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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
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For the Fiscal Year Ended March 31, 1995
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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For the transition period from__________ to ___________________
Commission File No. 1-5438
FOREST LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-1798614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
909 Third Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including
area code: (212) 421-7850
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.10 par value American Stock Exchange
Rights to purchase one American Stock Exchange
one-hundredth share of Series A
Junior Participating Preferred
Stock, par value $1.00 per share
Securities registered pursuant to Section 12(g) of the Act:
None
PAGE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
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YES / X / NO / /
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of the registrant's
knowledge, in the Proxy Statement incorporated by reference in
Part III of this Form 10-K or any amendment to this
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Form 10-K / /.
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The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 23, 1995 is
$2,028,549,185.
Number of shares outstanding of registrant's Common Stock as of
June 23, 1995: 45,247,321.
The following documents are incorporated by reference herein:
Portions of the definitive proxy statement to be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934 in connection with the 1995 Annual
Meeting of Stockholders of registrant.
Portions of the registrant's Annual Report to Stockholders
for the fiscal year ended March 31, 1995.
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PAGE
PART I
ITEM 1. BUSINESS
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GENERAL
Forest Laboratories, Inc. and its subsidiaries
(collectively, "Forest" or the "Company") develop, manufacture
and sell both branded and generic forms of ethical drug products
which require a physician's prescription, as well as
non-prescription pharmaceutical products sold over-the-counter.
Forest's most important United States products consist of branded
ethical drug specialties marketed directly, or "detailed," to
physicians by the Company's salesforce and its controlled release
line of generic products sold to wholesalers, chain drug stores
and generic distributors. In recent years the Company has
emphasized increased detailing to physicians of those branded
ethical drugs it believes have the most potential for growth, and
the introduction of new products acquired from other companies or
developed by the Company.
Forest's products include those developed by Forest and
those acquired from other pharmaceutical companies and integrated
into Forest's marketing and distribution systems. See "Recent
Developments."
Forest is a Delaware corporation organized in 1956, and
its principal executive offices are located at 909 Third Avenue,
New York, New York 10022 (telephone number (212-421-7850).
RECENT DEVELOPMENTS
CERVIDIL: On March 30, 1995, the United States Food and
Drug Administration ("FDA") approved a New Drug Application
("NDA") for Forest's Cervidil-TM-, a pessary infused with the
hormone Prostaglandin E2. The product is used for the initiation
or continuation of cervical ripening where there is a medical or
obstetrical indication for the induction of labor. Forest
launched the product commercially in May, 1995.
FLUMADINE: In September 1993, Forest received the
approval of the FDA to market rimantadine, an antiviral agent
used for the treatment and prophylaxis of Influenza A. The
Company markets this product under the trademark Flumadine-R-.
MONUROL: In November 1991, the Company entered into a
licensing agreement with the Zambon Group of Italy for the
marketing by the Company in the United States of the antibiotic
fosfomycin trometamol sold under the tradename Monurol-R-.
-3-
Fosfomycin trometamol is currently approved for marketing in
eleven countries, including the United Kingdom, Germany, Italy
and Spain. The product is a single dose antibiotic used for the
treatment of uncomplicated urinary tract infections. There are
currently no single dose antibiotics approved for this indication
in the United States. Forest filed an NDA for this product in
September, 1994.
INFASURF: In June 1991, the Company entered into a
licensing agreement with ONY, Inc. for the marketing by the
Company in the United States, the United Kingdom and Canada of
the product Infasurf-R- for the treatment of respiratory distress
syndrome in premature infants. Such licensing arrangements were
expanded in May 1992 to include worldwide rights to the product.
The Company is conducting early stage clinical trials of Infasurf
in order to evaluate its possible use in adult respiratory
distress syndrome. An NDA for Infasurf was filed in March 1995.
In May 1995 the Company was notified by the FDA that it refused
to accept the NDA for filing because it determined that Infasurf
is the "same drug" as Survanta-R- under the Orphan Drug Regulations
and is, therefore, not approvable until seven years after
Survanta's approval, which was granted in 1991. Management
believes that there are significant chemical and clinical
differences between Infasurf and Survanta and intends to pursue
the FDA review procedure. In addition, the Company has been
notified by Abbott Laboratories, the owner of the Survanta
patents, that it considers that Infasurf infringes its Survanta
patents. The Company believes, following consultation with its
patent counsel, that such claim is without merit.
SYNAPTON: The Company is conducting multi-center
clinical trials to study the safety and efficacy of Synapton-TM- for
the treatment of Alzheimer's Disease. Synapton contains
physostigmine, a cholinesterase inhibitor. Cholinesterase is an
enzyme which metabolizes or breaks down acetylcholine, which is
the neurotransmitter in the brain most associated with memory.
It is believed that in Alzheimer's patients, the cells that
produce acetylcholine progressively die, and the reduced
availability of this important neurotransmitter is believed to
contribute to the patient's mental deterioration. Synapton is
formulated to partially inhibit cholinesterase activity so that
the acetylcholine produced by the body is available for a longer
period of time. It is recognized that cholinesterase inhibitors
generally are not a cure for Alzheimer's Disease but are expected
to have an ameliorative effect for certain patients.
Synapton is a controlled release formulation of
physostigmine. Synapton makes use of Forest's patented Synchron-R-
technology which provides for the continuous release of
medication into the bloodstream and, in the case of Synapton,
permits twice-a-day administration. The Company has concluded
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one Phase III clinical study which demonstrates Synapton's
effectiveness. The Company hopes to complete a second successful
Phase III study which would enable an NDA to be filed.
MICTURIN: In August 1989, Forest completed and
submitted a full NDA to the FDA covering Micturin-R-, which is
licensed to Forest in the United States by the Swedish
pharmaceutical manufacturer Pharmacia AB ("Pharmacia"). The
product had been marketed outside the United States by Pharmacia
since 1986 and by 1991 was approved and marketed in 20 countries,
with over 400 million doses having been sold. In mid-1991, some
cases of a rare but serious cardiac side effect, polymorphic
ventricular tachycardia, were reported principally in the United
Kingdom among patients taking Micturin. In all but a few of
those cases, the patients appeared to have identifiable
predisposing risk factors. As a result of those reports, the
United Kingdom Committee on the Safety of Medicines (the "CSM")
sent a letter to physicians and pharmacists advising them of
those reported cases and contraindicating the drug for patients
with the predisposing risk factors. In September 1991, following
the CSM action and after regulatory action in other markets,
including withdrawals of the product in Germany and Austria,
Pharmacia withdrew Micturin from all markets worldwide.
Following the worldwide withdrawal of Micturin, the FDA requested
that Forest discontinue its ongoing studies of Micturin in the
United States until the FDA could review the possible
relationship between the use of Micturin and the reported cardiac
side effect. Forest is analyzing data from a recently conducted
clinical study to further assess Micturin's safety and the
prospects for marketing the drug in the United States.
PRINCIPAL PRODUCTS
The Company actively promotes in the United States those
of its branded products which the Company's management believes
have the most potential for growth and which enable its
salesforce to concentrate on specialty groups of physicians who
are high prescribers of its products. Such products include the
respiratory products Aerobid-R-, Aerochamber-R- and Tessalon-R- , the
thyroid product Levothroid-R-, the ESGIC-R- and Lorcet-R- lines of
analgesics and Flumadine (See "Recent Developments").
Aerobid is a metered dose inhaled steroid used in the
treatment of asthma. Sales of Aerobid accounted for 24.2% of
Forest's sales for the fiscal year ended March 31, 1995 as
compared to 21.3% and 17.7% for the fiscal years ended March 31,
1994 and 1993, respectively. Aerochamber is a spacer device
used to improve the delivery of aerosol administered products,
including Aerobid.
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ESGIC and ESGIC Plus are combination analgesic/sedatives
for the relief of tension headaches, while Lorcet is a line of
potent analgesics. Lorcet sales accounted for 17.0% of sales for
the fiscal year ended March 31, 1995, as compared to 11.2% and
7.8% of sales for the fiscal years ended March 31, 1994 and 1993,
respectively. Tessalon is a solid dose non-narcotic cough
suppressant. Sales of Tessalon (including sales of a generic
formulation) accounted for 4.8% of sales for the fiscal year
ended March 31, 1995, as compared to 6.0% and 10.9% for the
fiscal years ended March 31, 1994 and 1993, respectively.
Forest's generic line emphasizes the Company's
capability to produce difficult to formulate controlled release
products which are sold in the United States by Forest's Inwood
Laboratories, Inc. subsidiary. Inwood's most important products
include Propranolol E.R., a controlled release beta blocker used
in the treatment of hypertension, Indomethacin E.R., a controlled
release non-steroidal anti-inflammatory drug used in the
treatment of arthritis, and Theochron-TM- , a controlled release
theophylline tablet used in treatment of asthma. Sales of
Propranolol accounted for 16.0% of Forest's sales for the fiscal
year ended March 31, 1995, as compared to 14.3% and 14.1% for the
fiscal years ended March 31, 1994 and 1993, respectively.
American Home Products, the marketer of the original branded
version of Propranolol E.R., recently introduced its own generic
version of the drug which will compete against Inwood's product.
The Company's United Kingdom and Ireland subsidiaries
sell both ethical products requiring a doctor's prescription and
over-the-counter preparations. Their most important products
include Sudocrem, a topical preparation for the treatment of
diaper rash, Colomycin, an antibiotic used in the treatment of
Cystic Fibrosis and Suscard and Sustac, sustained action
nitroglycerin tablets in both buccal and oral form used in the
treatment of angina pectoris, an ailment characterized by
insufficient oxygenation of the heart muscle.
MARKETING
In the United States, Forest directly markets its
products through its domestic salesforce, currently numbering 456
persons, which details products directly to physicians,
pharmacies and managed care organizations. The expansion of
Forest's direct sales efforts and related promotional activities
has significantly increased sales of Forest's branded ethical
pharmaceutical products, including certain of those acquired or
licensed by Forest. See "Principal Products". In the United
Kingdom, the Company's Pharmax subsidiary's salesforce, currently
54 persons, markets its products directly. Forest's products are
sold elsewhere through independent distributors.
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In December 1994 and April 1995, the Company entered
into two co-promotion agreements with Bock Pharmacal Company
pursuant to which the salesforce of Bock Pharmacal Company will
promote the products Flumadine and Lorcet 10/650. In February
1995, the Company entered into a co-promotion agreement with Muro
Pharmaceutical, Inc. pursuant to which the salesforce of Muro
Pharmaceutical, Inc. will market Aerobid, and the Company's
salesforce will promote Volmax-R-, an extended release formulation
of albuterol marketed by Muro.
COMPETITION
The pharmaceutical industry is highly competitive as to
the sale of products, research for new or improved products and
the development and application of competitive controlled release
technologies. There are numerous companies in the United States
and abroad engaged in the manufacture and sale of both
proprietary and generic drugs of the kind sold by Forest and
drugs utilizing controlled release technologies. Many of these
companies have substantially greater financial resources than
Forest. In addition, the marketing of pharmaceutical products is
increasingly affected by the growing role of managed care
organizations in the provision of health services. Such
organizations negotiate with pharmaceutical manufacturers for
highly competitive prices for pharmaceutical products in
equivalent therapeutic categories, including certain of the
Company's principal promoted products.
