or their respective subsidiaries in connection with the closing of the merger during the CVR measuring period, the CVR indenture will require the calculation of a sale adjustment amount intended to capture the approximate contribution to Adjusted EBITDA generated by such assets, based upon the proceeds from the disposition and the time remaining in the CVR measuring period after the disposition. The sale adjustment amount for each such disposition of material assets is calculated using the following formula:

Sale adjustment amount = X * ((Y/15)/365)

X = number of days from the date of such disposition and the end of the CVR measuring period; and

Y = the total proceeds from such disposition.

By way of example and strictly for illustrative purposes, if a covered disposition of material assets occurred on March 31, 2009, after which 640 days would remain in the CVR measuring period, and such disposition resulted in total proceeds of $500 million, the sale adjustment amount would be $58.45 million calculated as follows:

Sale adjustment amount = 640 * (($500M/15)/365) = $58.45 million

Payment at Maturity Date

The cash payment on the CVRs, if any, will be determined after December 31, 2010, and will be payable June 30, 2011, except in the case of a change of control of FK Holdings, which may result in an acceleration of any payment. See “Description of the CVRs—Change of Control”.

Amounts payable by FK Holdings in respect of the CVRs will be considered paid on the date due if on such date the trustee or the paying agent holds money sufficient to pay all such amounts then due in accordance with the CVR indenture. The trustee and the paying agent will comply with all U.S. federal withholding requirements with respect to payments to holders of CVRs that FK Holdings, the trustee or the paying agent reasonably believes are applicable under the Internal Revenue Code of 1986, as amended, and the Treasury regulations thereunder. The consent of the CVR holder is not required for any such withholding.

Issuance of CVRs

The CVRs will be issued on the effective date of the merger. The number of CVRs to be issued will be equal to the sum of (i) the number of shares of APP common stock outstanding immediately prior to the effective time of the merger, (ii) the number of shares of APP common stock underlying each APP stock option having an exercise price that is less than $23.00, and (iii) the number of APP restricted stock units outstanding immediately prior to the effective time of the merger.

The CVR indenture provides for authentication of the CVRs by the trustee upon execution and delivery of such CVRs pursuant to the CVR indenture.

 

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Transferability of CVRs; Listing

The CVRs are freely transferable and any interest therein may be sold, assigned, pledged, encumbered or in any manner transferred or disposed of, in whole or in part, as long as the transfer or other disposition is made in accordance with the applicable provisions of the CVR indenture and in compliance with applicable United States federal and state securities laws and any other applicable securities laws. A sale or exchange of a CVR would be a taxable transaction. See “Certain Material U.S. Federal Income Tax Consequences” for a more detailed explanation. CVRs issued to any holder who is an “affiliate” of FK Holdings (as determined under applicable securities laws) may not offer or sell their CVRs, except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from the registration requirements of the Securities Act.

Fresenius has agreed to use its reasonable best efforts to cause the CVRs to be approved for listing at the effective time of the merger on the NASDAQ Capital Market, or an exchange, electronic trading network or trading platform as agreed by Fresenius and APP. Notwithstanding its efforts, FK Holdings may be unable to cause the CVRs to be listed for trading.

Selected Definitions Related to the CVR Indenture

For the purposes of the CVRs and the CVR indenture:

“Adjusted EBITDA” means for any period, the consolidated net income for such period, plus:

 

   

without duplication and to the extent already deducted (and not added back) in arriving at such consolidated net income, the sum of the following amounts for such period:

 

  ¡  

total interest expense, including any imputed interest expense relating to the CVRs, and, to the extent not reflected in such total interest expense, any losses on hedging obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of interest income and gains on such hedging obligations, and costs of surety bonds in connection with financing activities, letter of credit fees and commitment fees;

 

  ¡  

provision for taxes based on income, profits or capital, including state, franchise, withholding and similar taxes paid or accrued during such period;

 

  ¡  

depreciation and amortization (including amortization of capitalized software expenditures and amortization of deferred financing fees);

 

  ¡  

(a) non-cash losses on asset sales, disposals or abandonments, (b) any non-cash impairment charge or asset write-off related to intangible assets, long-lived assets, and investments in debt and equity securities, (c) all non-cash losses from investments recorded using the equity method, (d) non-cash stock-based awards compensation expense, and (e) non-cash expenses relating to the vesting of warrants (together “Non-Cash Charges”);

 

  ¡  

(x) any extraordinary, unusual or non-recurring expenses or losses related to FK Holdings’ acquisition of APP, including restructuring costs, integration costs, expenses arising as a result of the transactions contemplated by the merger agreement, including the issuance, maintenance and settlement of the CVRs, transaction fees and expenses and (y) expenses (not to exceed $1 million in the aggregate) arising out of the spin-off of Abraxis BioScience from APP to APP’s stockholders, on November 13, 2007, of all of the issued and outstanding shares of Abraxis BioScience, Inc. common stock and the related transactions;

 

  ¡  

any costs or expenses (excluding Non-Cash Charges) incurred pursuant to any management equity plan or stock option plan or any other management or employee equity benefit plans or agreements or any stock subscription or shareholder agreement;

 

  ¡  

losses on sales of fixed assets (other than ordinary course asset sales);

 

  ¡  

any non-cash increase in expenses (a) resulting from the revaluation of inventory (including any impact of changes to inventory valuation policy methods including changes in capitalization of

 

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variances) and any other one time Non-Cash Charges resulting due to any change in accounting policy, or (b) due to purchase accounting associated with the transactions contemplated by the merger agreement, including the issuance of the CVRs;

 

  ¡  

expenses with respect to liability or casualty events or business interruption only to the extent of any reasonably anticipated insurance recovery, and only to the extent that such recovery has not already been booked in consolidated net income;

 

  ¡  

any expenses or losses related to the research, development, manufacturing, marketing, selling and distribution of products, molecules or delivery forms of molecules not included in products sold, in development or planned for development by APP and its subsidiaries as of the date of the merger agreement, including all direct and indirect costs calculated with the average indirect cost ratio for FK Holdings and its subsidiaries;

 

  ¡  

research and development expenses relating to the build-out of facilities and costs incurred to transfer production to or start-up any facilities, including costs incurred to ready such facilities for use and costs, such as unfavorable manufacturing variances, incurred prior to achieving planned production levels, and costs incurred to modernize marketed products as incurred, but in any event not to exceed $34.9 million during the three years ending December 31, 2010;

 

  ¡  

any expenses or losses related to the registration, manufacturing, marketing, selling and distribution of products outside North America (other than with respect to products sold, in development or planned for development by APP and its subsidiaries as of the date of the merger agreement that are sold or distributed outside of North America as of the date of the merger agreement), including all direct and indirect costs calculated with the average indirect cost ratio for FK Holdings and its subsidiaries;

 

  ¡  

any deductions attributable to minority interests; and

 

  ¡  

any expenses or losses arising out of the consulting agreement, dated the date of the merger agreement, among FK Holdings, Dr. Soon-Shiong and Fresenius;

less

 

   

without duplication and to the extent included in arriving at such consolidated net income, the sum of the following amounts for such period:

 

  ¡  

extraordinary and unusual or non-recurring cash gains;

 

  ¡  

non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced consolidated net income in any prior period);

 

  ¡  

gains on sales of fixed assets (other than ordinary course asset sales);

 

  ¡  

any net after-tax income from the early extinguishment of indebtedness or hedging obligations or other derivative instruments;

 

  ¡  

all one-time gains from investments recorded using the equity method;

 

  ¡  

all incremental net revenue from the sale of molecules and delivery forms of molecules not included in products sold, in development or planned for development by APP and its subsidiaries as of the date of the merger agreement; and

 

  ¡  

all incremental net revenue from the sale of products outside of North America (other than with respect to products sold, in development or planned for development by APP and its subsidiaries as of the date of the merger agreement that are sold or distributed outside of North America as of the date of the merger agreement);

in each case, as determined on a consolidated basis for FK Holdings and its subsidiaries (or with respect to the period prior to the date of the CVR indenture, determined on a consolidated basis for APP and its subsidiaries) in accordance with U.S. GAAP.

 

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“Change of control” means (i) the consummation of any transaction, including without limitation, any merger or consolidation pursuant to which any of the voting stock of a person is converted into or exchanged for cash, securities or other property, other than any transaction where the voting stock of such person outstanding immediately prior to such transaction is converted into or exchanged for voting stock of a transferee entity constituting more than 50% of such voting stock or such surviving or transferee entity (immediately after giving effect to such issuance); or (2) a sale of all or substantially all of a person’s assets.

“CVR statement” means the written statement of FK Holdings, certified by the chief financial officer of FK Holdings and setting forth with reasonable detail the calculation of Adjusted EBITDA for the CVR measurement period (including an itemization of each adjustment made to the net income (loss) of FK Holdings and its subsidiaries for such period determined on a consolidated basis in accordance with U.S. GAAP to derive consolidated net income to derive Adjusted EBITDA) and the CVR payment in accordance with the CVR indenture. The CVR statement shall include audited financial statements of FK Holdings for each calendar year comprising the CVR period.

Subordination

The CVRs are unsecured obligations of FK Holdings and all payments on the CVRs, including acceleration payments resulting from a change of control, all other obligations under the CVR indenture and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of senior obligations of FK Holdings. Senior obligations of FK Holdings include all principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under, or with respect to any senior obligations of Fresenius and its subsidiaries. For purposes of the CVR indenture, senior obligations refers to (a) the Senior Credit Facilities and the Bridge Facility (including amendments and refinancings thereof) and, so long as amounts remain outstanding under the Senior Credit Facilities, (b) inter-company loans to an obligor of the Senior Credit Facilities or the Bridge Facility (including amendments and refinancings thereof) and (c) other indebtedness of Fresenius and its subsidiaries other than indebtedness which by its terms is pari passu with or subordinated to the CVRs.

Upon any distribution to creditors of FK Holdings in liquidation, dissolution, bankruptcy, reorganization, insolvency, receivership or similar proceedings of FK Holdings, holders of senior obligations of FK Holdings (as described above) will be entitled to payment in full in cash of all such obligations prior to any payment being made on the CVRs. In addition, FK Holdings may not make any CVR payment to any CVR holder:

 

   

if any default on any senior obligations would occur as a result thereof, provided, that, (i) in the case of senior obligations constituting inter-company loans, such default would cause a default to occur under the Senior Credit Facilities or the Bridge Facility, and (ii) in the case of senior obligations other than inter-company loans, the Senior Credit Facilities or the Bridge Facility, such senior obligations shall be in an aggregate amount exceeding €25 million;

 

   

during the continuance of any payment default in respect of any senior obligations (after expiration of any applicable grace period), provided that (i) in the case of senior obligations other than the inter-company loans, the Senior Credit Facilities and the Bridge Facility, such senior obligations shall be in an aggregate amount exceeding €25 million and (ii) in the case of senior obligations constituting inter-company loans, such default shall have caused a default under the Senior Credit Facilities or the Bridge Facility;

 

   

if the maturity of any senior obligations is accelerated in accordance with its terms and such acceleration has not been rescinded, provided that (i) in the case of senior obligations other than inter-company loans, the Senior Credit Facilities and the Bridge Facility, such senior obligations of FK Holdings shall be in an aggregate amount exceeding €25 million and (ii) in the case of senior obligations constituting inter-company loans, such acceleration shall have caused a default under the Senior Credit Facilities or the Bridge Facility; or

 

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following the occurrence of any default (other than a payment default, and after the expiration of any applicable grace period) with respect to any Senior Credit Facilities and the Bridge Facility (including amendments and refinancings thereof), and upon payment of the Senior Credit Facilities and the Bridge Facility (including amendments and refinancings thereof), any other senior obligations of FK Holdings and its subsidiaries (other than inter-company loans) with an outstanding principal amount greater than €25 million, the effect of which is to permit the holders of such senior indebtedness (or a trustee or agent acting on their behalf) to cause the maturity of such senior indebtedness to be accelerated, for a period commencing from receipt by the trustee under the CVR indenture of a written notice of such default from the representative of the holders of such senior indebtedness until such senior indebtedness is paid in full in cash or such default is cured or waived.

Change of Control

In the event of a change of control of APP as a result of an event of default under the financing arrangements which results in the sale or conveyance of APP or substantially all of the assets of APP, FK Holdings is obligated to calculate an accelerated CVR payment, or acceleration payment, as discussed below. The acceleration payment, if any, is payable within six months after the change of control giving rise to the acceleration payment.

Upon a change of control, the acceleration payment is determined by calculating the CVR payment as described under “Description of the CVRs—CVR Payment” above, but substituting for cumulative Adjusted EBITDA in such formula an amount that is determined based on the aggregate Adjusted EBITDA generated from the start of the CVR measuring period through the last day of the most recent fiscal quarter covered by the financial statements of FK Holdings’ last quarterly report preceding the change of control, “grossed-up” for the balance of the CVR measuring period in accordance with the following formula:

“grossed-up” Adjusted EBITDA = A * (12/B)

A = cumulative Adjusted EBITDA from the beginning of the CVR measuring period through the end of the most recent fiscal quarter reported by FK Holdings prior to the change of control; and

B = the number of fiscal quarters of the CVR measuring period ending prior to the change of control.

By way of example and strictly for illustrative purposes, if a change of control occurred on October 29, 2009, and reported cumulative Adjusted EBITDA was $750 million through the fiscal quarter ending September 30, 2009, which is the seventh fiscal quarter of the CVR measuring period, the “grossed-up” Adjusted EBITDA for use in calculating the acceleration payment would be $1.285 billion calculated as follows:

“grossed-up” Adjusted EBITDA = $750 million * (12/7) = $1.285 billion

Reporting Obligations

Pursuant to the CVR indenture, prior to the earlier of (i) fifteen days following the filing of FK Holding’s annual report on Form 10-K for the year ended December 31, 2010, and (ii) April 15, 2011, FK Holdings is required to deliver to the trustee and to the holders of the CVRs a CVR statement and officer’s certificate certifying the aggregate Adjusted EBITDA for the CVR measuring period and the calculation of the CVR payment. In addition, for the fiscal years ending December 31, 2008 and December 31, 2009, FK Holdings is required to provide to the trustee, prior to the earlier of (i) 15 days after FK Holdings files with the SEC its annual report for such fiscal year, or (ii) one hundred five days following the end of such fiscal year, a certificate of its chief financial officer setting forth and certifying the Adjusted EBITDA for such fiscal year. If the date of the CVR indenture is after December 31, 2008, then the requisite certificate for calendar year 2008 will be delivered within 120 days of the date of the CVR indenture. These certificates will include an itemization of each adjustment made to the consolidated net income to derive Adjusted EBITDA.

The CVR indenture also provides that FK Holdings will file with the trustee copies of the annual reports and of the information, documents and other reports (or copies of such portions of the foregoing as the SEC may from time to time by rules and regulations prescribe) which FK Holdings may be required to file with the SEC

 

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pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if FK Holdings is not required to file periodic reports under the Exchange Act, quarterly and annual financial information that would be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. FK Holdings’ annual reports and quarterly reports shall include a calculation of Adjusted EBITDA for the reporting period. The CVR indenture also provides that FK Holdings shall transmit by mail to all registered holders of the CVRs summaries of any information documents and reports required to be filed with the trustee.

Audit

Within 60 days of receiving the CVR statement from FK Holdings, holders representing at least a majority of the outstanding CVRs may initiate a review procedure to challenge the accuracy of the CVR statement, including the calculations or amount of the CVR payment.

Upon the written request of holders representing at least a majority of the outstanding CVRs, FK Holdings is required to permit an independent certified public accounting firm of nationally recognized standing (jointly agreed by such holders and FK Holdings) to have access to such records of FK Holdings as may be reasonably necessary to verify the accuracy of the CVR statement and the figures underlying the calculations set forth therein.

If the independent certified public accountant concludes that the CVR payment should have been greater than the CVR payment as set forth in the CVR statement, FK Holdings shall pay such shortfall with respect to each CVR within six months of the date that the holders representing at least a majority of the outstanding CVRs deliver the written report of the certified public accountants to FK Holdings. The decision of the independent certified public accountant shall be final, conclusive and binding on FK Holdings and the CVR holders. The fees charged by the independent certified public accounting firm will be paid by FK Holdings.

If no review of the CVR statement is requested by holders of a majority of the CVRs within the time required for such request under the CVR indenture, the calculation of the CVR payment set forth in the CVR statement shall be binding on all CVR holders.

No Obligation to Continue Research, Development or Commercialization of any Products

FK Holdings has no obligation under the CVR indenture to initiate or continue research, development or commercialization activities with respect to any products and, in its sole and subjective discretion, FK Holdings may abandon efforts to research, develop or commercialize any product, whether or not such product is in development or commercialized as of the closing date of the merger.

Covenants

The CVR indenture provides that while any CVRs remain outstanding, FK Holdings may not:

 

   

voluntarily liquidate, dissolve or wind-up FK Holdings or any of its subsidiaries;

 

   

effect any merger, consolidation or conversion of FK Holdings or enter into any transaction that would result in FK Holdings (or any other member of the Fresenius group, subject to conditions described below) failing to own directly all of the outstanding shares or other equity interests, equity securities or rights exercisable, exchangeable or convertible for or into shares or other equity interests or share appreciation rights, phantom shares or other equity or equity-like instruments of APP or permit APP to merge with another corporation or entity;

 

   

permit APP or any of its subsidiaries to enter into any transaction, that would result in APP (or any other member of the Fresenius group, subject to conditions described below) failing to own directly or indirectly all of the outstanding shares or other equity interests, equity securities or rights exercisable,

 

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exchangeable or convertible for or into shares or other equity interests or share appreciation rights, phantom shares or other equity or equity-like instruments of each of the subsidiaries of APP;

 

   

amend, modify, or release Fresenius from its obligations under the equity commitment letter (described below) or fail to enforce Fresenius’ obligations thereunder; or

 

   

enter into or permit to exist any agreement, arrangement or understanding that would restrict or prevent payment of the CVR payment, if any, when due.

In addition, the CVR indenture provides that if FK Holdings enters into or effects any transaction with a member of the Fresenius group that would result in such member of the Fresenius group owning an equity interest in APP, FK Holdings shall cause the acquiring Fresenius group member(s) involved in each such transaction to include in all calculations relevant to the CVR payment the results of operations of such acquiring Fresenius group member(s) attributable to such equity interests in the same manner as such results were included in FK Holdings’ consolidated results before such transaction occurred, including sales adjustments in respect of sale transactions by any such member of the Fresenius group.

FK Holdings will take all actions reasonably necessary, including bringing necessary legal action against Fresenius, to enforce Fresenius’ obligations, and FK Holdings’ rights under, the equity commitment letter.

Arm’s-Length Transaction Requirement

The CVR indenture provides that FK Holdings and its subsidiaries may only purchase, sell, lease, exchange or otherwise dispose of their properties or assets, render services and otherwise enter into transactions on terms that are not materially less favorable to FK Holdings or such subsidiary than terms that could have been obtained at the time such transaction was agreed or effected in an arm’s-length dealing with a person who is not an affiliate (as defined in the CVR indenture), except for the following transactions: (i) transactions between or among FK Holdings and any of its subsidiaries; (ii) transactions pursuant to the equity commitment letter; (iii) the issuance or transfer of equity securities of FK Holdings to any direct or indirect parent of FK Holdings and the payment of dividends; (iv) payments with respect to senior obligations; (v) pursuant to tax sharing agreements entered into among FK Holdings, its subsidiaries and any direct or indirect parent of FK Holdings on customary terms to the extent attributable to the ownership or operation of FK Holdings and its subsidiaries under such tax-sharing agreements in any fiscal year does not exceed the amount that FK Holdings and its subsidiaries would be required to pay in respect of foreign, federal, state and local taxes for such fiscal year if FK Holdings and its subsidiaries were to pay such taxes separately from any such parent entity; and (vi) transactions pursuant to agreements, instruments or arrangements to which APP or any of its subsidiaries were party to on the date of the CVR indenture with parties that are not affiliates of FK Holdings following the merger, and any amendment thereto to the extent such amendment is not materially adverse to the holders of the CVRs or is on arm’s-length terms.