GOVERNMENT REGULATION
The pharmaceutical industry is subject to comprehensive
government regulation which substantially increases the
difficulty and cost incurred in obtaining the approval to market
newly proposed drug products and maintaining the approval to
market existing drugs. In the United States, products developed,
manufactured or sold by Forest are subject to regulation by the
FDA, principally under the Federal Food, Drug and Cosmetic Act,
as well as by other federal and state agencies. The FDA
regulates all aspects of the testing, manufacture, safety,
labeling, storage, record keeping, advertising and promotion of
new and old drugs, including the monitoring of compliance with
good manufacturing practice regulations. Non-compliance with
applicable requirements can result in fines and other sanctions,
including the initiation of product seizures, injunction actions
and criminal prosecutions based on practices that violate
statutory requirements. In addition, administrative remedies can
involve voluntary recall of products as well as the withdrawal of
approval of products in accordance with due process procedures.
Similar regulations exist in most foreign countries in which
Forest's products are manufactured or sold. In many foreign
countries, such as the United Kingdom, reimbursement under
-7-
national health insurance programs frequently require that
manufacturers and sellers of pharmaceutical products obtain
governmental approval of initial prices and increases if the
ultimate consumer is to be eligible for reimbursement for the
cost of such products.
During the past several years the FDA, in accordance
with its standard practice, has conducted a number of inspections
of the Company's manufacturing facilities. Following these
inspections the FDA called the Company's attention to certain
"Good Manufacturing Practices" compliance and record keeping
deficiencies, including warning letters issued April 22, 1994
with respect to Forest's manufacture of Indomethacin. The
Company believes it has satisfactorily remedied these
deficiencies.
The cost of human health care products continues to be a
subject of investigation and action by governmental agencies,
legislative bodies, and private organizations in the United
States and other countries. In the United States, most states
have enacted generic substitution legislation requiring or
permitting a dispensing pharmacist to substitute a different
manufacturer's version of a drug for the one prescribed. Federal
and state governments continue to press efforts to reduce costs
of Medicare and Medicaid programs, including restrictions on
amounts agencies will reimburse for the use of products. Under
the Omnibus Budget Reconciliation Act of 1990 (OBRA),
manufacturers must pay certain statutorily-prescribed rebates on
Medicaid purchases for reimbursement on prescription drugs under
state Medicaid plans. Federal Medicaid reimbursement for drug
products of original NDA-holders is denied if less expensive
generic versions are available from other manufacturers. In
addition, the Federal government follows a diagnosis related
group (DRG) payment system for certain institutional services
provided under Medicare or Medicaid. The DRG system entitles a
health care facility to a fixed reimbursement based on discharge
diagnoses rather than actual costs incurred in patient treatment,
thereby increasing the incentive for the facility to limit or
control expenditures for many health care products.
Under the Prescription Drug User Fee Act of 1992, the
FDA has imposed fees on various aspects of the approval,
manufacture and sale of prescription drugs. In 1993, the Clinton
Administration presented to Congress a proposal for reforming the
United States healthcare system. Other healthcare reform
proposals were also introduced in Congress. These proposals were
highly regulatory and contain provisions which would affect the
marketing of prescription drug products. None of these proposals
were enacted in 1994. The debate as to reform of the health care
system is expected to be protracted and the Company cannot
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predict the outcome or effect on the marketing of prescription
drug products of the legislative process.
PRINCIPAL CUSTOMERS
McKesson Drug Company, a national drug wholesaler,
accounted for 11% of Forest's consolidated net sales for the year
ended March 31, 1995. No customer accounted for more than 10% of
Forest's consolidated net sales in the fiscal years ended March
31, 1994 and March 31, 1993.
ENVIRONMENTAL STANDARDS
Forest anticipates that the effects of compliance with
federal, state and local laws and regulations relating to the
discharge of materials into the environment will not have any
material effect on capital expenditures, earnings or the
competitive position of Forest.
RAW MATERIALS
The principal raw materials used by Forest for its
various products are purchased in the open market. Most of these
materials are obtainable and available from several sources in
the United States and elsewhere in the world, although certain of
Forest's products contain patented or other exclusively
manufactured materials available from only a single source.
Forest has not experienced any significant shortages in supplies
of such raw materials.
PRODUCT LIABILITY INSURANCE
Forest currently maintains $100 million of product
liability coverage per "occurrence" and in the aggregate.
Although in the past there have been claims asserted against
Forest, none for which Forest has been found liable, there can be
no assurance that all potential claims which may be asserted
against Forest in the future would be covered by Forest's present
insurance.
RESEARCH AND DEVELOPMENT
During the year ended March 31, 1995, Forest spent
$32,010,000 for research and development, as compared to
$27,998,000 and $22,054,000 in the fiscal years ended March 31,
1994 and 1993, respectively. Forest's research and development
activities during the past year consisted primarily of the
conduct of clinical studies required to obtain approval of new
products and the development of additional products some of which
utilize the Company's controlled release technologies.
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EMPLOYEES
At March 31, 1995, Forest had a total of 1,319
employees.
PATENTS AND TRADEMARKS
Forest owns or licenses certain U.S. and foreign patents
on many of its branded products and products in development,
including, but not limited to, Aerobid, Cervidil, Monurol,
Synapton, Flumadine and Methoxatone (an anti-inflammatory
compound being evaluated for use in head trauma and for other
uses), which patents expire through 2010. Forest believes these
patents are or may become of significant benefit to its business.
Additionally, Forest owns and licenses certain U.S. patents, and
has pending U.S. and foreign patent applications, relating to
various aspects of its Synchron technology and to other
controlled release technology, which patents expire through 2008.
Forest believes that these patents are useful in its business,
however, there are numerous patents and unpatented technologies
owned by others covering other controlled release processes.
Forest owns various trademarks and trade names which it
believes are of significant benefit to its business.
BACKLOG -- SEASONALITY
Backlog of orders is not considered material to Forest's
business prospects. Forest's business is not seasonal in nature.
ITEM 2. PROPERTIES
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Forest owns six buildings and leases two buildings in
and around Inwood, Long Island, New York, containing a total of
approximately 133,000 square feet. The buildings are used for
manufacturing, research and development, warehousing and
administration. In 1993, Forest acquired a 150,000 square foot
building on 28 acres in Commack, New York. The building and land
are being used for packaging, warehousing and administration.
Forest Pharmaceuticals, Inc. ("FPI"), a wholly owned
subsidiary of the Company, owns two facilities in Cincinnati,
Ohio aggregating approximately 140,000 square feet. In St.
Louis, Missouri, FPI owns facilities of 22,000 square feet and
87,000 square feet. These facilities are used for
manufacturing, warehousing and administration. The Company sold a
facility of approximately 35,000 square feet in St. Louis during
1994.
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Pharmax owns an approximately 95,000 square foot complex
in the London suburb of Bexley, England, which houses its plant
and administrative and central marketing offices. Approximately
15,000 square feet of such space is leased by Pharmax to other
tenants.
Forest leases two buildings of 39,250 and 34,400 square
feet located in Rio Piedras, Puerto Rico, under leases which
expire in 1998 subject to one five-year renewal option. The
space is used by Sein-Mendez, Forest Laboratories Caribe, Inc.
and Forest Pharmaceuticals, Inc., wholly-owned subsidiaries of
Forest, for manufacturing, warehousing and administration.
Forest's Tosara subsidiary owns an 18,000 square foot
manufacturing and distribution facility located in an industrial
park in Dublin, Ireland. Forest Ireland, a newly-formed
subsidiary of Forest, has recently completed the development,
together with the Development Authority of the Republic of
Ireland, of an approximately 86,000 square foot manufacturing
and distribution facility located in Dublin, Ireland. The
facility, will be used principally for the manufacture and
distribution of products in Europe.
Forest's UAD division owns an 18,000 square foot
facility located in Jackson, Mississippi which is presently being
used for sales training.
Forest presently leases approximately 75,000 square feet
of executive office space at 909 Third Avenue, New York, New
York. The lease is for a sixteen (16) year term, subject to 2
five year renewal options.
Management believes that the above-described properties
are sufficient for Forest's present and anticipated needs.
Net rentals for leased space for the fiscal year ended
March 31, 1995 aggregated approximately $2,220,000 and for the
fiscal year ended March 31, 1994 aggregated approximately
$1,821,000.
ITEM 3. LEGAL PROCEEDINGS
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The Company and certain of its officers are currently
defendants in WILSON, ET AL. V. FOREST LABORATORIES, INC., ET
AL., 91 Civ. 5815 (S.D.N.Y.) (the "Federal Action"), a putative
class action that seeks to assert claims based on alleged
violations of the Securities Exchange Act of 1934 and common law
negligent misrepresentation arising out of certain statements
allegedly made by the defendants concerning Micturin.
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The Company is the nominal defendant in WEISBERG ET ANO
V. CANDEE, ET AL., (Sup. Ct. New York Cty.), a putative
derivative action against the directors of the Company seeking to
void certain options granted to the director defendants and
require the director defendants to indemnify the Company for any
liability resulting from statements concerning Micturin.
The Company believes the claims in both cases are
without merit and intends to vigorously defend the actions.
The Company is a defendant in actions filed in various
federal district courts alleging certain violations of the
Federal anti-trust laws in the marketing of pharmaceutical
products. In each case, the actions were filed against many
pharmaceutical manufacturers and suppliers and allege price
discrimination and conspiracy to fix prices in the sale of
pharmaceutical products. The actions were brought by various
pharmacies (both individually and, with respect to certain
claims, as a class action) and seek injunctive relief and
monetary damages. The Judicial Panel on Multi-District
Litigation has ordered these actions coordinated (and, with
respect to those actions brought as class actions, consolidated)
in the Federal District Court for the Northern District of
Illinois (Chicago) under the caption "In re Brand Name
Prescription Drugs Antitrust Litigation." Similar actions
alleging price discrimination claims under state law are pending
against many pharmaceutical manufacturers, including the Company,
in state courts in California, Alabama, Washington, Wisconsin and
Minnesota. The Company believes these actions are without merit
and intends to defend them vigorously.
The Company is not subject to any other material pending
legal proceedings, other than ordinary routine claims incidental
to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
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Not Applicable.
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PAGE
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON
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EQUITY AND RELATED STOCKHOLDER
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MATTERS
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The information required by this item is incorporated
by reference to page 28 of the Annual Report.
Forest has never paid cash dividends on its Common Stock
and does not expect to pay such dividends in the foreseeable
future. Management presently intends to retain all available
funds for the development of its business and for use as working
capital. Future dividend policy will depend upon Forest's
earnings, capital requirements, financial condition and other
relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
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The information required by this item is incorporated by
reference to page 15 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND
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ANALYSIS OF FINANCIAL CONDITION
-------------------------------
AND RESULTS OF OPERATIONS
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The information required by this item is incorporated by
reference to pages 13 and 14 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND
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SUPPLEMENTARY DATA
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The information required by this item is incorporated by
reference to pages 16 through 28 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS
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WITH ACCOUNTANTS ON ACCOUNTING
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AND FINANCIAL DISCLOSURE
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Not Applicable.
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PAGE
PART III
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In accordance with General Instruction G(3), the
information called for by Part III (Items 10 through 13) is
incorporated by reference from Forest's definitive proxy statement
to be filed pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934 in connection with Forest's 1995
Annual Meeting of Stockholders.