Events of Default

Each one of the following events is an event of default under the CVR indenture:

 

   

default in the payment of all or any part of the CVR payments as and when they become due and payable;

 

   

default in the performance, or breach, in any material respect, of any other covenant or warranty of FK Holdings in respect of the CVRs, and continuance of such default or breach for a period of ninety days after written notice has been given to FK Holdings by the trustee or to FK Holdings and the trustee by the holders of a majority of the outstanding CVRs specifying such default or breach and requiring it to be remedied;

 

   

a court having jurisdiction in the premises entering a decree or order for relief in respect of FK Holdings in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee or sequestrator

 

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(or similar official) of FK Holdings or for any substantial part of its property or ordering the winding up or liquidation of its affairs, and such decree or order remaining unstayed and in effect for a period of sixty consecutive days; or

 

   

FK Holdings commencing a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consenting to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of FK Holdings or for any substantial part of its property, or making any general assignment for the benefit of creditors.

If an event of default described above occurs and is continuing, then, and in each and every such case, either the trustee or the trustee upon the written request of holders of a majority of the outstanding CVRs, shall bring suit to protect the rights of the holders, including to obtain payment for any amounts then due and payable, which amounts shall bear interest at the default interest rate (as set forth in the CVR indenture) until payment is made to the trustee.

The foregoing provisions, however, are subject to the condition that if, at any time after the trustee shall have begun such suit, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, FK Holdings shall pay or shall deposit with the trustee a sum sufficient to pay all amounts which shall have become due (with interest upon such overdue amount at the default interest rate specified in the CVR indenture to the date of such payment or deposit) and such amount as shall be sufficient to cover reasonable compensation to the trustee, its agents, attorneys and counsel, and all other expenses and liabilities incurred and all advances made, by the trustee, and if any and all events of default under this CVR indenture shall have been cured, waived or otherwise remedied as provided herein, then and in every such case the holders of a majority of all the CVRs then outstanding, by written notice to FK Holdings and to the trustee, may waive all defaults with respect to the CVRs, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereof.

The trustee may withhold notice from holders of CVRs of defaults under the CVR indenture, except for payment defaults, if the board of directors, the executive committee or a trust committee of directors or trustees or responsible officers of the trustee in good faith determines that withholding of such notice is in the interests of CVR holders.

Restrictions on Purchases by FK Holdings and Affiliates

The CVR indenture does not prohibit FK Holdings or any of its subsidiaries or affiliates from acquiring the CVRs, whether in open market transactions, private transactions or otherwise.

Registration and Transfers

FK Holdings shall cause to be kept at the office of the trustee a register in which, subject to such reasonable regulations as it may prescribe, FK Holdings shall provide for the registration and transfer of the CVRs.

Upon surrender for registration of transfer of any CVR at the office or agency of FK Holdings, FK Holdings shall execute, and the trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new CVR certificates representing the same aggregate number of CVRs represented by the CVR certificate so surrendered that are to be transferred and FK Holdings shall execute and the trustee shall authenticate and deliver, in the name of the transferor, one or more new CVR certificates representing the aggregate number of CVRs represented by such CVR certificate that are not to be transferred.

No service charge shall be made for any registration of transfer or exchange of CVRs, but FK Holdings may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of CVRs.

 

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Amendment of CVR Indenture without Consent of CVR Holders

Without the consent of CVR holders, FK Holdings and the trustee may amend the CVR indenture for any of the following purposes:

 

   

to convey, transfer, assign, mortgage or pledge to the trustee as security for the CVRs any property or assets;

 

   

to evidence the succession of another person to FK Holdings, and the assumption by any such successor of the covenants of FK Holdings in the CVR indenture and in the CVRs;

 

   

to add to FK Holdings’ covenants such further covenants, restrictions, conditions or provisions as its board of directors (or equivalent body) and the trustee shall consider to be for the protection of CVR holders, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an event of default permitting the enforcement of all or any of the several remedies provided in the CVR indenture, provided that in respect of any such additional covenant, restriction, condition or provision, such amendment may provide (i) for a particular grace period after default, (ii) an immediate enforcement upon such event of default, (iii) limit the remedies available to the trustee upon such event of default, or (iv) limit the right of the holders of a majority of the outstanding CVRs to waive an event of default;

 

   

to cure any ambiguity, to correct or supplement any provision in the CVR indenture or in the CVRs which may be defective or inconsistent with any other provision in the CVR indenture, provided that such provisions shall not materially reduce the benefits of the CVR indenture or the CVRs to the CVR holders;

 

   

to make any other provisions with respect to matters or questions arising under the CVR indenture, provided that such provisions shall not adversely affect the interests of the CVR holders;

 

   

to make any amendments or changes necessary to comply or maintain compliance with the Trust Indenture Act; or

 

   

to make any change that does not adversely affect the interests of the CVR holders.

Amendment of CVR Indenture with Consent of CVR Holders

With the consent of the holders of at least a majority of the outstanding CVRs, FK Holdings and the trustee may make other amendments to the CVR indenture, provided that no such amendment shall, without the consent of each holder of a CVR affected thereby:

 

   

modify in a manner adverse to the CVR holders (i) any provision contained in the CVR indenture with respect to the termination of the CVR indenture or the CVRs, (ii) the time for payment and amount of the CVR payment or otherwise extend the maturity of the CVRs or reduce the amounts payable in respect of the CVRs or modify any other payment term or payment date;

 

   

reduce the number of CVRs, the consent of whose holders is required for any such amendment; or

 

   

modify any of the provisions of the CVR indenture regarding amendments to the CVR indenture, except to increase the percentage of outstanding CVRs required for an amendment or to provide that certain other provisions of the CVR indenture cannot be modified or waived without the consent of each CVR holder affected by such modification or waiver.

Equity Commitment Letter

FK Holdings received the equity commitment letter from Fresenius pursuant to which, and subject to the conditions contained therein, Fresenius has committed to make an equity contribution to FK Holdings, in cash, in an amount equal to the aggregate amount of cash to be paid to the holders of CVRs in accordance with the terms of the CVR indenture. Fresenius is obligated to make the contribution to the extent that FK Holdings becomes

 

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obligated to make a payment under the CVR indenture and FK Holdings does not have sufficient funds and/or debt capacity to cover such payment.

Fresenius has also agreed pursuant to the equity commitment letter that, for so long as any CVRs are outstanding, FK Holdings and its subsidiaries will be the primary entities through which Fresenius and its affiliates (other than Fresenius Medical Care and its subsidiaries) will engage in the business of developing, in-licensing, manufacturing, selling, marketing and distributing injectable generic pharmaceutical products in the United States. This does not apply to Fresenius Medical Care and its subsidiaries (which represent Fresenius’ existing business in the United States) and shall not prohibit Fresenius from acquiring entities that engage in the business of developing, in-licensing, manufacturing, selling, marketing and distributing injectable generic pharmaceutical products in the United States, so long as such business is not the primary business of such acquired entity.

Fresenius has also agreed pursuant to the equity commitment letter that, for so long as any CVRs are outstanding, Fresenius shall not take or permit to be taken any of the following actions: (i) the voluntary liquidation, dissolution or winding-up of FK Holdings or (ii) any merger, consolidation or conversion of FK Holdings or the entry into any transaction that would result in FK Holdings (or any of Fresenius and its subsidiaries following the merger) failing to own directly all of the outstanding shares or other equity interests, equity securities or rights exercisable, exchangeable or convertible for or into shares or other equity interests or share appreciation rights, phantom shares or other equity or equity-like instruments of FK Holdings.

The equity commitment letter is not a guarantee of the CVRs and cannot be enforced by holders of the CVRs. Only FK Holdings can enforce the equity commitment letter against Fresenius.

 

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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a general discussion of certain material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of APP common stock whose shares are exchanged for the merger consideration in the merger. This discussion is for general information only and is not tax advice. This discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to APP stockholders. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable current and proposed U.S. Treasury Regulations, judicial authority, and administrative rulings and practice, all of which are subject to change, possibly on a retroactive basis. Any such change could alter the tax consequences described herein.

For purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of shares of APP common stock that is:

 

   

a citizen or individual resident of the United States for U.S. federal income tax purposes;

 

   

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any of its political subdivisions;

 

   

a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons, as defined under Section 7701(a)(30) of the Code (“U.S. persons”), have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or

 

   

an estate, the income of which is subject to U.S. federal income tax regardless of its source.

An individual may, subject to certain exceptions, be deemed to be a U.S. resident alien (as opposed to a nonresident alien) with respect to a calendar year by virtue of being present in the United States on at least 31 days in the calendar year and on an aggregate of at least 183 days during the current calendar year and the two preceding calendar years (counting for such purposes all of the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year). U.S. resident aliens generally are subject to U.S. federal income tax as if they were citizens of the United States.

This discussion assumes that a holder holds its shares of APP common stock, and that a holder will hold its CVRs, as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income tax that may be relevant to an APP stockholder in light of its particular circumstances, or that may apply to an APP stockholder that is subject to special treatment under the U.S. federal income tax laws (including, for example, insurance companies, dealers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting for their securities, persons subject to the alternative minimum tax, persons that have a functional currency other than the U.S. dollar, tax-exempt organizations (including private foundations), financial institutions, mutual funds, subchapter S corporations, partnerships or other pass-through entities for U.S. federal income tax purposes, holders that are not U.S. holders, controlled foreign corporations, passive foreign investment companies, certain expatriates, corporations that accumulate earnings to avoid U.S. federal income tax, persons who hold shares of APP common stock as part of a hedge, straddle, constructive sale, conversion or other integrated transaction, persons who acquired their shares of APP common stock through the exercise of options or other compensation arrangements, persons who exercise statutory appraisal rights or persons whose ability to sell their APP common stock is limited by SEC Rule 144). In addition, this discussion does not address any aspect of state, local foreign, estate, gift or other tax law that may apply to APP stockholders. The U.S. federal income tax consequences described below are not intended to constitute a complete description of all tax consequences relating to the merger. APP stockholders are urged to consult their own tax advisors to determine the tax consequences to them of, including the application and effect of any U.S. federal, state, local and foreign income, estate, gift and other tax laws to, the receipt of cash and CVRs in exchange for APP common stock pursuant to the merger.

 

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If any entity that is treated as a partnership for U.S. federal tax purposes holds APP common stock, the tax treatment of its partners or members generally will depend upon the status of the partner or member and the activities of the entity. If you are a partner of a partnership or a member of a limited liability company or other entity classified as a partnership for U.S. federal tax purposes and that entity holds shares of APP common stock, you should consult your tax advisor.

The receipt of the merger consideration by a U.S. holder in exchange for shares of APP common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes (and may also be a taxable transaction under applicable state, local, and foreign income or other tax laws). For U.S. federal income tax purposes, a U.S. holder of APP common stock generally will recognize capital gain or loss at the time of the merger equal to the difference, if any, between:

 

   

the amount of cash and the fair market value of the CVRs received by the U.S. holder in exchange for such APP common stock; and

 

   

the U.S. holder’s adjusted tax basis in such APP common stock.

Such gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for the APP common stock surrendered in the merger exceeds one year as of the date of the merger. In general, long-term capital gain of individuals currently is subject to U.S. federal income tax at a maximum rate of 15%. The legislation providing for this 15% rate is scheduled to expire at the end of 2010, at which time, unless such legislation is extended, the rate generally will increase to 20% for individuals. The deductibility of capital losses is subject to limitations under the Code. The amount and character of gain or loss must be determined separately for each block of APP common stock (i.e., shares acquired at the same cost in a single transaction) exchanged for the merger consideration in the merger. The installment method of reporting any gain attributable to receipt of a CVR will not be available because APP common stock is traded on an established securities market.

A U.S. holder’s initial tax basis in a CVR will equal the fair market value of such CVR upon receipt. The holding period for the CVRs will begin on the day following the date of the merger.

There is no legal authority directly addressing the U.S. federal income tax treatment of the CVRs. Pursuant to the CVR indenture, FK Holdings will agree to report any CVR payment (except to the extent of any imputed interest, as described below) for all purposes as additional consideration for the sale of APP common stock. Assuming that this method of reporting is correct, if a payment is made with respect to a CVR, a U.S. holder should recognize gain or loss equal to the difference between the amount of such payment (less any imputed interest, as described below) and the U.S. holder’s adjusted tax basis in the CVR. The gain should be long-term capital gain if the U.S. holder has held the CVR for more than one year. If no CVR payment is made or if the amount of any CVR payment made (less any imputed interest, as described below) is less than the U.S. holder’s adjusted tax basis in the CVR, the U.S. holder should recognize a capital loss.

Under the Code, a portion of any CVR payment should be treated as interest income that is ordinary income to a U.S. holder. In accordance with the CVR indenture, in the event that the CVR payment is made, the amount of imputed interest will be calculated under Section 483 of the Code, and under that method generally should be equal to the excess of (1) the amount of the CVR payment over (2) the present value of such amount as of the effective time of the merger, discounted at the relevant applicable federal rate. The relevant applicable federal rate will be the lower of (a) the lowest applicable federal rate in effect during the three-month period ending with the month that includes the date on which the merger agreement was signed, and (b) the lowest applicable federal rate in effect during the three-month period ending with the month that includes the effective time of the merger. Under Section 483, the imputed interest is accounted for in accordance with the holder’s regular method of accounting. Upon the making of the CVR payment, FK Holdings will report to the holder of the CVR and to the Internal Revenue Service (“IRS”) the amount of such interest income as calculated above.

Upon a sale or exchange of a CVR, a U.S. holder should recognize capital gain or loss equal to the difference between (i) the sum of the amount of any cash received upon such sale or exchange and the fair

 

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market value of any property received upon such sale or exchange (less any imputed interest, as described below) and (ii) the U.S. holder’s adjusted tax basis in the CVR. Such gain or loss generally will be long-term capital gain or loss if the U.S. holder has held the CVR for more than one year. A portion of the amount received by a U.S. holder upon the sale or exchange of a CVR may be treated as imputed interest income, determined under the method described above.

As discussed above, the U.S. federal income tax treatment of the CVRs is unclear. Thus, there can be no assurance that the IRS would not assert, or that a court would not sustain, a position that any CVR payment or a sale or exchange of a CVR does not attract capital gain treatment, or that a different method should be used for purposes of calculating the amount of imputed interest. If such position were sustained, all or any part of any CVR payment (or a payment in exchange for a CVR) could be treated as ordinary income and be required to be included in income prior to the receipt of any CVR payment.

Under the Code, consideration received in the merger and any CVR payment received by a U.S. holder may be subject to U.S. information reporting and backup withholding. Backup withholding (currently at a rate of 28%) will apply with respect to the amount of cash received by a non-corporate U.S. holder, unless the U.S. holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. holder’s U.S. federal income tax liability, if any, provided that such U.S. holder furnishes the required information to the IRS in a timely manner.

THE FOREGOING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE DISCUSSION OF THE POTENTIAL TAX CONSEQUENCES OF THE MERGER. APP STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME, ESTATE, GIFT AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES. NOTHING IN THIS DISCUSSION IS INTENDED TO BE, OR SHOULD BE CONSTRUED AS, TAX ADVICE.

 

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TAX OPINION PURSUANT TO TAX ALLOCATION AGREEMENT

On November 13, 2007, APP distributed all of the shares of Abraxis BioScience common stock to APP’s stockholders in the spin-off. In connection with the spin-off, APP, Abraxis BioScience, and certain of their affiliates entered into a tax allocation agreement, which generally allocates liability for taxes between APP and Abraxis BioScience, including any taxes that may arise in connection with the spin-off. Pursuant to the tax allocation agreement and the merger agreement, APP’s ability to effect the merger is conditioned upon the receipt of an opinion of tax counsel, based on certain facts and information submitted and statements, representations and warranties made by Fresenius, FK Holdings, Merger Sub, APP, and Dr. Soon-Shiong, his family members and his affiliated entities, subject to the limitations and qualifications set forth in such tax opinion and in form and substance reasonably acceptable to Abraxis BioScience, that the merger should not affect the qualification of the spin-off under Section 355 and Section 368(a)(1)(D) of the Code and the non- recognition of gain to APP in the spin-off. APP expects that Fried, Frank, Harris, Shriver & Jacobson LLP will issue a tax opinion to APP that will satisfy this condition. An opinion of counsel represents counsel’s best legal judgment and is not binding on the IRS or any court, nor does it preclude the IRS from adopting a contrary position. Under the terms of the tax allocation agreement, Abraxis BioScience is generally liable for, and is required to indemnify APP against, any tax liability arising as a result of the spin-off failing to qualify for tax-free treatment, unless such tax liability is imposed as a result of an acquisition of APP, including the merger, or certain other specified acts of APP.

 

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RIGHTS OF APPRAISAL

Under Delaware law, holders of APP common stock who do not wish to accept the merger consideration have the right to dissent from the merger and to receive payment in cash for the fair value of their shares of APP common stock together with a fair rate of interest, if any, as determined by the Delaware Court of Chancery. These rights are known as appraisal rights. Stockholders may only exercise these appraisal rights by strictly complying with the provisions of Section 262 of the DGCL, which is referred to in this information statement/prospectus as Section 262.

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to dissent from the merger and perfect its appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262, the full text of which appears in Annex F to this information statement/prospectus. Failure to precisely follow any of the statutory procedures set forth in Section 262 may result in a termination or waiver of your appraisal rights. This summary does not constitute legal or other advice, nor does it constitute a recommendation that holders of APP common stock exercise their appraisal rights.

Under Section 262, where a merger is adopted by stockholders by written consent in lieu of a meeting of stockholders, either the constituent corporation before the effective date of the merger or the surviving or resulting corporation, within 10 days after the effective date of the merger, must notify each stockholder of the constituent corporation entitled to appraisal rights of the approval of the merger and that appraisal rights are available. This information statement/prospectus constitutes the notice to APP’s stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex F to this information statement/prospectus because failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under Delaware law.

Holders of shares of APP common stock who desire to exercise their appraisal rights must deliver a written demand for appraisal to APP within 20 days after the mailing of this information statement/prospectus. A demand for appraisal must reasonably inform APP of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of the shares of APP common stock held by such stockholder. All demands for appraisal should be addressed to APP Pharmaceuticals, Inc., 1501 East Woodfield Road, Suite 300E, Schaumburg, Illinois 60173, United States, Attention: Corporate Secretary, and should be executed by, or on behalf of, the record holder of shares of APP common stock. ALL DEMANDS MUST BE RECEIVED BY APP WITHIN TWENTY (20) DAYS AFTER THE DATE THIS INFORMATION STATEMENT/PROSPECTUS WAS MAILED TO APP STOCKHOLDERS, AS SET FORTH ON THE COVER PAGE OF THIS INFORMATION STATEMENT/PROSPECTUS.

If you fail to deliver a written demand for appraisal within the time period specified above and the merger is completed, you will be entitled to receive the merger consideration for your shares of APP common stock as provided for in the merger agreement, but you will have no appraisal rights with respect to your shares of APP common stock.

To be effective, a demand for appraisal by a holder of shares of APP common stock must be made by, or in the name of, the registered stockholder, fully and correctly, as the stockholder’s name appears on the stockholder’s stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to APP. The beneficial owner must, in these cases, have the registered owner, such as a broker, bank or other custodian, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a

 

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stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a custodian for others, may exercise the record owner’s right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner. In addition, the stockholder must continuously hold the shares of record from the date of making the demand through the effective time of the merger.