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PAGE
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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AND REPORTS ON FORM 8-K
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(a) 1. Financial statements. The following consolidated
financial statements of Forest Laboratories, Inc.
and subsidiaries included in the Annual Report
are incorporated by reference herein in Item 8:
Report of Independent Certified Public
Accountants
Consolidated balance sheets -
March 31, 1995 and 1994
Consolidated statements of income -
years ended March 31, 1995, 1994 and 1993
Consolidated statements of shareholders'
equity -
years ended March 31, 1995, 1994 and 1993
Consolidated statements of cash flows -
years ended March 31, 1995, 1994 and 1993
Notes to consolidated financial statements
2. Financial statement schedules. The following
consolidated financial statement schedules of
Forest Laboratories, Inc. and Subsidiaries are
included herein:
Report of Independent Certified Public
Accountants S-1
Schedule II Valuation and qualifying accounts S-2
-
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
3. Exhibits:
(3)(a) Articles of Incorporation of Forest, as amended.
Incorporated by reference from the Current Report
on Form 8-K dated March 9, 1981 filed by Forest,
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from Registration Statement on Form S-1
(Registration No. 2-97792) filed by Forest on May
16, 1985, from Forest's definitive proxy statement
filed pursuant to Regulation 14A with respect to
Forest's 1987, 1988 and 1993 Annual Meetings of
Shareholders and from the Current Report on Form
8-K dated March 15, 1988.
(3)(b) By-laws of Forest. Incorporated by reference to
Forest's Current Report on Form 8-K dated October
11, 1994.
(10) Material Contracts
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10.1 Option Agreement and Registration Rights
Agreement dated February 18, 1988 between
Forest and Howard Solomon. Incorporated
by reference to Forest's Annual Report on
Form 10-K for the fiscal year ended March
31, 1988 (the "1988 10-K").
10.2 Option Agreement and Registration Rights
Agreement dated February 18, 1988 between
Forest and Phillip M. Satow.
Incorporated by reference to the 1988
10-K.
10.3 Benefit Continuation Agreement dated as
of December 1, 1989 between Forest and
Howard Solomon. Incorporated by
reference to Forest's Annual Report on
Form 10-K for the fiscal year ended
March 31, 1990 (the "1990 l0-K").
10.4 Benefit Continuation Agreement dated as
of December 1, 1989 between Forest and
Joseph M. Schor. Incorporated by
reference to the 1990 10-K.
10.5 Benefit Continuation Agreement dated as
of May 27, 1990 between Forest and
Kenneth E. Goodman. Incorporated by
reference to the 1990 10-K.
10.6 Benefit Continuation Agreement dated as
of April 1, 1995 between Forest and
Phillip M. Satow.
10.7 Option Agreement dated December 10, 1990
between Forest and Howard Solomon.
Incorporated by reference to Forest's
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Annual Report on Form 10-K for the fiscal
year ended March 31, 1991 (the "1991
10-K").
10.8 Option Agreement dated December 10, 1990
between Forest and Kenneth E. Goodman.
Incorporated by reference to the 1991
10-K.
10.9 Option Agreement dated December 10,
1990 between Forest and Phillip M.
Satow. Incorporated by reference
to the 1991 10-K.
10.10 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Howard Solomon. Incorporated by
reference to Forest's Annual Report on
Form 10-K for the fiscal year ended March
31, 1994 (the "1994 10-K").
10.11 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Joseph M. Schor. Incorporated by
reference to the 1994 10-K.
10.12 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Phillip M. Satow. Incorporated by
reference to the 1994 10-K.
10.13 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Kenneth E. Goodman. Incorporated by
reference to the 1994 10-K.
10.14 Employment Agreement dated as of
January 16, 1995 by and between Forest
and Howard Solomon.
10.15 Employment Agreement dated as of
January 16, 1995 by and between Forest
and Philip M. Satow.
10.16 Employment Agreement dated as of
January 16, 1995 by and between Forest
and Kenneth E. Goodman.
13 Portions of the Registrant's Annual
Report to Stockholders.
-17-
22 List of Subsidiaries. Incorporated by
reference to Exhibit 22 to the 1988
10-K.
23 Consent of BDO Seidman.
27 Financial Data Schedule.
PAGE
SIGNATURES
----------
Pursuant to the requirements of Section 13 and 15(d) of
the Securities Exchange Act of 1934, Forest has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: June 27, 1995
FOREST LABORATORIES, INC.
-------------------------
By: /s/Howard Solomon
----------------------------
Howard Solomon,
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of Forest and in the capacities and on the dates
indicated.
PRINCIPAL EXECUTIVE
- -------------------
OFFICER:
- -------
/s/ Howard Solomon President, Chief June 27, 1995
- ---------------------------- Executive Officer
Howard Solomon and Director
PRINCIPAL FINANCIAL
- -------------------
AND ACCOUNTING OFFICER:
- ----------------------
/s/ Kenneth E. Goodman Vice President, June 27, 1995
- ---------------------------- Finance
Kenneth E. Goodman
DIRECTORS
---------
/s/ George S. Cohan Director June 27, 1995
- ----------------------------
George S. Cohan
/s/William J. Candee, III Director June 27, 1995
- ----------------------------
William J. Candee, III
-19-
/s/ Dan L. Goldwasser Director June 27, 1995
- ----------------------------
Dan L. Goldwasser
/s/Joseph M. Schor Director June 27, 1995
- ----------------------------
Joseph Martin Schor
-20-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------
Board of Directors and Shareholders
Forest Laboratories, Inc.
The audits referred to in our report dated April 28, 1995 relating to the
consolidated financial statements of Forest Laboratories, Inc. and
Subsidiaries, which is referred to in Item 8 of this Form 10-K, included
the audits of the accompanying financial statement schedule. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion of this financial
statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman
New York, New York
April 28, 1995
S-1
SCHEDULE II
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
- ----------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------
Additions
---------------------------------
(1) (2)
Balance at Charged to Charged to Balance at
beginning costs and other accounts- Deductions-- end of
Description of period expenses describe describe period
- -----------------------------------------------------------------------------------------------
Year ended
March 31, 1995:
Allowance for
doubtful accounts $4,918,000 $905,000 $156,000 $963,000 $5,016,000
========== ======== ======== ======== ==========
Year ended
March 31, 1994:
Allowance for
doubtful accounts $4,630,000 $377,000 $384,000 $473,000 $4,918,000
========== ======== ======== ======== ==========
Year ended
March 31, 1993:
Allowance for
doubtful accounts $3,893,000 $277,000 $675,000 $215,000 $4,630,000
========== ======== ======== ======== ==========
Includes allowances for medicaid rebates and cash discounts
Includes adjustments for wholesale chargebacks and bad debt write-offs.
S-2
EXHIBIT 10.6
BENEFITS CONTINUATION AGREEMENT
-------------------------------
AGREEMENT dated as of April 1, 1995 by and between
Forest Laboratories, Inc., a Delaware corporation, having its
principal executive offices at 909 Third Avenue, New York, New
York 10022 (the "Company") and Philip M. Satow an individual
residing at 1075 Park Avenue, New York, New York 10120 (the
"Executive").
R E C I T A L S:
_ _ _ _ _ _ _ _
A. Executive has served as Executive Vice President-
Marketing of the Company for more than the past ten years.
B. The Company recognizes the substantial
contributions made by Executive to the development and growth of
the Company's business and expects such contributions to
continue. Pursuant to a resolution duly adopted by the Company's
Board of Directors, the Company desires to provide certain life-
time benefits to Executive and his wife following the termination
of Executive's employment with the Company.
C. The parties hereto wish to set forth the terms and
conditions upon which the Company shall provide such benefits to
Executive and his wife.
NOW, THEREFORE, in consideration of the premises and of
the mutual promises herein contained, the parties hereto agree as
follows:
1. In consideration of Executive's services to the
Company during the past 10 years and in order to induce the
Executive to continue such services as a valuable member of the
Company's senior management (subject to the Company's and
Executive's continuing right to terminate such services), the
Company agrees that from and after the date that Executive's
employment with the Company terminates (the "Termination Date"),
whether by the retirement of Executive or otherwise, the Company
shall provide to Executive and his wife during his and her
lifetime, at the sole cost and expense of the Company, the same
benefits they enjoy under all health insurance programs (major
medical, hospitalization, and dental) of the Company existing on
the Termination Date or the date hereof, whichever is more
beneficial to Executive or his wife, as the case may be.
2. The Company may discharge its obligations under
paragraph 1 above, in whole or in part, by permitting the
Executive and his wife to participate in health care insurance
programs of the Company or by acquiring other third party health
care insurance coverage for the benefit of Executive and his
wife, all at the sole cost and expense of the Company. Executive
agrees to cooperate with the Company to the extent necessary for
Executive and his wife to participate in such insurance programs
or for the Company to obtain such other insurance coverage,
including without limitation (i) supplying such information about
Executive and his wife as may be reasonably requested by a third
party insurer, and (ii) undergoing and causing his wife to
undergo medical examinations, but not more frequently than once a
year. Nothing contained in this paragraph 2 shall be deemed to
limit the extent of the benefits required to be provided by the
Company under paragraph 1 above. Without limiting the generality
of the preceding sentence, the failure by the Executive or his
- 2 -
wife to meet the medical condition requirement of any third party
insurer shall not relieve the Company of its obligations under
paragraph 1.
3. Notwithstanding anything to the contrary contained
in this Agreement, the amount of the benefits required to be
provided by the Company at any time shall be reduced to the
extent comparable health care benefits, if any, are being
provided after the Termination Date by a new employer of
Executive or any other third party and are then in effect,
whether under a health insurance program or otherwise.
4. Nothing contained herein shall be construed to be
a contract of employment for any term of years, nor as conferring
upon Executive the right to continue in the employ of the Company
in any capacity. It is expressly understood by the parties
hereto that this Agreement relates exclusively to additional
compensation for Executive's services, payable after termination
of his employment with the Company, and is not intended to be an
employment contract.
5. The Executive acknowledges that customer lists,
processes, formulae, know-how, technical information and other
proprietary data and information (the "Confidential Information")
possessed by the Company constitutes a valuable and unique asset
of the Company. In consideration for the benefits granted to the
Executive herein, the Executive agrees that, except (i) as may be
necessary or appropriate in connection with the performance of
his duties on behalf of the Company or any of its subsidiaries,
(ii) as may be required by applicable law or regulation or (iii)
- 3 -
as may be consented to by the Company, the Executive shall not,
during the term of or following his employment by the Company,
disclose such Confidential Information to any other person, firm
or corporation. The term "Confidential Information" shall not be
deemed to include information which is or becomes generally
available or known to the public or the pharmaceutical industry
other than as a result of the disclosure by the Executive and
shall not include information the disclosure of which would not
reasonably be likely to have a demonstrable, material adverse
effect upon the Company or its business.
6. Neither Executive nor his wife shall have any
power or right to transfer, assign, hypothecate or otherwise
encumber any part or all of the benefits payable hereunder. Any
such attempted assignment or transfer shall be void.
7. Any decision by the Company denying a claim by the
Employee under this Agreement shall be stated in writing and
delivered or mailed to Executive. Such decision shall set forth
the specific reasons for the denial. In addition, the Company
shall afford a reasonable opportunity to Executive for a full and
fair review of the decision denying such claim.
8. This Agreement may not be amended, altered or
modified, except by a written instrument signed by the parties
hereto, or their respective successors or assigns, and may not be
otherwise terminated except as provided herein. This Agreement
supersedes in its entirety that certain agreement dated as of
December 1, 1989 by and between the Company and Executive
relating to the subject matter hereof.
- 4 -
9. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns, and
Executive and his wife and their heirs, executors, administrators
and beneficiaries.