 

If you hold your shares of APP common stock in a brokerage account or in other custodian form and you wish to exercise appraisal rights, you should consult with your bank, broker or other custodian to determine the appropriate procedures for the making of a demand for appraisal by the custodian.

Within ten days after the effective time of the merger, the surviving corporation must give written notice that the merger has become effective to each stockholder who is entitled to appraisal rights and has properly filed a written demand for appraisal in accordance with Section 262. At any time within sixty days after the effective time of the merger, any stockholder who has demanded an appraisal has the right to withdraw the demand and accept the terms of the merger by delivering a written withdrawal of the stockholder’s demands for appraisal. If, following a demand for appraisal, you have withdrawn your demand for appraisal in accordance with Section 262, you will have the right to receive the merger consideration for your shares of APP common stock.

Within one hundred and twenty days after the effective date of the merger, any stockholder who has delivered a demand for appraisal in accordance with Section 262 will, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the merger agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of these shares. This written statement will be mailed to the requesting stockholder within ten days after the stockholder’s written request is received by the surviving corporation or within ten days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective date of the merger, either the surviving corporation or any stockholder who has delivered a demand for appraisal in accordance with Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of the petition must be made upon the surviving corporation. The surviving corporation has no obligation to file a petition in the Delaware Court of Chancery in the event there are dissenting stockholders, and the surviving corporation has no present intent to file a petition in the Delaware Court of Chancery. Accordingly, the failure of a stockholder to file a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within twenty days after receiving service of a copy of the petition, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

 

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After determination of the stockholders entitled to appraisal of their shares, the Delaware Court of Chancery will appraise the “fair value” of the shares owned by those stockholders. This value will be exclusive of any element of value arising from the accomplishment or expectation of the merger, but will include a fair rate of interest, if any, upon the amount determined to be the fair value. When the value is determined, the Delaware Court of Chancery will direct the payment of the value, with interest thereon accrued during the pendency of the proceeding, if the Delaware Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender by the holders of the certificates representing those shares.

In determining fair value, and, if applicable, a fair rate of interest, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.”

Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that this exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

You should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the merger agreement.

Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination of assessment, each party bears its own expenses. Any stockholder who had demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time; however, if no petition for appraisal is filed within one hundred and twenty days after the effective time of the merger, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within sixty days after the effective time of the merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the merger consideration for shares of his or her APP common stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than sixty days after the effective time of the merger may only be made with the written approval of the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the court.

Failure to follow the steps required by Section 262 for perfecting appraisal rights may result in the loss of appraisal rights. In view of the complexity of Section 262, stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma information presents financial data as of, and for the six-month period ended June 30, 2008, and for the year ended December 31, 2007, for FK Holdings after giving effect to the completion of the pending acquisition of APP by FK Holdings by merger of a subsidiary of FK Holdings with and into APP. FK Holdings, a newly-created U.S. subsidiary of Fresenius SE, will be the acquiror. FK Holdings has no assets or liabilities as of June 30, 2008 and has had no operations prior to its formation on July 2, 2008 and will have no other operations other than those of APP from the time of completion of the merger.

The unaudited pro forma financial data give effect to the merger under the purchase accounting method in accordance with U.S. GAAP. Following completion of the merger, the book value of APP’s net assets will be adjusted to their fair values. Therefore, the unaudited pro forma financial information includes adjustments, which are based upon preliminary estimates, to reflect the excess of the fair values over the related historical book values of APP’s net assets. However, the final allocation of the excess of the purchase price of APP over the historical book value will be determined after the completion of the merger and will be based on appraisals and a comprehensive final evaluation of the fair value of APP’s in-process research and development, tangible assets acquired, liabilities assumed and identifiable intangible assets at the time of the merger. The final determination of tangible and intangible assets may result in in-process research and development, depreciation and amortization expense that is substantially different from these preliminary estimates.

The unaudited pro forma consolidated financial statements give effect to the merger as if it had been effective on June 30, 2008, with respect to the unaudited pro forma consolidated balance sheet, and as of January 1, 2007, with respect to the unaudited pro forma consolidated statements of operations for the year ended December 31, 2007, and the six month period ended June 30, 2008.

The unaudited pro forma information as of and for the year ended December 31, 2007 is derived from the audited consolidated financial statements, and the notes thereto, of APP included in APP’s Annual Report on Form 10-K for the year ended December 31, 2007, incorporated by reference into this information statement/prospectus, and should be read in conjunction with such financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The unaudited pro forma information as of and for the six months ended June 30, 2008, is derived from the unaudited consolidated financial statements, and the notes thereto, of APP included in APP’s Quarterly Report on Form 10-Q for the six months ended June 30, 2008, incorporated by reference into this information statement/prospectus, and should be read in conjunction with such financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The unaudited pro forma financial information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not attempt to predict or suggest future results. The unaudited pro forma financial information also does not attempt to show how the combined company would actually have performed had APP been owned by FK Holdings throughout the periods presented.

The actual consolidated balance sheet and results of operations of FK Holdings following the merger will differ, perhaps significantly, from the pro forma amounts reflected herein because, among other reasons:

 

   

assumptions used in preparing the unaudited pro forma financial data may be revised in the future due to changes in values of assets, changes in operating results between the dates of the unaudited pro forma financial data and the date on which the acquisition is completed; and

 

   

adjustments may need to be made to the historical financial data upon which such pro forma data are based.

 

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Fresenius Kabi Pharmaceuticals Holding, Inc.

Unaudited Pro Forma Consolidated Balance Sheet

(in thousands)

As of June 30, 2008

 

     FK
Holdings
   APP
Consolidated
    Pro Forma
Adjustments
         FK Holdings
as Adjusted
 

Assets

            

Current assets:

            

Cash and cash equivalents

   $   —      $ 73,890     $ (27,890 )   (10)    $ 46,000  

Accounts receivable, net

        73,387       —            73,387  

Inventories

        169,680       55,123     (1)      224,803  

Prepaid expenses and other current assets

        13,792       —            13,792  

Income taxes receivable

        1,471       —            1,471  

Deferred income taxes

        16,020       (804 )   (6)      24,779  
          9,563     (5)   
                                  

Total current assets

     —        348,240       35,992          384,232  
            

Property, plant and equipment, net

        131,476       —            131,476  

Intangible assets, net

        447,949       (447,949 )   (3)      672,116  
          70,037     (4)   
          (70,037 )   (4)   
          672,116     (8)   

Goodwill

        160,239       (160,239 )   (3)      3,846,475  
          3,846,475     (8)   

Deferred financing costs and other non-current assets, net

        17,159       (12,633 )   (6)      29,526  
          25,000     (5)   
                                  

Total assets

   $ —      $ 1,105,063     $ 3,958,762        $ 5,063,825  
                                  
            

Liabilities and stockholders’ equity (deficit)

            

Current liabilities:

            

Accounts payable

   $ —      $ 38,285       —          $ 38,285  

Accrued liabilities

        35,952            35,952  

Current payables due to related parties

        1,024            1,024  

Fair value of interest rate swaps

        2,084       (2,084 )   (6)      —    

Current portion of long-term debt

        11,250       (11,250 )   (6)      —    
                                  

Total current liabilities

     —        88,595       (13,334 )        75,261  
                                  
            

Long-term debt

        986,250       (986,250 )   (6)      3,844,713  
          (27,890 )   (10)   
          3,872,603     (15)   

Deferred income taxes, non-current

        67,064       107,000     (7)      174,064  

Other long-term liabilities

        4,841       (1,433 )   (9)      139,824  
          136,416     (2)   
                                  

Total liabilities

     —        1,146,750       3,087,112          4,233,862  
            

Stockholders’ equity (deficit):

            
            

Common stock

        160       (160 )   (12)      —    

Additional paid-in-capital

        (89,129 )     89,129     (12)      900,000  
          900,000     (14)   

Retained earnings

        46,764       (70,037 )   (4)      (70,037 )
          (46,764 )   (12)   

Accumulated other comprehensive (loss) income

        518       651     (6)      —    
          (1,169 )   (12)   
                                  

Total stockholders’ equity (deficit)

        (41,687 )     871,650          829,963  
                                  

Total liabilities and stockholders’ equity (deficit)

   $ —      $ 1,105,063     $ 3,958,762        $ 5,063,825  
                                  

 

See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements

 

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Fresenius Kabi Pharmaceuticals Holding, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

(in thousands)

Year Ended December 31, 2007

 

     FK
Holdings
   APP
Consolidated
    Pro Forma
Adjustments
         FK Holdings
as Adjusted
 

Net revenue

   $ —      $ 647,374          $ 647,374  

Cost of sales

        332,046     $ (16,436 )   (11)      315,610  
                                  

Gross profit

     —        315,328       16,436          331,764  

Operating expenses:

            

Research and development

        46,497            46,497  

Selling, general and administrative

        90,229            90,229  

Amortization of merger related intangibles

        15,418       (15,418 )   (11)      44,808  
          44,808     (11)   

Separation related costs

        3,024       —            3,024  
                                  

Total operating expenses

     —        155,168       29,390          184,558  
                                  

Income from operations

     —        160,160       (12,954 )        147,206  
            

Interest income and other

        2,182       —            2,182  

Interest expense

        (25,162 )     25,162     (16)      (297,300 )
          (297,300 )   (16)   
                                  

Income (loss) from continuing operations before income taxes

     —        137,180       (285,092 )        (147,912 )

Provision (benefit) for income taxes from continuing operations

        55,001       (109,048 )   (13)      (54,047 )
                                  

Net income (loss) from continuing operations

   $ —      $ 82,179     $ (176,044 )      $ (93,865 )
                                  

 

See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements

 

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Fresenius Kabi Pharmaceuticals Holding, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

(in thousands)

Six Months Ended June 30, 2008

 

     FK
Holdings
   APP
Consolidated
    Pro Forma
Adjustments
         FK Holdings
as Adjusted
 

Net revenue

   $   —      $ 345,997          $ 345,997  

Cost of sales

        181,788     $ (8,218 )   (11)      173,570  
                                  

Gross profit

     —        164,209       8,218          172,427  

Operating expenses:

            

Research and development

        26,163            26,163  

Selling, general and administrative

        42,193            42,193  

Amortization of merger related intangibles

        7,713       22,404     (11)      22,404  
          (7,713 )   (11)   

Separation related costs

        1,603       —            1,603  

Merger related costs

        805            805  
                                  

Total operating expenses

     —        78,477       14,691          93,168  
                                  

Income from operations

     —        85,732       (6,473 )        79,259  
            

Interest income and other

        1,493       —            1,493  

Interest expense

        (30,757 )     30,757     (16)      (148,642 )
          (148,642 )   (16)   
                                  

Income (loss) from continuing operations before income taxes

     —        56,468       (124,358 )        (67,890 )

Provision (benefit) for income taxes from continuing operations

        23,419       (47,567 )   (13)      (24,148 )
                                  

Net income (loss) from continuing operations

   $   —      $ 33,049     $ (76,791 )      $ (43,742 )
                                  

 

See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements

 

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Notes to Unaudited Pro Forma Consolidated Financial Statements

Note 1—Merger Agreement

On July 6, 2008, APP Pharmaceuticals, Inc., a Delaware corporation (“APP”), Fresenius SE, a societas europaea organized under the laws of Germany (“Fresenius”), Fresenius Kabi Pharmaceuticals Holding, Inc. (formerly Fresenius Kabi Pharmaceuticals Holding, LLC), a Delaware corporation and an indirect, wholly-owned subsidiary of Fresenius (“FK Holdings”), and Fresenius Kabi Pharmaceuticals, LLC, a Delaware limited liability company (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into APP and APP will become a direct, wholly-owned subsidiary of FK Holdings and an indirect, wholly-owned subsidiary of Fresenius.

FK Holdings was formed on July 2, 2008 and, accordingly, had no operations for the periods presented and no assets or liabilities at June 30, 2008.

At the effective time of the merger, each share of APP common stock will be converted into the right to receive (x) an amount in cash equal to $23.00, without interest, plus (y) one CVR issued by FK Holdings. Each CVR will entitle its holder a cash payment of up to $6.00 to the extent that the Adjusted EBITDA (as defined in the CVR indenture) of APP and FK Holdings for the three years ending December 31, 2010, exceeds a specified level.

Note 2—Basis of Presentation

As of June 30, 2008, there were approximately 160,432,781 shares of APP common stock outstanding and approximately 3,023,000 shares issuable in respect of outstanding options and restricted stock units (RSUs) granted under APP’s various stock compensation plans. Based on a $23.00 per share price for APP’s common stock in the merger (representing the cash portion of the merger consideration per share), outstanding options and RSUs (including those that will vest in connection with the merger), the estimated fair value of CVRs, the repayment of the existing APP debt facility as of June 30, 2008, and estimated expenses incurred by FK Holdings in connection with the transaction of $25.0 million, the total purchase is as follows (in millions):

 

Purchase of outstanding common stock (cash portion)

   $ 3,690.0

Buy out of restricted stock units and stock options under stock compensation plans

     33.0

Estimated fair value of CVRs

     136.4

Estimated transaction costs

     25.0

Pay-off of APP debt and settlement of related interest rate swap

     999.6
      

Total consideration

   $ 4,884.0
      

The preliminary purchase price allocation (based on preliminary fair value estimates) as of June 30, 2008 was as follows (in millions):

 

Net working capital and other assets

   $ 312.1  

Property, plant and equipment

     131.5  

In-process research and development

     70.0  

Identifiable intangible assets

     672.1  

Deferred tax liability, net

     (149.3 )

Non-current assets

     4.5  

Non-current liabilities

     (3.4 )

Goodwill

     3,846.5  
        

Total

   $ 4,884.0  
        

 

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The net working capital amount excludes the effect of (a) the $27.9 million acquisition debt repayment, (b) a $25 million liability for acquisition debt issuance costs, and (c) the current deferred tax asset. Items (a) and (b) are not applicable to acquired APP balances, and item (c) is separately included below in this table.

The above allocation is preliminary. The final determination of the purchase price allocation will be based on the fair values of APP’s net assets, including the fair values of in-process research and development and other intangibles, as of the date of the merger. The excess of the purchase price over the fair values of the assets and liabilities of APP will be reflected as goodwill.

For the purposes of the unaudited pro forma statements of operations, identifiable intangible assets are amortized using the straight line method over the estimated useful life of the asset ranging from 12 to 20 years (weighted average of 15 years). The final amount for the identifiable intangible assets, the estimated useful lives and the acquired in-process research and development charge will be determined upon completion of a third-party valuation, and therefore, may differ significantly from the amounts presented in these unaudited pro forma consolidated financial statements. To the extent the amounts and estimated useful lives are different from those presented above, the unaudited pro forma consolidated financial statements could change significantly. For example:

 

  (i) If the amounts allocated to identifiable assets increase or decrease by $100 million (a 15% increase), annual amortization expense would increase or decrease by $6.7 million (assuming a 15 year weighted average life).

 

  (ii) If the weighted average life decreases from 15 years to 12 years (a 20% decrease) or increases to 20 years (a 25% increase), annual amortization expense would increase or decrease by $11.2 million (assuming no change to the amount allocated).

The unaudited pro forma statements have been prepared in accordance with SFAS 141, as it has been determined that it is more likely than not that the merger will close prior to December 31, 2008. In December 2007, the FASB issued Statement No. 141(R), “Business Combination” (SFAS 141R). These new standards will significantly change the accounting for, and reporting of, business combination transactions financial statements. SFAS 141R is required to be adopted simultaneously and are effective with the first quarter of 2009. If the merger does not close by December 31, 2008, the impact of these new pronouncements would significantly alter the accounting as provided in the pro forma statements. Under SFAS 141R, acquisition-related costs are not part of the purchase price allocation and, as a result, if SFAS 141R would apply, the impact to the pro forma statements would be to reduce the purchase price and the related goodwill by approximately $25.0 million. In addition, under SFAS 141R, the asset related to in-process research and development is treated as an indefinite-lived intangible asset and is capitalized, but is not subject to amortization until the merger is completed or abandoned. This would likely result in the pro forma statements including $70.0 million in additional intangible assets, which would be subject to amortization upon completion of the merger.

Note 3—Contingent Value Rights

The unaudited pro forma balance sheet as of June 30, 2008 includes an estimate of the fair value of the potential payments under the contingent value rights, or CVRs. Refer to other sections in this information statement/prospectus for a description of the CVRs. The fair value of $136.4 million was determined based on the average premium of the APP daily closing stock price above the purchase price of $23 for the last five business days through August 6, 2008, which was after the transaction was announced. The purchase accounting fair value of the CVR portion of the purchase consideration will be based on their market value at closing. Then, subsequent to the closing, the liability relating to the CVRs will be marked-to-market, with changes reflected in earnings. The maximum CVR payment is $6.00 per CVR or approximately $981.4 million in total based on the number of shares outstanding and the number of options and RSUs granted under the stock compensation plan that will vest in connection with the merger.

 

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The unaudited pro forma balance sheet as of June 30, 2008, reflects a value of $0.83 per CVR or $136.4 million in the aggregate attributable to the CVRs to be issued in the merger. The value placed on the CVRs for purposes of these unaudited pro forma statements may not be indicative of the actual fair value of the CVRs or of the payment, if any, to be made at the end of the CVR measuring period or the value at which the CVRs will trade following the merger. The CVRs are unsecured obligations of FK Holdings and the CVR payments, acceleration payments, all other obligations under the CVR indenture and the CVRs and any rights or claims relating thereto are subordinated in right of payment to the prior payment in full of all senior obligations of FK Holdings. Senior obligations of FK Holdings include all principal, interest, penalties, fees, indemnification, reimbursements, damages and other liabilities payable under, or with respect to, the senior credit facilities and, so long as the senior obligations are outstanding, the intercompany loans and other senior debt. With the financing arrangements expected to be entered into in connection with the merger, there would be approximately $3.8 billion outstanding under credit facilities of Fresenius and its subsidiaries that would be senior to the obligations under the CVRs. In addition, if a default on FK Holdings’ senior obligations would occur as a result of the CVR payment, there is an existing payment default on FK Holdings’ senior obligations, the maturity of FK Holdings’ senior obligations is accelerated or in other circumstances, no CVR payment will be made, so long as such circumstance remains in effect.

Note 4—Pro Forma Adjustments

 

(1) To record the estimated step-up of APP’s inventory attributable to fair value from book value to fair value in accordance with SFAS 141. The fair value step-up of inventory will result in a $55.1 million decrease in gross margins as the inventory is sold following the merger. This impact has not been reflected in the unaudited pro forma consolidated statements of operations because it is a material non-recurring charge that will be reflected in operations in the 12-month period following the merger.

 

(2) To record the estimated fair value of the CVRs. See further discussion at Note 3—Contingent Value Rights.

 

(3) To eliminate the historical goodwill and identifiable intangible assets of APP.

 

(4) To record the estimated fair value of APP’s in-process research and development, which is immediately expensed under current U.S. GAAP. Because this expense is directly attributable to the merger and will not have a continuing impact, it is not reflected in the pro forma consolidated statements of operations.

 

(5) To record the estimated $25 million in debt issuance costs to be incurred by FK Holdings on the acquisition debt and the deferred tax asset related to other transaction costs.

 

(6) To record the pay-off of the current and long-term portions of debt outstanding under APP’s credit facility and the write-off of the related deferred financing costs. The fair market value of the interest rate swaps associated with the debt agreement have also been eliminated reflecting their pay-off.