10. Any notice, consent or demand required or
permitted to be given under the provisions of this Agreement
shall be in writing, and shall be signed by the party giving or
making the same. If such notice, consent or demand is mailed to
a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as
shown on records of the Company. The date of such mailing shall
be deemed the date of notice, consent or demand.
11. Any dispute or controversy arising out of or
relating to this Agreement or any breach of this Agreement shall
be settled by arbitration to be held in the City of New York in
accordance with the rules then in effect of the American
Arbitration Association (the "AAA") or any successor thereto.
The arbitration shall be held before a single arbitrator chosen
by mutual agreement of the parties; provided that if no such
arbitrator is so chosen within 10 days following a demand for
arbitration hereunder, such arbitrator shall be chosen by the AAA
in accordance with its rules. The decision of the arbitrator
shall be final, conclusive, and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's
decision in any court having jurisdiction, and the parties
irrevocably consent to the jurisdiction of the New York State
courts for this purpose. The Company shall pay all the costs and
- 5 -
expenses of such arbitration and all the attorneys' fees and
expenses of the other parties thereto unless the arbitration
award evidences a finding that there was no reasonable basis for
the position taken by Executive in such proceeding.
12. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall
remain in effect, and if any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable
to all other persons and circumstances.
13. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement, in duplicate, as of the day and year first above
written.
FOREST LABORATORIES, INC.
By: /s/ KENNETH E. GOODMAN
_____________________________
KENNETH E. GOODMAN
/s/ PHILIP M. SATOW
-----------------------------
PHILIP M. SATOW
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a Delaware
corporation (the "Company") and HOWARD SOLOMON (the "Executive"), dated as of
the 16th day of January 1995.
The Board of Directors of the Company (the "Board") has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control
occurs and if the Executives employment with the Company is
terminated prior to the date on which the Change of Control occurs,
and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party
who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this
Agreement the "Effective Date" shall mean the date immediately prior
to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year
after the date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated,
the Change of Control Period shall be automatically extended so as
to terminate three years from such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be
so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
- 2 -
Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
-----------------
in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 120-day period immediately preceding the Effective
Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding
the Effective Date or any office or location less than 35 miles
from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of
- 3 -
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive
to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements
or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executives
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted
by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the
performance of the Executives responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive shall
-----------
receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any
base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year ending
during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the highest aggregate
amount awarded to the Executive under all annual bonus,
incentive and other similar plans of the Company with respect
to any of the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal
- 4 -
year) (the "Recent Annual Bonus"). Each such Annual Bonus
shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
---------------------------------------
Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated
companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or
if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to
the extent applicable generally to other peer executives
of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable
in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive
at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective
Date to other peer executives of the Company and its
affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
--------
be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for
the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at
- 5 -
any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits, including,
without limitation, tax and financial planning services,
payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
------------------------
Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at
least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated
companies at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and
its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the
Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executives employment shall terminate
-------------------
automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below),
it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the
Executives employment. In such event, the Executives employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective
- 6 -
Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the
Executives duties. For purposes of this Agreement, "Disability"
shall mean the absence of the Executive from the Executives duties
with the Company on a full-time basis for 180 consecutive business
days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the
Executive or the Executives legal representative.
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executives duties with the Company or one of
its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executives duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful,, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph
(i) or (ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good
- 7 -
Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executives position (including status,
offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section
4(a) of this Agreement, or any other action by the Company
which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)
(B) hereof or the Company's requiring the Executive to travel
on Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executives
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with
Section 12(b) of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is
other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days
after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or
- 8 -
Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance
in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or
by the Executive for Good Reason, the date of receipt of the Notice
of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the
Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If,
------------------------------------------------------
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the Recent
Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during
which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year
during the Employment Period, if any (such higher amount
being referred to as the "Highest Annual Bonus") and (y)
a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1),
(2), and (3)shall be hereinafter referred to as the
"Accrued Obligations,,); and
B. the amount equal to the product of (1) three and (2) the
sum of (x) the Executives Annual Base Salary and (y)
- 9 -
the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified
defined benefit retirement plan (the "Retirement Plan")
(utilizing actuarial assumptions no less favorable to
the Executive than those in effect under the Company's
Retirement Plan immediately prior to the Effective Date),
and any excess or supplemental retirement plan in which
the Executive participates (together, the "SERP") which
the Executive would receive if the Executive's employment
continued for three years after the Date of Termination
assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's
compensation in each of the three years is that required
by Section 4(b)(i) and Section 4(b)(ii), over (b) the
actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the
Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which
would have been provided to them in accordance with the
plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable
to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical
or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such
other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until three years after the Date of Termination
and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his
sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program,
policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and
benefits shall be here-inafter referred to as the
"Other Benefits").
- 10 -
(b) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries
of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to
death benefits, if any, as in effect with respect to other peer
executives and their beneficiaries at any time during the
120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its
affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations
to the Executive, other than for payment of Accrued Obligations
and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With
respect to the provision of other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families
at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time
thereafter generally with respect to other peer executives
of the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y)
the amount of any compensation previously deferred by the
- 11 -
Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination
for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
-------------------------
or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any
of its affiliated companies and for which the Executive may qualify,
nor, subject to Section 12(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of
the amounts payable to the Executive under any of the provisions
of this Agreement and such amounts shall not be reduced whether
or not the Executive obtains other employment. The Company agrees to
pay as incurred, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee
of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
9. Certain Reductions of Payments
------------------------------
(a) Anything in this Agreement to the contrary not-withstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of
- 12 -
this Agreement or otherwise) (a "Payment") would be nondeductible
by the Company for Federal income tax purposes because of
Section 28OG of the Code, then the aggregate present value of
amounts payable or distributable to or for the benefit of the
Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be an amount
expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of Section 28OG of the Code.
For purposes of this Section 9 present value shall be determined
in accordance with Section 28OG(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall
be made by BDO Seidman (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
Executive within 15 business days of the Date of Termination or
such earlier time as is requested by the Company. Any such
determination by the Accounting Firm shall be binding upon the
Company and the Executive. The Executive shall determine which
and how much of the Agreement Payments (or, at the election of
the Executive, other payments) shall be eliminated or reduced
consistent with the requirements of this Section 9, provided
that, if the Executive does not make such determination
within ten business days of the receipt of the calculations made
by the Accounting Firm, the Company shall elect which and how much
of the Agreement Payments shall be eliminated or reduced consistent
with the requirements of this Section 9 and shall notify the
Executive promptly of such election. Within five business days
thereafter, the Company shall pay to or distribute to or for the
benefit of the Executive such amounts as are then due to the
Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 28OG
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Agreement
Payments will have been made by the Company which should not
have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Company could have
been made ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event
that the Accounting Firm determines that an Overpayment has
been made, any such Overpayment shall be treated for all
purposes as a loan to the Executive which the Executive shall
repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the
Executive to the Company (or if paid by the Executive to the
Company shall be returned to the Executive) if and to the extent
such payment would not reduce the amount which is subject to
taxation under Section 4999 of the Code. In the event that the
Accounting Firm determines that an Underpayment has occurred, any
such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of
the Code.
- 13 -
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive
in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis
for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit
of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase,merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the-Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to
principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
- 14 -
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
-------------------
Howard Solomon
160 East 72nd Street
New York, NY 10021
If to the Company:
-----------------
Forest Laboratories, Inc.
Attention: President
909 Third Avenue
New York, New York 10022
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall
be required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section
5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right
of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the
Company is "at will" and, subject to Section i(a) hereof, prior
to the Effective Date, the Executive's employment and/or this
Agreement may be terminated by either the Executive
or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this
Agreement. From and after the Effective Date this Agreement shall
supersede any other agreement between the parties with respect to
the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
- ------------------
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/HOWARD SOLOMON
-----------------------------------
HOWARD SOLOMON
FOREST LABORATORIES, INC.
By:
/s/KENNETH E. GOODMAN
-------------------------------------
KENNETH E. GOODMAN
Vice President-Finance
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a Delaware
corporation (the "Company") and PHILLIP M. SATOW (the "Executive"), dated
as of the 16th day of January 1995.
The Board of Directors of the Company (the "Board") has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control
occurs and if the Executives employment with the Company is
terminated prior to the date on which the Change of Control occurs,
and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party
who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this
Agreement the "Effective Date" shall mean the date immediately prior
to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year
after the date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated,
the Change of Control Period shall be automatically extended so as
to terminate three years from such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be
so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
- 2 -
Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
-----------------
in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 120-day period immediately preceding the Effective
Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding
the Effective Date or any office or location less than 35 miles
from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of
- 3 -
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive
to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements
or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executives
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted
by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the
performance of the Executives responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive shall
-----------
receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any
base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year ending
during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the highest aggregate
amount awarded to the Executive under all annual bonus,
incentive and other similar plans of the Company with respect
to any of the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal
- 4 -
year) (the "Recent Annual Bonus"). Each such Annual Bonus
shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
---------------------------------------
Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated
companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or
if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to
the extent applicable generally to other peer executives
of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable
in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive
at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective
Date to other peer executives of the Company and its
affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for
the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at
- 5 -
any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits, including,
without limitation, tax and financial planning services,
payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at
least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated
companies at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and
its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the
Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executives employment shall terminate
automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below),
it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the
Executives employment. In such event, the Executives employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective
- 6 -
Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the
Executives duties. For purposes of this Agreement, "Disability"
shall mean the absence of the Executive from the Executives duties
with the Company on a full-time basis for 180 consecutive business
days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the
Executive or the Executives legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executives duties with the Company or one of
its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executives duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful,, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph
(i) or (ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good
- 7 -
Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executives position (including status,
offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section
4(a) of this Agreement, or any other action by the Company
which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)
(B) hereof or the Company's requiring the Executive to travel
on Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executives
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with
Section 12(b) of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is
other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days
after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or
- 8 -
Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance
in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or
by the Executive for Good Reason, the date of receipt of the Notice
of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the
Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If,
------------------------------------------------------
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the Recent
Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during
which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year
during the Employment Period, if any (such higher amount
being referred to as the "Highest Annual Bonus") and (y)
a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1),
(2), and (3)shall be hereinafter referred to as the
"Accrued Obligations,,); and
B. the amount equal to the product of (1) three and (2) the
sum of (x) the Executives Annual Base Salary and (y)
- 9 -
the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified
defined benefit retirement plan (the "Retirement Plan")
(utilizing actuarial assumptions no less favorable to
the Executive than those in effect under the Company's
Retirement Plan immediately prior to the Effective Date),
and any excess or supplemental retirement plan in which
the Executive participates (together, the "SERP") which
the Executive would receive if the Executive's employment
continued for three years after the Date of Termination
assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's
compensation in each of the three years is that required
by Section 4(b)(i) and Section 4(b)(ii), over (b) the
actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the
Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which
would have been provided to them in accordance with the
plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable
to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical
or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such
other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until three years after the Date of Termination
and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his
sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program,
policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and
benefits shall be here-inafter referred to as the
"Other Benefits").
- 10 -
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries
of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to
death benefits, if any, as in effect with respect to other peer
executives and their beneficiaries at any time during the
120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its
affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations
to the Executive, other than for payment of Accrued Obligations
and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With
respect to the provision of other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families
at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time
thereafter generally with respect to other peer executives
of the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y)
the amount of any compensation previously deferred by the
- 11 -
Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination
for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any
of its affiliated companies and for which the Executive may qualify,
nor, subject to Section 12(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of
the amounts payable to the Executive under any of the provisions
of this Agreement and such amounts shall not be reduced whether
or not the Executive obtains other employment. The Company agrees to
pay as incurred, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee
of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
9. Certain Reductions of Payments
------------------------------
(a) Anything in this Agreement to the contrary not-withstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of
- 12 -
this Agreement or otherwise) (a "Payment") would be nondeductible
by the Company for Federal income tax purposes because of
Section 28OG of the Code, then the aggregate present value of
amounts payable or distributable to or for the benefit of the
Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be an amount
expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of Section 28OG of the Code.
For purposes of this Section 9 present value shall be determined
in accordance with Section 28OG(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall
be made by BDO Seidman (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
Executive within 15 business days of the Date of Termination or
such earlier time as is requested by the Company. Any such
determination by the Accounting Firm shall be binding upon the
Company and the Executive. The Executive shall determine which
and how much of the Agreement Payments (or, at the election of
the Executive, other payments) shall be eliminated or reduced
consistent with the requirements of this Section 9, provided
that, if the Executive does not make such determination
within ten business days of the receipt of the calculations made
by the Accounting Firm, the Company shall elect which and how much
of the Agreement Payments shall be eliminated or reduced consistent
with the requirements of this Section 9 and shall notify the
Executive promptly of such election. Within five business days
thereafter, the Company shall pay to or distribute to or for the
benefit of the Executive such amounts as are then due to the
Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 28OG
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Agreement
Payments will have been made by the Company which should not
have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Company could have
been made ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event
that the Accounting Firm determines that an Overpayment has
been made, any such Overpayment shall be treated for all
purposes as a loan to the Executive which the Executive shall
repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the
Executive to the Company (or if paid by the Executive to the
Company shall be returned to the Executive) if and to the extent
such payment would not reduce the amount which is subject to
taxation under Section 4999 of the Code. In the event that the
Accounting Firm determines that an Underpayment has occurred, any
such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of
the Code.
- 13 -
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive
in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis
for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit
of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase,merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the-Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to
principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
- 14 -
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
-------------------
Phillip M. Satow
1075 Park Avenue
New York, NY 10128
If to the Company:
-----------------
Forest Laboratories, Inc.
Attention: President
909 Third Avenue
New York, New York 10022
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall
be required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section
5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right
of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the
Company is "at will" and, subject to Section i(a) hereof, prior
to the Effective Date, the Executive's employment and/or this
Agreement may be terminated by either the Executive
or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this
Agreement. From and after the Effective Date this Agreement shall
supersede any other agreement between the parties with respect to
the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
- ------------------
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/PHILLIP M. SATOW
-----------------------------------
PHILLIP M. SATOW
FOREST LABORATORIES, INC.
By:
/s/KENNETH E. GOODMAN
-------------------------------------
KENNETH E. GOODMAN
Vice President-Finance
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a Delaware
corporation (the "Company") and KENNETH E. GOODMAN (the "Executive"), dated
as of the 16th day of January 1995.
The Board of Directors of the Company (the "Board") has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control
occurs and if the Executives employment with the Company is
terminated prior to the date on which the Change of Control occurs,
and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party
who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this
Agreement the "Effective Date" shall mean the date immediately prior
to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year
after the date hereof, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated,
the Change of Control Period shall be automatically extended so as
to terminate three years from such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be
so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
- 2 -
Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
-----------------
in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 120-day period immediately preceding the Effective
Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding
the Effective Date or any office or location less than 35 miles
from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of
- 3 -
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive
to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements
or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executives
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted
by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the
performance of the Executives responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive shall
-----------
receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any
base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year ending
during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the highest aggregate
amount awarded to the Executive under all annual bonus,
incentive and other similar plans of the Company with respect
to any of the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal
- 4 -
year) (the "Recent Annual Bonus"). Each such Annual Bonus
shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
---------------------------------------
Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of
those provided by the Company and its affiliated
companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or
if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to
the extent applicable generally to other peer executives
of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable
in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive
at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective
Date to other peer executives of the Company and its
affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for
the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at
- 5 -
any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits, including,
without limitation, tax and financial planning services,
payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at
least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated
companies at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and
its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the
Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executives employment shall terminate
automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below),
it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the
Executives employment. In such event, the Executives employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective
- 6 -
Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the
Executives duties. For purposes of this Agreement, "Disability"
shall mean the absence of the Executive from the Executives duties
with the Company on a full-time basis for 180 consecutive business
days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the
Executive or the Executives legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executives duties with the Company or one of
its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executives duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful,, unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph
(i) or (ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executives employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good
- 7 -
Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executives position (including status,
offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section
4(a) of this Agreement, or any other action by the Company
which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)
(B) hereof or the Company's requiring the Executive to travel
on Company business to a substantially greater extent than
required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executives
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with
Section 12(b) of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is
other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days
after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or
- 8 -
Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance
in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or
by the Executive for Good Reason, the date of receipt of the Notice
of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the
Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If,
------------------------------------------------------
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the Recent
Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during
which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year
during the Employment Period, if any (such higher amount
being referred to as the "Highest Annual Bonus") and (y)
a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1),
(2), and (3)shall be hereinafter referred to as the
"Accrued Obligations,,); and
B. the amount equal to the product of (1) three and (2) the
sum of (x) the Executives Annual Base Salary and (y)
- 9 -
the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified
defined benefit retirement plan (the "Retirement Plan")
(utilizing actuarial assumptions no less favorable to
the Executive than those in effect under the Company's
Retirement Plan immediately prior to the Effective Date),
and any excess or supplemental retirement plan in which
the Executive participates (together, the "SERP") which
the Executive would receive if the Executive's employment
continued for three years after the Date of Termination
assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's
compensation in each of the three years is that required
by Section 4(b)(i) and Section 4(b)(ii), over (b) the
actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the
Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which
would have been provided to them in accordance with the
plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable
to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical
or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such
other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until three years after the Date of Termination
and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in his
sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program,
policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and
benefits shall be here-inafter referred to as the
"Other Benefits").
- 10 -
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Company
and affiliated companies to the estates and beneficiaries
of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to
death benefits, if any, as in effect with respect to other peer
executives and their beneficiaries at any time during the
120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its
affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations
to the Executive, other than for payment of Accrued Obligations
and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With
respect to the provision of other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families
at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time
thereafter generally with respect to other peer executives
of the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y)
the amount of any compensation previously deferred by the
- 11 -
Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination
for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any
of its affiliated companies and for which the Executive may qualify,
nor, subject to Section 12(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive
is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of
the amounts payable to the Executive under any of the provisions
of this Agreement and such amounts shall not be reduced whether
or not the Executive obtains other employment. The Company agrees to
pay as incurred, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee
of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
9. Certain Reductions of Payments
------------------------------
(a) Anything in this Agreement to the contrary not-withstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of
- 12 -
this Agreement or otherwise) (a "Payment") would be nondeductible
by the Company for Federal income tax purposes because of
Section 28OG of the Code, then the aggregate present value of
amounts payable or distributable to or for the benefit of the
Executive pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be an amount
expressed in present value which maximizes the aggregate present
value of Agreement Payments without causing any Payment to be
nondeductible by the Company because of Section 28OG of the Code.
For purposes of this Section 9 present value shall be determined
in accordance with Section 28OG(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall
be made by BDO Seidman (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
Executive within 15 business days of the Date of Termination or
such earlier time as is requested by the Company. Any such
determination by the Accounting Firm shall be binding upon the
Company and the Executive. The Executive shall determine which
and how much of the Agreement Payments (or, at the election of
the Executive, other payments) shall be eliminated or reduced
consistent with the requirements of this Section 9, provided
that, if the Executive does not make such determination
within ten business days of the receipt of the calculations made
by the Accounting Firm, the Company shall elect which and how much
of the Agreement Payments shall be eliminated or reduced consistent
with the requirements of this Section 9 and shall notify the
Executive promptly of such election. Within five business days
thereafter, the Company shall pay to or distribute to or for the
benefit of the Executive such amounts as are then due to the
Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 28OG
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Agreement
Payments will have been made by the Company which should not
have been made ("Overpayment") or that additional Agreement
Payments which will have not been made by the Company could have
been made ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event
that the Accounting Firm determines that an Overpayment has
been made, any such Overpayment shall be treated for all
purposes as a loan to the Executive which the Executive shall
repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the
Executive to the Company (or if paid by the Executive to the
Company shall be returned to the Executive) if and to the extent
such payment would not reduce the amount which is subject to
taxation under Section 4999 of the Code. In the event that the
Accounting Firm determines that an Underpayment has occurred, any
such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of
the Code.
- 13 -
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive
in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis
for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit
of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase,merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the-Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
12. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to
principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
- 14 -
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
-------------------
Kenneth E. Goodman
7 Iris Lane
Chappaqua, NY 10514
If to the Company:
-----------------
Forest Laboratories, Inc.
Attention: President
909 Third Avenue
New York, New York 10022
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall
be required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section
5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right
of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the
Company is "at will" and, subject to Section i(a) hereof, prior
to the Effective Date, the Executive's employment and/or this
Agreement may be terminated by either the Executive
or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this
Agreement. From and after the Effective Date this Agreement shall
supersede any other agreement between the parties with respect to
the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
- ------------------
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/KENNETH E. GOODMAN
-----------------------------------
KENNETH E. GOODMAN
FOREST LABORATORIES, INC.
By:
/s/HOWARD SOLOMON
-------------------------------------
HOWARD SOLOMON
President
EXHIBIT 13
QUARTERLY STOCK MARKET PRICES
High Low
- ----------------------------------------------------------------------
April-June 1993 38 1/2 31 1/2
- ----------------------------------------------------------------------
July-September 1993 37 7/8 28 1/4
- ----------------------------------------------------------------------
October-December 1993 47 7/8 37 3/8
- ----------------------------------------------------------------------
January-March 1994 52 1/2 41 1/2
- ----------------------------------------------------------------------
April-June 1994 49 40
- ----------------------------------------------------------------------
July-September 1994 50 40 1/2
- ----------------------------------------------------------------------
October-December 1994 49 1/2 44 7/8
- ----------------------------------------------------------------------
January-March 1995 52 1/4 43 1/8
- ----------------------------------------------------------------------
As of June 5, 1995, there were 3,064 stockholders of record of the Company's
common stock.
SELECTED FINANCIAL DATA
- -----------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
March 31, (N THOUSANDS)
Financial Position:
Current Assets $348,969 $345,929 $314,636 $243,874 $138,294
Current Liabilities 57,649 52,223 41,145 55,943 42,026
Net Current Assets 291,320 293,706 273,491 187,931 96,268
Total Assets 757,205 619,211 520,512 431,080 331,234
Long-Term Debt and Deferred
Income Taxes 222 206 191 2,068 25,231
Total Shareholders' Equity 699,334 566,782 479,176 373,069 263,977
YEAR ENDED MARCH 31, (IN THOUSANDS, EXCEPT
PER SHARE DATA) 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Summary of Operations:
Net Sales $393,359 $351,641 $285,364 $239,193 $175,904
Other Income 11,470 9,680 11,070 9,244 8,320
Costs and Expenses 248,683 235,843 195,748 170,932 129,357
Income Before Income Taxes 156,146 125,478 100,686 77,505 54,867
Income Taxes 55,997 45,280 36,379 27,936 16,998
Net Income 100,149 80,198 64,307 49,569 37,869
Net Income Per Share:
Primary $2.15 $1.75 $1.42 $1.13 $0.90
Fully Diluted $2.14 $1.72 $1.41 $1.13 $0.87
Weighted Average Number of
Common and Common
Equivalent Shares
Outstanding (Note A):
Primary 46,682 45,957 45,432 43,992 41,955
Fully Diluted 46,768 46,614 45,764 44,044 43,504
No dividends were paid on common shares during the period.