 

(7) To record the deferred taxes at the statutory rate arising from the differences between the bases of identifiable tangible and intangible assets for financial statement and income tax purposes.

 

(8) To record the estimated fair value of identifiable intangible assets and the estimated residual value assigned to goodwill, which represents the difference between the purchase consideration and the fair value of the net tangible and intangible assets acquired.

 

(9) To eliminate restricted stock plan liabilities as these liabilities were paid off at the time of the merger.

 

(10) To reflect the pay down of acquisition debt resulting from cash available in excess of operating needs.

 

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(11) To reflect the elimination of historical amortization and amortization of identifiable intangible assets recorded in purchase accounting. New amortization is based on the estimated fair values and estimated weighted average useful lives assigned to these assets, approximately 15 years.

 

(12) To eliminate the historical stockholders’ equity balances relating to APP.

 

(13) To reflect the tax effect of the pro forma adjustments, principally related to interest expense and the amortization of identifiable intangible assets, at the combined company’s statutory tax rate of 38.25%. Because of the existence of net deferred tax liabilities, it is deemed reasonable to record a tax benefit on the pro forma pre-tax loss.

 

(14) To reflect the initial equity of FK Holdings funded by Fresenius as part of this transaction.

 

(15) To record the estimated debt to be incurred by FK Holdings to finance the transaction. FK Holdings expects total debt to approximately $3.8 billion.

 

(16) To eliminate the historical interest expense associated with APP’s pre-merger financing agreement and record the pro forma impact of interest expense and amortization of deferred financing costs associated with new debt agreements (estimated weighted average interest rate of 7.7%).

 

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INFORMATION WITH RESPECT TO FK HOLDINGS BEFORE THE MERGER

Business and Operations of FK Holdings

FK Holdings is a newly formed Delaware corporation and an indirect wholly-owned subsidiary of Fresenius. FK Holdings was formed on July 2, 2008 as a limited liability company and subsequently converted to a corporation on August 14, 2008. FK Holdings has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement. Following the merger, the business of FK Holdings will consist exclusively of those of APP.

Legal Proceedings

As of the date of this information statement/prospectus, there were no pending legal proceedings to which FK Holdings was a party.

 

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MANAGEMENT OF FK HOLDINGS AFTER THE MERGER

Current Management of FK Holdings

As of the date of this information statement/prospectus, FK Holdings is a Delaware corporation and an indirect, wholly-owned subsidiary of Fresenius, and direct, wholly-owned subsidiary of Fresenius Kabi Aktiengesellschaft, which we refer to as Fresenius Kabi AG, a stock corporation organized under the laws of Germany and a direct wholly-owned subsidiary of Fresenius.

Anticipated Management of FK Holdings

Following completion of the merger, Fresenius Kabi AG will have the right to elect all of the members to FK Holdings’ board of directors. The following table sets forth information regarding the Fresenius personnel who currently are the directors of FK Holdings and are expected to be directors upon the completion of the merger:

 

Name

   Age

Ulf M. Schneider

   42

Rainer Baule

   59

Ulf M. (Mark) Schneider is the Chairman of the Management Board of Fresenius (the Chief Executive Officer). He joined the Fresenius group in November 2001 and served as Chief Financial Officer of Fresenius Medical Care AG before assuming his current position on May 28, 2003. Previously, he was Group Finance Director for Gehe UK plc., a pharmaceutical wholesale and retail distributor, in Coventry, United Kingdom. Ulf M. Schneider held several senior executive positions since 1989 with Gehe’s majority shareholder, Franz Haniel & Cie. GmbH, a diversified German multinational company. Ulf M. Schneider holds a Lic. oec. degree in Finance and Accounting, a Ph.D. in Economics from the University of St. Gallen and an MBA from Harvard University.

Rainer Baule joined the Management Board of Fresenius on June 1, 1997, and has been president and CEO of the Fresenius Kabi division and Chairman of the Management Board of Fresenius Kabi AG since May 7, 2001. From 1996 to 1997 he was CEO of EG&G Berthold, Bad Wildbad. Beginning in 1979 he held several leading positions in Germany and the U.S. at Carl Zeiss Group, Oberkochen, most recently as Executive Vice President of a division and as Member of the Zeiss Group Management. Rainer Baule started his professional career as a Management Partner of Komeg-Kontroll-Technik GmbH, Riegelsberg. He holds a degree in Commercial Engineering from TU Darmstadt.

Pursuant to the consulting agreement, Fresenius and FK Holdings have agreed to take all reasonable actions necessary to appoint Dr. Soon-Shiong as a director of FK Holdings from and after the effective date of the merger and to maintain such appointment until June 30, 2011. FK Holdings also plans to appoint additional directors prior to the listing of the CVRs on the NASDAQ Global Market in connection with the NASDAQ and SEC requirements.

Executive Officers of FK Holdings

It is anticipated that the board of FK Holdings, following the completion of the merger, will act in a supervisory manner vis-à-vis the management of APP. Consequently, FK Holdings currently does not intend to appoint any executive officers for FK Holdings.

Certain Relationships and Related Party Transactions

FK Holdings and APP will receive certain intercompany loans from other subsidiaries of Fresenius and will guarantee certain loans made to other subsidiaries with Fresenius described under “The Merger—Financing of the Merger.” In addition, Fresenius has executed an equity commitment letter in favor of FK Holdings as described under “Description of the CVRs—Equity Commitment Letter.”

 

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LEGAL MATTERS

Skadden, Arps, Slate, Meagher & Flom (UK) LLP will pass upon the validity of the CVRs offered by this information statement/prospectus.

EXPERTS

The consolidated financial statements of APP appearing in APP’s Annual Report on Form 10-K for the year ended December 31, 2007, including the schedule appearing therein have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Fresenius Kabi Pharmaceutical Holdings, LLC and subsidiary as of August 8, 2008 and for the period from July 2, 2008 (inception) through August 8, 2008, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

 

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WHERE YOU CAN FIND MORE INFORMATION

APP files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document APP files at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information on the operation of the public reference room. The SEC maintains a website that contains reports, proxy statements and other information regarding APP. The address of the SEC website is http://www.sec.gov. You also may obtain free copies of the documents APP files with the SEC by going to the “Investor Relations” section of APP’s website, at http://www.apppharma.com. APP’s website address is provided as an inactive textual reference only. The information provided on APP’s website is not part of this information statement/prospectus, and it is not incorporated herein by reference.

Statements contained in this information statement/prospectus, or in any document incorporated by reference in this information statement/prospectus regarding the content of any contract or other document, are not necessarily complete, and each of these statements is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows APP to incorporate by reference into this information statement/prospectus documents it files with the SEC. This means that APP can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this information statement/prospectus, and later information that APP files with the SEC up to the date on which the merger is completed will update and supersede that information. You should rely only on the information contained in this information statement/prospectus and in the documents incorporated by reference into this information statement/prospectus. APP incorporates by reference the documents listed below and any documents filed by APP pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this information statement/prospectus and before the date the merger is consummated:

 

   

APP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007;

 

   

APP’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008;

 

   

APP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008; and

 

   

APP’s Current Reports on Form 8-K filed with the SEC on April 15, April 29, June 17, July 2, and July 7, 2008.

These documents incorporated by reference are included in this information statement/prospectus and can be found following the annexes. Any person, including any beneficial owner, to whom this information statement/prospectus is delivered may request additional copies of this information statement/prospectus and any of the documents incorporated by reference in this document or other information concerning APP, without charge, by written or telephonic request directed to APP Pharmaceuticals, Inc., 1501 East Woodfield Road, Suite 300 East, Schaumburg, Illinois 60173 Attention: Investor Relations, and on the “Investor Relations” section of APP’s website, at http://www.apppharma.com or from the SEC through the SEC’s website at the address provided above. Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents.

Neither FK Holdings nor APP has authorized anyone to give any information or make any representation about the merger or our companies that is different from, or in addition to, that contained in this information statement/prospectus or in any of the materials that are incorporated into this information statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this information statement/prospectus is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this information statement/prospectus does not extend to you. The information contained in this information statement/prospectus is accurate only as of the date of this document unless the information specifically indicates that another date applies.

 

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INDEX TO FINANCIAL STATEMENTS

FRESENIUS KABI PHARMACEUTICALS HOLDING, LLC AND SUBSIDIARY

 

Report of Independent Registered Public Accounting Firm

   F-2

Consolidated Balance Sheet as of August 8, 2008

   F-3

Consolidated Statement of Operations for the period from July 2, 2008 (inception) to August 8, 2008

   F-4

Consolidated Statement of Cash Flows for the period from July 2, 2008 (inception) to August 8, 2008

   F-5

Consolidated Statement of Member’s Equity for the period from July 2, 2008 (inception) to August 8, 2008

   F-6

Notes to Consolidated Financial Statements

   F-7

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Member

Fresenius Kabi Pharmaceuticals Holding, LLC and subsidiary:

We have audited the accompanying consolidated balance sheet of Fresenius Kabi Pharmaceuticals Holding, LLC and subsidiary as of August 8, 2008, and the related consolidated statements of operations, member’s equity and cash flows for the period from July 2, 2008 (inception) through August 8, 2008. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fresenius Kabi Pharmaceuticals Holding, LLC and subsidiary as of August 8, 2008, and the results of their operations and their cash flows for the period from July 2, 2008 (inception) through August 8, 2008, in conformity with U.S. generally accepted accounting principles.