SELECTED FINANCIAL DATA
- -----------------------
A. Net income per share was computed by dividing net income by the weighted
average number of common and common equivalent shares during each year. All
amounts give effect to the February 1991 100% stock dividend. Common equivalent
shares consist of unissued shares under options and warrants, and are
included to the extent that they have a dilutive effect. Fully dilutd net
income per share is presented because of an increase in the dilutive effect of
stock options (using the treasury stock method) which resulted from the higher
price of the Company's stock at the end of the year as compared with the average
price during the year. The weighted average number of common and common
equivalent shares outstanding for 1995 was computed as follows:
Primary Fully Diluted
------- -------------
Weighted average number of shares outstanding 44,476 44,481
Assuming exercise of options and warrants
reduced by the number of shares which could
have been purchased with the proceeds from
exercise of such options and warrants 2,206 2,287
------ ------
Weighted average number of common and common
equivalent shares outstanding 46,682 46,768
====== ======
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS OF
-------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY Net current assets decreased by $2,386,000 in
- ---------------------------------
fiscal 1995 principally due to the Company investing a portion of its cash in
long-term marketable securities maturing over a period of one to two years.
Compared to the short-term marketable securities which they replaced, these
long-term marketable securities have, and are expected to continue to increase
the Company's yield on investments. Company operations have historically
provided a strong, positive cash flow and management believes that on-going
operations, when combined with the Company's strong cash position, will continue
to provide adequate liquidity to facilitate potential acquisitions of products
or companies and capital investments. Accounts receivable and accounts payable
increased principally as a result of the continued growth of the Company's
principal promoted and specialty controlled release generic products and an
increase in the overall level of the Company's operations. Property, plant and
equipment increased as a result of the Company's facilities expansion in the
United States and Ireland. This expansion, when complete, should for the time
being meet the Company's needs for the manufacturing, warehousing and
distribution of its existing and presently anticipated future products.
The increase in license agreements, product rights and intangible assets
resulted from the Company acquiring certain product rights from Prutech Research
and Development Partnership (Prutech), which previously entitled Prutech to
royalties on controlled release generic propranolol and indomethacin. Deferred
income taxes non-current increased due to the recording of state and local
tax benefit carryforwards which resulted from the exercise of employee stock
options. The change in cumulative foreign currency translation adjustments is
attributed to a significant increase in the UK pound and Irish punt to US
dollar rates of exchange.
RESULTS OF OPERATIONS Net sales increased in 1995 by $41,718,000 as a result of
the continued growth of the Company's branded promoted products, particularly
Aerobid and Lorcet, and specialty controlled release generic products. These
increases were partially offset by lower sales of Flumadine due to the
relatively mild flu season and high inventory levels remaining from the prior
year's initial launch. Net volume growth of these products amounted to
$57,014,000. Excluding Flumadine sales, net sales growth of the Company's
principal promoted and specialty release generic products totaled $76,669,000.
Sales decreases of certain of the Company's unpromoted product lines resulted in
a net volume decline of $4,574,000. The remainder of the net sales change was
primarily the result of increased sales to managed care customers at lower
net realized prices. Net sales for fiscal 1994 increased by $66,277,000 as
compared to fiscal 1993. Volume growth of the Company's principal promoted and
generic product lines accounted for $46,103,000 of the increase. Flumadine
sales amounted to $21,660,000 in fiscal 1994. Sales volume of the Company's
older unpromoted product lines increased by $2,384,000, while foreign exchange
translation rate declines reduced net sales by $5,936,000. The remainder of the
net sales increase was attributed to price increases.
Other income increased $1,790,000 during fiscal 1995. An increase in funds
available for investment, combined with higher yields received by investing in
longer term marketable securities with up to two year maturities, resulted in an
increase in interest income as compared with last year. The decrease in other
income in fiscal 1994 as compared to 1993 was primarily the result of lower
commission income resulting from the termination of the Company's joint
marketing agreement for the product DDAVP.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS OF
-------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Cost of sales as a percentage of sales increased to 19% in fiscal 1995 from 18%
in fiscal 1994 due mostly to increases in overhead costs related to the
Company's facilities expansion and lower net prices received on certain
products. During fiscal 1994 as compared to 1993, cost of sales as a
percentage of sales decreased to 18% from 19% as result of changes in product
mix and volume and price increases.
Selling, general and administrative expense decreased by $2,816,000 during
fiscal 1995. The decrease was primarily due to a reduction in royalty expense
resulting from the acquisition from Prutech of the product rights to controlled
release generic propranolol and indomethacin and the absence of the substantial
launch costs for the product Flumadine which were incurred during 1994.
Offsetting this decrease were costs associated with the consolidation of the
Company's Jackson, Mississippi and St Louis, Missouri facilities in St Louis,
which will result in future savings. As a percentage of sales, selling, general
and administrative expense decreased in 1995 as compared to 1994. The increase
in selling, general and administrative expense in 1994 as compared to 1993
resulted from continued growth of the Company's salesforce activities and the
launch costs for Flumadine.
Interest expense of $1,957,000 in fiscal 1993 was the result of the debt
incurred in connection with the purchase of a line of thyroid products.
The debt was repaid during fiscal 1993.
Research and development expense increased by $4,012,000 during fiscal 1995
and $5,944,000 in 1994 principally as a result of the cost of conducting
clinical trials in order to obtain approval of new products and the cost of
developing products using the Company's controlled release technology. During
fiscal 1995, there was particular emphasis on Synapton, Methoxatone and AF102B.
Synapton is the Company's controlled release formulation of physostigmine being
tested for the treatment of Alzheimer's Disease. One Phase III clinical study
has been successfully concluded. Two additional Phase III clinical studies are
currently in progress, and if successfully completed, will enable the Company to
seek approval for marketing from the FDA. Methoxatone is being developed for
the treatment of brain trauma and AF102B is an M1 agonist for the treatment of
Alzheimer's Disease. Phase II/III clinical trials are currently in progress for
AF102B. Also during 1995, the Company completed studies and filed new drug
applications for the products Monurol, a single dose antibiotic used for the
treatment of uncomplicated urinary tract infections and Infasurf, a lung
surfactant for the treatment of respiratory distress syndrome in preterm
infants. The Company anticipates a continued increase in research and
development expense as these and other potential products are developed
and tested.
Inflation has not had a material effect on the Company's operations for
the periods presented.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-----------------------------------------
-1-
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------
Board of Directors and Shareholders
Forest Laboratories, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Forest
Laboratories, Inc. and Subsidiaries as of March 31, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended March
31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 presentation of the financial statements.
We believe that our audits provide 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 Forest Laboratories, Inc. and Subsidiaries as of March 31, 1995 and
1994, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 1995 in
conformity with generally accepted accounting principles.
BDO SEIDMAN
New York, New York
April 28, 1995
-2-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
--------------
MARCH 31,
------------------------
1995 1994
ASSETS --------- ---------
- ------
Current assets:
Cash (including cash equivalent investments of $107,611 $181,094
$103,847 in 1995 and $176,336 in 1994)
Marketable securities 34,570
Accounts receivable, less allowances of $5,016
in 1995 and $4,918 in 1994 149,655 111,670
Inventories 38,963 37,180
Deferred income taxes 12,789 12,172
Other current assets 5,381 3,813
-------- --------
Total current assets 348,969 345,929
-------- --------
Long-term marketable securities 136,674 47,953
-------- --------
Property, plant and equipment:
Land and buildings 60,312 43,264
Machinery and equipment 25,994 21,483
Vehicles and other 10,473 8,968
------- -------
96,779 73,715
Less accumulated depreciation 23,751 20,694
------- -------
73,028 53,021
------- -------
Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $6,240 in 1995 and $5,614
in 1994 18,719 19,345
License agreements, product rights and other
intangible assets, net 162,174 146,657
Deferred income taxes 8,343 3,787
Other 9,298 2,519
-------- --------
198,534 172,308
-------- --------
$757,205 $619,211
======== ========
-3-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS, EXCEPT FOR PAR VALUES)
-------------------------------------
MARCH 31,
1995 1994
-------- ---------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 14,234 $ 10,507
Accrued expenses 23,924 25,552
Income taxes payable 19,491 16,164
-------- --------
Total current liabilities 57,649 52,223
-------- --------
Deferred income taxes 222 206
-------- --------
Commitments and contingencies
Shareholders' equity:
Series A junior participating preferred stock,
$1.00 par; shares authorized 1,000;
no shares issued or outstanding
Common stock $.10 par; shares authorized
250,000; issued 47,824 shares in 1995 and
46,276 shares in 1994 4,782 4,628
Capital in excess of par 296,925 266,233
Retained earnings 437,760 337,611
Cumulative foreign currency translation
adjustments 458 ( 3,817)
-------- --------
739,925 604,655
Less common stock in treasury, at cost
(2,643 shares in 1995 and 2,587 shares in 1994) 40,591 37,873
-------- --------
699,334 566,782
-------- --------
$757,205 $619,211
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-4-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MARCH 31,
------------------------------
1995 1994 1993
--------- -------- ---------
Net sales $393,359 $351,641 $285,364
Other income 11,470 9,680 11,070
-------- -------- --------
404,829 361,321 296,434
-------- -------- --------
Costs and expenses:
Cost of sales 75,794 64,150 53,629
Selling, general and administrative 140,879 143,695 118,108
Research and development 32,010 27,998 22,054
Interest 1,957
-------- -------- --------
248,683 235,843 195,748
-------- -------- --------
Income before income taxes 156,146 125,478 100,686
Income taxes 55,997 45,280 36,379
-------- -------- --------
Net income $100,149 $ 80,198 $ 64,307
======== ======== ========
Earnings per common and common
equivalent share:
Primary $2.15 $1.75 $1.42
===== ===== =====
Fully diluted $2.14 $1.72 $1.41
===== ===== =====
Weighted average number of common
and common equivalent shares outstanding:
Primary 46,682 45,957 45,432
====== ====== ======
Fully diluted 46,768 46,614 45,764
====== ====== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-5-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-----------------------------------------
(IN THOUSANDS)
Cumulative
foreign
Common stock Capital in currency Treasury stock
-------------------- excess of Retained translation --------------
Shares Amount par earnings adjustments Shares Amount
------ ------ ----------- -------- ----------- ----- ------
Balance, April 1, 1992 43,773 $4,377 $197,128 $193,106 $ 629 2,238 $22,171
Shares issued upon exercise of
stock options 1,742 174 19,949
Treasury stock acquired from employees
upon exercise of stock options 252 11,216
Tax benefit related to stock options
exercised by employees 36,180
Foreign currency translation adjustments ( 3,287)
Net income 64,307
------ ------ ------- ------- ------ ----- ------
Balance, March 31, 1993 45,515 4,551 253,257 257,413 ( 2,658) 2,490 33,387
------ ------ ------- ------- ------ ----- ------
Shares issued upon exercise of stock
options and warrants 761 77 11,091
Treasury stock acquired upon
exercise of stock options and warrants 97 4,486
Tax benefit related to stock options
exercised by employees 1,885
Foreign currency translation adjustments ( 1,159)
Net income 80,198
------ ------ ------- ------- ------ ----- ------
Balance, March 31, 1994 46,276 4,628 266,233 337,611 ( 3,817) 2,587 37,873
------ ------ ------- ------- ------ ----- -------
Shares issued for product acquisition 108 10 4,689
Shares issued upon exercise of stock
options 1,440 144 15,694
Treasury stock acquired from employees
upon exercise of stock options 56 2,718
Tax benefit related to stock options
exercised by employees 10,309
Foreign currency translation adjustments 4,275
Net income 100,149
------ ------ -------- -------- ------ ---- -------
Balance, March 31, 1995 47,824 $4,782 $296,925 $437,760 $ 458 2,643 $40,591
====== ====== ======== ======== ====== ===== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-6-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
------------
YEAR ENDED MARCH 31,
---------------------------------
1995 1994 1993
-------- -------- -------
Cash flows from operating activities:
Net income $100,149 $ 80,198 $ 64,307
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 3,954 3,763 3,868
Amortization 10,097 8,110 6,646
Deferred income tax benefit ( 5,157) ( 385) ( 13,797)
Foreign currency transaction
(gain) loss ( 53) ( 240) 108
Net change in operating assets
and liabilities:
Decrease (increase) in:
Accounts receivable, net ( 37,985) ( 20,705) ( 18,224)
Inventories ( 1,783) 1,041 ( 7,457)
Other current assets ( 1,568) 312 ( 872)
Increase (decrease) in:
Accounts payable 3,727 2,549 ( 864)
Accrued expenses ( 1,628) 4,361 3,087
Income taxes payable 3,327 4,168 6,048
Decrease (increase) in other
assets ( 6,779) 3,320 ( 5,280)
-------- ------- --------
Net cash provided by operating
activities 66,301 86,492 37,570
------- ------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment,
net ( 22,230) ( 27,070) ( 6,255)
Purchase of license agreements, product rights
and other intangibles ( 22,287) ( 30,464) ( 12,612)
Redemption (purchase) of marketable
securities ( 123,291) ( 27,895) 894
-------- -------- --------
Net cash used in investing
activities ( 167,808) ( 85,429) ( 17,973)
-------- -------- --------
-7-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
------------
YEAR ENDED MARCH 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from financing activities:
Net proceeds from common stock options
exercised by employees under stock
option plans and warrants 15,119 6,682 8,907
Tax benefit realized from the exercise
of stock options by employees 10,309 1,885 36,180
Repayment of debt ( 23,069)
-------- -------- --------
Net cash provided by
financing activities 25,428 8,567 22,018
-------- -------- --------
Effect of exchange rate changes on cash 2,596 ( 822) ( 2,806)
-------- -------- --------
Increase (decrease)in cash and cash
equivalents ( 73,483) 8,808 38,809
Cash and cash equivalents, beginning
of year 181,094 172,286 133,477
-------- -------- --------
Cash and cash equivalents, end of year $107,611 $181,094 $172,286
======== ======== ========
Supplemental disclosures of cash flow
information:
1995 1994 1993
------- ------- -------
Cash paid during the year for:
Interest $4,999
Income taxes $47,519 $39,612 7,967
------- ------- ------
Supplemental schedule of noncash
financing activities:
Issuance of common stock for the
purchase of license agreements,
product rights and other intangibles $2,700
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-8-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Forest Laboratories, Inc. (the "Company") and its subsidiaries,
all of which are wholly owned. All significant intercompany accounts and
transactions have been eliminated.
CASH EQUIVALENTS: Cash equivalents consist of short-term, highly liquid
investments (primarily municipal bonds with interest rates that are re-set
weekly) which are readily convertible into cash at par value (cost).
INVENTORIES: Inventories are stated at the lower of cost or market, with
cost determined on the first-in, first-out basis.
MARKETABLE SECURITIES: Effective April 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". At March 31, 1995, the Company's
investments in debt securities have been categorized as held to maturity and
are stated at amortized cost. Marketable securities consist of investments in
municipal bonds maturing through 1997 and bonds of the Commonwealth of Puerto
Rico maturing through 2000. In prior years, the Company's investments in debt
securities were accounted for using substantially the same method.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION: Property, plant and
equipment are stated at cost. Depreciation is provided over the estimated
useful lives of the assets primarily by the straight-line method.
INTANGIBLE ASSETS: The excess of cost of investment over the fair value of
net assets of subsidiaries at the time of acquisition is being amortized
over 35 to 40 years. The costs of obtaining license agreements, product
rights and other intangible assets are being amortized over the estimated
lives of the assets, 10 to 40 years.
REVENUE RECOGNITION: Sales are recorded in the period the merchandise is
shipped.
RESEARCH AND DEVELOPMENT: Expenditures for research and development are
charged to expense as incurred.
SAVINGS AND PROFIT SHARING PLAN: Effective April 1, 1994, the Company's
domestic and Puerto Rican subsidiaries savings and profit sharing plans were
merged into one plan. Under the plan, substantially all non-bargaining
unit employees may participate in the plan after becoming eligible (as
defined). The profit sharing plan contributions are primarily at the
discretion of the Company. The savings plan contributions include a
matching contribution made by the Company. Savings and profit sharing
contributions amounted to $3,320,000, $2,818,000 and $1,959,000 for 1995,
1994 and 1993, respectively.
-9-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE: Earnings per share are based on the weighted average
number of common and common equivalent shares outstanding during each year.
Common equivalent shares consist of the dilutive effect of unissued shares
under options and warrants, computed using the treasury stock method (using
the average stock prices for primary basis and the higher of average or
period end stock prices for fully diluted basis). At March 31, 1995, 1994
and 1993, the primary and fully diluted common equivalent shares amounted
to 2,206,000 and 2,287,000, 2,672,000 and 3,329,000, 3,346,000 and
3,678,000, respectively.
INCOME TAXES: The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", for the year ended
March 31, 1993 and, accordingly, has accounted for income taxes on the
liability method. Under the liability method, deferred income taxes are
provided on the differences in bases of assets and liabilities between
financial reporting and tax returns using enacted tax rates. Previously,
the Company utilized the deferred method when accounting for
income taxes. The effect of this accounting change had an immaterial impact
on the consolidated results of operations for the year ended March 31, 1993
and no cumulative effect adjustment was required as of April 1, 1992.
RECLASSIFICATIONS: Certain amounts as previously reported have been
reclassified to conform to current year classifications.
2. BUSINESS OPERATIONS:
The Company and its subsidiaries, which are located in the United States,
Puerto Rico, the United Kingdom and Ireland, manufacture and market ethical
and other pharmaceutical products. Information about the Company's sales
and profitability by different geographic areas for the years ended
March 31, 1995, 1994 and 1993 follows:
Domestic operations
----------------------
United
Exports, Kingdom
United principally and Ireland
1995 (IN THOUSANDS) States Europe operations Eliminations Consolidated
- ------------------- ------ ---------- ---------- ------------ ------------
Net sales to unaffiliated
customers $360,014 $2,455 $30,890 $393,359
Sales between geographic areas 1,416* $1,416
-------- ------ ------- ------ --------
Net sales $360,014 $3,871 $30,890 $1,416 $393,359
======== ====== ======= ====== ========
Operating profit $144,927 $1,457 $ 6,341 $ 448 $152,277
======== ====== ======= ======
Other income 11,470
Unallocated expenses ( 7,601)
--------
Income before income taxes $156,146
========
Identifiable assets $450,015 $32,079 $482,094
======== =======
Corporate assets 275,111
--------
Total assets $757,205
========
*AT NORMAL PROFIT MARGINS
10
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
2. BUSINESS OPERATIONS: (CONTINUED)
Domestic operations
-----------------------
United
Exports, Kingdom
United principally and Ireland
States Europe operations Eliminations Consolidated
--------- ----------- ----------- ------------ ------------
Net sales to unaffiliated
customers $320,108 $2,741 $28,792 $351,641
Sales between geographic areas 1,353* $1,353
-------- ------ ------- ------ --------
Net sales $320,108 $4,094 $28,792 $1,353 $351,641
======== ====== ======= ====== ========
Operating profit $115,506 $ 885 $ 6,277 $ 456 $122,212
======== ====== ======= ====== ========
Other income 9,680
Unallocated expenses ( 6,414)
--------
Income before income taxes $125,478
========
Identifiable assets $369,641 $26,474 $396,115
======== =======
Corporate assets 223,096
--------
Total assets $619,211
========
*AT NORMAL PROFIT MARGINS
Domestic operations
---------------------
United
Exports, Kingdom
United principally and Ireland
1993 (In thousands) States Europe operations Eliminations Consolidated
-------- ----------- ----------- ------------ ------------
Net sales to unaffiliated
customers $254,667 $2,065 $28,632 $285,364
Sales between geographic areas 993* $993
-------- ------ ------- ---- --------
Net sales $254,667 $3,058 $28,632 $993 $285,364
======== ====== ======= ==== ========
Operating profit $ 90,551 $1,353 $ 6,016 $470 $ 97,450
======== ====== ======= ====
Other income 11,070
Unallocated expenses ( 7,834)
--------
Income before income taxes $100,686
========
Identifiable assets $325,366 $15,731 $341,097
======== =======
Corporate assets 179,415
--------
Total assets $520,512
========
*AT NORMAL PROFIT MARGINS
The Company sells primarily in the United States and European markets.
Operating profit is net sales less operating expenses, and does not include
other income, unallocated expenses or income taxes.
One customer accounted for 11% of the Company's consolidated net sales for the
year ended March 31, 1995. No customer accounted for more than 10% of the
Company's consolidated net sales in the fiscal years ended March 31, 1994 and
March 31, 1993.
-11-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
3. INVENTORIES:
Inventories consist of the following:
March 31, (IN THOUSANDS) 1995 1994
------- -------
Raw materials $14,912 $13,250
Work in process 2,907 3,012
Finished goods 21,144 20,918
-------- -------
$38,963 $37,180
======= =======
4. MARKETABLE SECURITIES:
The contractual maturities of debt securities held to
maturity at March 31, 1995, regardless of their
balance sheet classification, consist of the following:
Amortized Fair
(IN THOUSANDS) cost value
---------- --------
Due in one year or less $ 34,570 $ 34,334
Due after one year but less than three years 134,674 131,753
Due after three years but less than ten years 2,000 2,105
-------- --------
$171,244 $168,192
======== ========
5. OTHER ASSETS:
License agreements, product rights and other intangible assets consist of the
following:
MARCH 31,
(IN THOUSANDS, EXCEPT FOR ESTIMATED LIVES
WHICH ARE STATED IN YEARS) Estimated
lives 1995 1994
- ------------------------------------------ --------- -------- ---------
License agreements 10-40 $ 75,071 $ 67,799
Product rights 10-14 33,738 16,028
Trade names 20-40 34,190 34,190
Goodwill 25-40 29,412 29,412
Non-compete agreements 10-13 22,987 22,987
Customer lists 10 3,506 3,506
Other 10-40 3,574 3,568
-------- -------
202,478 177,490
Less accumulated amortization ( 40,304) ( 30,833)
-------- --------
$162,174 $146,657
======== ========
6. ACCRUED EXPENSES:
Accrued expenses consist of the following:
MARCH 31, (IN THOUSANDS) 1995 1994
------- -------
Employee compensation and other benefits $ 7,320 $ 6,975
Clinical research 4,659 3,451
Customer discounts 3,478 4,045
Royalties 1,566 3,064
Other 6,901 8,017
------ ------
$23,924 $25,552
======= =======
-12-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
7. COMMITMENTS:
Leases: The Company leases manufacturing, office and warehouse facilities,
equipment and automobiles under operating leases expiring through 2010. Rent
expense approximated $4,869,000 for 1995, $4,215,000 for 1994 and $3,213,000
for 1993. Aggregate minimum rentals under noncancellable leases are as
follows:
YEAR ENDING MARCH 31, (IN THOUSANDS)
1996 $ 4,255
1997 4,121
1998 2,976
1999 2,424
2000 2,214
Thereafter 26,435
-------
$42,425
=======
ROYALTY OBLIGATIONS: In 1984 and 1986, the Company entered into agreements
for research and development (the "1984 Prutech Agreement" and "1986 Prutech
Agreement") with Prutech Research and Development Partnership ("Prutech").