/s/    KPMG LLP

Chicago, Illinois

August 15, 2008

 

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Fresenius Kabi Pharmaceuticals Holding, LLC and subsidiary

Consolidated Balance Sheet

August 8, 2008

 

Assets

  

Non-current assets:

  

Capitalized acquisition cost

   $ 17,444,891  

Capitalized debt cost

     2,544,738  
        

Total assets

   $ 19,989,629  
        

Liabilities and member’s equity

  

Current liabilities:

  

Due to affiliates

   $ 20,005,550  

Member’s equity:

  

Common interests

     1  

Receivable from sole member

     (1 )

Retained earnings

     (15,921 )
        

Total member’s equity

     (15,921 )
        

Total liabilities and member’s equity

   $ 19,989,629  
        

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

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Fresenius Kabi Pharmaceuticals Holding, LLC and subsidiary

Consolidated Statement of Operations

For the period from July 2, 2008 (inception) through August 8, 2008

 

Net revenue

   $ —    

Cost of sales

     —    
        

Gross profit

     —    

Operating expenses:

  

Selling, general and administrative

     15,921  

Research and development

     —    
        

Income (expense) before income taxes

     (15,921 )

Income tax expense (benefit)

     —    
        

Net loss

   $ (15,921 )
        

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

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Fresenius Kabi Pharmaceuticals Holding, LLC and subsidiary

Consolidated Statement of Cash Flows

For the period from July 2, 2008 (inception) through August 8, 2008

 

Operating Activities:

  

Net loss

   $ (15,921 )

Change in due to affiliates

     15,921  
        

Net cash provided by operating activities

     —    
        

Net (decrease) increase in cash and cash equivalents

     —    

Cash and cash equivalents at beginning of period

     —    
        

Cash and cash equivalents at end of period

   $  —    
        

Supplementary schedule of non-cash investing activities:

  

Capital contribution—receivable from sole member

   $ 1  

 

 

See accompanying Notes to Consolidated Financial Statements.

 

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Fresenius Kabi Pharmaceuticals Holding, LLC and subsidiary

Consolidated Statement of Member’s Equity

For the period from July 2, 2008 (inception) through August 8, 2008

 

Balance at July 2, 2008

   $ —    

Net loss

     (15,921 )

Contribution from sole member

     1  

Receivable from sole member

     (1 )
        

Balance at August 8, 2008

   $ (15,921 )
        

 

See accompanying Notes to Consolidated Financial Statements.

 

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Fresenius Kabi Pharmaceuticals Holding, LLC and subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of Business

Fresenius Kabi Pharmaceuticals Holding, LLC, (FK Holdings) was incorporated in the state of Delaware on July 2, 2008 and is a wholly-owned subsidiary of sole member Fresenius Kabi AG, which is a wholly-owned subsidiary of Fresenius SE. FK Holdings was formed in connection with the anticipated merger of its wholly-owned subsidiary Fresenius Kabi Pharmaceuticals, LLC (Merger Sub) with APP Pharmaceuticals Inc. (APP). By operation of the merger, Merger Sub will be merged into APP, Merger Sub’s separate existence will cease and APP will become a wholly-owned subsidiary of FK Holdings. On August 14, 2008, FK Holdings was converted into a Delaware corporation.

FK Holdings and its subsidiary have not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement.

Note 2. Principles of Consolidation

The consolidated financial statements include the accounts of FK Holdings and its wholly-owned subsidiary, Merger Sub. Intercompany accounts have been eliminated.

Note 3. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States required management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements.

Note 4. Member’s Equity

The capital structure of FK Holdings consists of one class of common interests. All common interests are identical with each other in every respect. The common interests are owned by the sole member of FK Holdings. A capital contribution into member’s equity of $1 was made on August 8, 2008 by the sole member of FK Holdings.

Note 5. Agreement and Plan of Merger

On July 6, 2008, FK Holdings entered into an Agreement and Plan of Merger with APP. It is anticipated that the merger will be completed in the fourth quarter of 2008 or the first quarter of 2009 and is subject to customary closing conditions, including regulatory approvals.

Note 6. Related Party Transactions

Costs, principally advisory fees, related directly to the transaction contemplated by the merger agreement are included as capitalized acquisition cost within the Consolidated Balance Sheet.

Costs incurred by Fresenius SE and sole member on behalf of FK Holdings, principally organization and administrative costs, are included in selling, general and administrative expenses within the Consolidated Statement of Operations.

Costs incurred in order to secure financing related directly to the transaction are included as deferred financing costs within the Consolidated Balance Sheet.

 

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No interest was charged on the due to affiliates. If interest were charged to FK Holdings, it would have been approximately $22,566 at an interest rate of 5%.

On August 8, 2008, Fresenius Kabi AG issued a guarantee for the benefit of FK Holdings to provide necessary funding to ensure continuing operations of the company through August 9, 2009.

Note 7. Income Taxes

Fresenius Kabi Pharmaceuticals Holding, LLC is a limited liability company (LLC). The LLC’s owner is referred to as a member. The member will elect to have the LLC treated as an association taxable as a corporation. Corporate tax rules will apply to the LLC. All deductible expenses of the LLC result in the recording of a deferred tax asset. This deferred tax asset has a full valuation allowance recorded against it. Reductions in the valuation allowance will be recognized as a reduction to the purchase price at the time of the completion of the contemplated merger.

Note 8. New Accounting Standards

In December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. If the APP merger does not close by December 31, 2008, the impact of the new pronouncement will have an impact on the purchase accounting for the APP merger.

 

F-8


Table of Contents

ANNEXES

Annex A: Agreement and Plan of Merger

Annex B: Form of Contingent Value Rights Agreement

Annex C: Written Consent and Voting Agreement

Annex D: Opinion of Goldman, Sachs & Co.

Annex E: Opinion of Lazard Frères & Co. LLC

Annex F: Delaware General Corporate Law—Section 262

 

I-A


Table of Contents

Annex A

AGREEMENT AND PLAN

OF MERGER

DATED AS OF

JULY 6, 2008

AMONG

FRESENIUS SE,

FRESENIUS KABI PHARMACEUTICALS HOLDING, LLC,

FRESENIUS KABI PHARMACEUTICALS, LLC

AND

APP PHARMACEUTICALS, INC.


Table of Contents

TABLE OF CONTENTS

 

     Page

ARTICLE I THE MERGER

   A-1
   Section 1.1   

The Merger

   A-1
   Section 1.2   

Effective Time of the Merger

   A-2
   Section 1.3   

Certificate of Incorporation

   A-2
   Section 1.4   

By-laws

   A-2
   Section 1.5   

Board of Directors and Officers

   A-2
   Section 1.6   

Effects of Merger

   A-2

ARTICLE II CONVERSION OF SHARES

   A-2
   Section 2.1   

Conversion of Shares

   A-2
   Section 2.2   

Payment and Exchange of Certificates

   A-3
   Section 2.3   

Dissenting Company Shares

   A-4
   Section 2.4   

No Further Ownership Rights in the Shares

   A-4
   Section 2.5   

Closing of Company Transfer Books

   A-4
   Section 2.6   

Adjustments

   A-4
   Section 2.7   

Stock Options and RSUs

   A-5
   Section 2.8   

Closing

   A-5
   Section 2.9   

Withholding of Tax

   A-6

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   A-6
   Section 3.1   

Organization, Standing and Power

   A-6
   Section 3.2   

Capital Structure

   A-7
   Section 3.3   

Authority; Non-Contravention

   A-7
   Section 3.4   

SEC Documents

   A-9
   Section 3.5   

Information Statement/Prospectus and Registration Statement

   A-9
   Section 3.6   

Absence of Certain Events

   A-10
   Section 3.7   

Litigation

   A-10
   Section 3.8   

No Violation of Law

   A-10
   Section 3.9   

Taxes

   A-10
   Section 3.10   

Employee Benefit Plans; ERISA

   A-12
   Section 3.11   

Environmental Matters

   A-13
   Section 3.12   

Affiliate Transactions

   A-14
   Section 3.13   

Intellectual Property

   A-14
   Section 3.14   

Takeover Statutes

   A-15
   Section 3.15   

Title to Properties; Assets/Services

   A-15
   Section 3.16   

Material Contracts

   A-16
   Section 3.17   

Opinion of Financial Advisors

   A-16
   Section 3.18   

Pharmaceutical Matters

   A-17
   Section 3.19   

Consummation of the Spin-Off

   A-17
   Section 3.20   

Insurance

   A-18
   Section 3.21   

Brokers and Finders

   A-18
   Section 3.22   

No Other Representations or Warranties

   A-18

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT, HOLDCO AND SUB

   A-18
   Section 4.1   

Organization, Standing and Power

   A-18
   Section 4.2   

Operations of Holdco

   A-19
   Section 4.3   

Operations of Sub

   A-19
   Section 4.4   

Authority; Non-Contravention

   A-19
   Section 4.5   

Information Statement/Prospectus and Registration Statement

   A-20
   Section 4.6   

Availability of Funds

   A-20

 

A-i


Table of Contents
     Page
   Section 4.7   

Litigation

   A-21
   Section 4.8   

Brokers and Finders

   A-21
   Section 4.9   

Access to Information; Disclaimer

   A-21
   Section 4.10   

Solvency

   A-21
   Section 4.11   

Ownership of Shares

   A-22
   Section 4.12   

No Other Representations or Warranties

   A-22

ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS

   A-22
   Section 5.1   

Conduct of Business by the Company Pending the Merger

   A-22
   Section 5.2   

Control of the Company’s Operations

   A-24

ARTICLE VI ADDITIONAL AGREEMENTS

   A-25
   Section 6.1   

Company Stockholder Approval; Registration Statement; Information Statement/Prospectus

   A-25
   Section 6.2   

Listing

   A-26
   Section 6.3   

Directors’ and Officers’ Indemnification

   A-26
   Section 6.4   

No Solicitation

   A-27
   Section 6.5   

Access to Information; Confidentiality

   A-28
   Section 6.6   

Reasonable Best Efforts; Notification

   A-28
   Section 6.7   

Financing

   A-31
   Section 6.8   

Completion of the Spin-Off

   A-32
   Section 6.9   

Benefit Plans

   A-32
   Section 6.10   

Fees and Expenses

   A-33
   Section 6.11   

Related Agreements

   A-33
   Section 6.12   

Public Announcements

   A-33
   Section 6.13   

Holdco

   A-33
   Section 6.14   

Sub

   A-33
   Section 6.15   

Repayment of Credit Agreement

   A-34
   Section 6.16