In accordance with the provisions of these agreements, the Company granted
Prutech nonexclusive licenses to certain of the Company's controlled release
technologies for the purpose of developing certain products. Prutech
contracted with the Company to perform research necessary to develop the
products. In addition, Prutech granted the Company options (some of
which were exercised) to acquire exclusive manufacturing and marketing
rights to the products if they are successfully developed. Under the 1984
Prutech Agreement, the Company was paying to Prutech royalties of 12% on the
sales of certain of the products which amounted to $7,732,000 and $6,273,000
in 1994 and 1993, respectively. Effective April 1, 1994, the Company
purchased the product rights of certain products for $17,700,000 and
eliminated the royalty. The product rights are being amortized over a
period of 14 years representing the estimated useful life of this asset.
Under the 1986 Prutech Agreement, the Company will pay to Prutech an initial
royalty on sales of the products of 7%, decreasing to 2%, through
December 31, 1999. No royalties have been incurred under this agreement.
-13-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
8. SHAREHOLDERS' EQUITY:
PREFERRED STOCK PURCHASE RIGHTS: On September 30, 1994, the Company's Board
of Directors redeemed the then outstanding preferred stock purchase rights
distributed onFebruary 18, 1988 at the redemption price of $.001 per right.
Additonally, on September 30, 1994, the Company's Board of Directors declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of the Company's common stock, par value $.10 per share. Each Right will
entitle the holder to buy one one-hundredth of a share of authorized Series A
Junior Participating Preferred Stock, par value $1.00 per share ("Series A
Preferred Stock") at an exercise price of $250 per Right, subject to adjustment.
Prior to becoming exercisable, the Rights are evidenced by the certificates
representing the common stock and may not be traded apart from the common stock.
The Rights become exercisable on the tenth day after public announcements that a
person or group has acquired, or obtained the right to acquire, 20% or more of
the Company's outstanding common stock, or an announcement of a tender offer
that would result in a beneficial ownership by a person or group of 20%
or more of the Company's common stock.
If, after the Rights become exercisable, the Company is a party to certain
merger or business combination transactions, or transfers 50% or more of its
assets or earning power, or if an acquirer engages in certain self-dealing
transactions, each Right (except for those held by the acquirer) will entitle
its holder to buy a number of shares of the Company's Series A Preferred Stock
or, in certain circumstances, a number of shares of the acquiring company's
common stock, in either case having a value equal to two-and-one-half times the
exercise price of the Right. The Rights may be redeemed by the Company at any
time up to ten days after a person or group acquires 20% or more of the
Company's common stock at a redemption price of $.001 per Right. The Rights
will expire on September 30, 2004.
The Company has reserved 500,000 shares of Series A Preferred Stock for the
exercise of the Rights.
STOCK OPTIONS: The Company has various Employee Stock Option Plans whereby
options to purchase an aggregate of 7,500,000 shares of common stock have been
or remain to be issued to employees of the Company and its subsidiaries at
prices not less than the fair market value of the common stock at the date of
grant.
-14-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
8. SHAREHOLDER'S EQUITY: (CONTINUED)
Transactions under the stock option plans and individual non-qualified
options not under the plans are summarized as follows:
Non-
Stock qualified
option individual
plans options
--------- ----------
Shares under option at April 1, 1992
(at $6.59 to $39.69 per share) 4,945,162 1,678,498
Granted (at $32.25 to $42.81 per share) 741,100 8,000
Exercised (at $6.59 to $24.25 per share) (1,719,884) ( 21,800)
Cancelled ( 45,890)
--------- --------
Shares under option at March 31, 1993
(at $6.59 to $42.81 per share) 3,920,488 1,664,698
Granted (at $30.00 to $44.50 per share) 422,650 6,000
Exercised (at $9.91 to $42.81 per share) ( 349,165) ( 11,600)
Cancelled ( 67,055)
--------- ---------
Shares under option at March 31, 1994
(at $6.59 to $44.50 per share) 3,926,918 1,659,098
Granted (at $42.81 to $48.19 per share) 701,500 6,000
Exercised (at $6.59 to $44.50 per share) (1,108,142) ( 332,472)
Cancelled ( 107,625)
--------- ---------
Shares under option at March 31, 1995
(at $8.50 to $48.19 per share) 3,412,651 1,332,626
Options exercisable at March 31:
1993 2,452,168 1,612,498
1994 2,511,247 1,607,498
1995 2,094,341 1,286,626
At March 31, 1995 and 1994, 2,259,373 and 348,373 shares, respectively, were
available for grant.
In connection with the acquisition of product rights, the Company issued
280,000 warrants, which expire on July 7, 2004, at an exercise price equal to
the then fair market value of the Company's common stock.
-15-
FOREST LABORATORIES, INC.
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
9. CONTINGENCIES:
The Company is subject to product liability and other claims which management
does not believe will have a material effect on the Company.
The Company and certain of its officers are defendants in a putative class
action alleging certain misrepresentations in disclosures related to Micturin.
The Company is a nominal defendant in a putative derivative action against the
Company's directors arising from such disclosures and challenging the validity
of certain options granted to the director defendants. Management believes the
claims are without merit and intends to vigorously defend the actions.
The Company is a defendant in actions filed in various federal district courts
alleging certain violations of the Federal anti-trust laws in the marketing of
pharmaceutical products. In each case, the actions were filed against many
pharmaceutical manufacturers and suppliers and allege price discrimination and
conspiracy to fix prices in the sale of pharmaceutical products. The actions
were brought by various pharmacies (both individually and, with respect to
certain claims, as a class action) and seek injunctive relief and monetary
damages. The Judicial Panel on Multi-District Litigation has ordered these
actions coordinated (and, with respect to those actions brought as class
actions, consolidated) in the Federal District Court for the Northern District
of Illinois (Chicago) under the caption "In re Brand Name Prescription Drugs
Antitrust Litigation." Similar actions alleging price discrimination claims
under state law are pending against many pharmaceutical manufacturers, including
the Company, in state courts in California, Alabama, Washington, Wisconsin and
Minnesota The Company believes these actions are without merit and intends to
defend them vigorously.
10. OTHER INCOME:
Other income consists of the following:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1995 1994 1993
- ---------------------------------- ------- ------- -------
Interest and dividends $10,817 $ 7,077 $ 7,521
Commissions 1,342 3,245
Other 653 1,261 304
------- ------- -------
$11,470 $ 9,680 $11,070
======= ======= =======
11. INCOME TAXES:
The Company and its mainland U.S. subsidiaries file a consolidated federal
income tax return.
Income before income taxes includes income from foreign operations of
$7,238,000, $7,615,000 and $8,163,000 for the years ended March 31, 1995, 1994
and 1993, respectively.
The Company has tax holidays in Puerto Rico and Ireland which expire primarily
in 1997 and 2010, respectively. The net impact of these tax holidays was to
increase net income and net income per share (primary) by approximately
$2,794,000 and $.06 in 1995, $1,938,000 and $.04 in 1994 and $2,571,000 and
$.06 in 1993.
-16-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES: (CONTINUED)
The provision for income taxes consists of the following:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1995 1994 1993
- ----------------------------------- ------- -------- --------
Current:
U.S. federal $40,617 $36,845 $ 7,810
State and local 7,729 4,909 3,575
Foreign 2,499 2,026 2,611
------- ------- -------
50,845 43,780 13,996
------- ------- -------
Deferred:
Domestic ( 4,964) ( 382) ( 13,677)
Foreign ( 193) ( 3) ( 120)
------- -------- -------
( 5,157) ( 385) ( 13,797)
------- ------- -------
Charge in lieu of income taxes,
relating to the tax effect of
stock option tax deduction 10,309 1,885 36,180
------- ------- -------
$55,997 $45,280 $36,379
======= ======= =======
No provision has been made for income taxes on the undistributed earnings of
the Company's foreign subsidiaries of approximately $40,858,000 at March 31,
1995, as the Company intends to indefinitely reinvest such earnings.
The reasons for the difference between the provision for income taxes and
expected federal income taxes at statutory rates are as follows:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1995 1994 1993
- ----------------------------------- ------- ------- -------
Expected federal income taxes $54,651 $43,917 $34,233
State and local income taxes, less
federal income tax benefit 5,876 3,274 3,745
Net benefit of tax-exempt earnings ( 3,234) ( 2,582) ( 2,712)
Tax effect of permanent differences ( 2,117) 631 838
Other 821 40 275
------- ------- -------
$55,997 $45,280 $36,379
======= ======= =======
-17-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
11. INCOME TAXES (CONTINUED)
Net deferred income taxes consist of the following:
March 31, (IN THOUSANDS): 1995 1994
------ -------
Inventory valuation $1,370 $ 992
Receivable reserves and other allowances 8,493 6,848
State and local net operating loss
carryforwards 5,008 3,724
Depreciation ( 1,521) ( 1,523)
Amortization 4,009 3,353
Tax credits and other carryforwards 514 226
Accrued liabilities 1,889 1,162
Other 1,148 971
------- -------
$20,910 $15,753
======= =======
12. QUARTERLY FINANCIAL DATA (unaudited):
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Primary
earnings
1995 Net sales Gross profit Net income per share
- ---- --------- ------------ ---------- ---------
First quarter $92,554 $75,246 $22,144 $.48
Second quarter 95,776 77,559 24,565 .53
Third quarter 107,280 86,545 25,720 .55
Fourth quarter 97,749 78,215 27,720 .59
1994
- ----
First quarter $79,251 $65,174 $17,544 $.39
Second quarter 82,814 67,375 19,547 .43
Third quarter 96,996 79,425 20,809 .45
Fourth quarter 92,580 75,517 22,298 .48
Fully diluted earnings per share are not presented, as the results obtained are
substantially the same as primary earnings per share.
-18-
PAGE
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- ---------------------------------------------------
Forest Laboratories Inc.
New York, New York
We hereby consent to the incorporation by reference in the Registration
Statements of Forest Laboratories, Inc. on Form S-8, filed with the Securities
and Exchange Commission on November 13, 1990 and October 28, 1994 and on
Forms S-3, filed with the Securities and Exchange Commission on
November 30, 1993 and August 8, 1994, of our reports dated April 28, 1995,
on the consolidated financial statements and schedule of Forest
Laboratories Inc. and Subsidiaries, included or incorporated by reference in
the Forest Laboratories, Inc. Annual Report on Form 10-K for the year ended
March 31, 1995.
BDO Seidman
New York, New York
June 26, 1995