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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
--
/ 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, 1996
--
/ / 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.
-- --
YES / X / NO / /
-- --
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
--
Form 10-K / X /.
--
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 21, 1996 is
$1,854,228,554.
Number of shares outstanding of registrant's Common Stock as of
June 21, 1996: 44,513,307.
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 1996 Annual
Meeting of Stockholders of registrant.
Portions of the registrant's Annual Report to Stockholders
for the fiscal year ended March 31, 1996.
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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
SHARE REPURCHASE PROGRAM: In May 1996, Forest commenced
a share repurchase program pursuant to which Forest may purchase
up to 4,500,000 shares of Forest's Common Stock (approximately
10% of the shares outstanding) at prices prevailing from time to
time. As of June 21, 1996, Forest has purchased 1,041,800 shares
pursuant to this program. No date for completing the share
repurchase program has been established.
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CITALOPRAM: In March 1996, Forest acquired an exclusive
license to market Citalopram in the United States. Citalopram is
a selective serotonin reuptake inhibitor used for the treatment
of depression. Citalopram is currently marketed in most European
countries and is the leading antidepressant in several European
markets. Forest anticipates filing a New Drug Application (an
"NDA") with the United States Food and Drug Administration
("FDA"), which will include two pivotal clinical studies already
completed in the United States, together with an extensive
European data base, within one year.
TIAZAC-R- : On November 1, 1995, Forest completed the
acquisition from Biovail Corporation International ("BCI") of an
exclusive license to market Tiazac, a once daily formulation of
diltiazem in the United States. Tiazac is a long-acting calcium
channel blocker used for the treatment of hypertension. Tiazac
was commercially launched by Forest in February 1996 and competes
with the once daily diltiazem products Cardizem CD-R- distributed
by Hoechst Marion Roussel and Dilacor-R- XR distributed by Rhone-
Poulenc Rorer, as well as other treatments for hypertension. The
aggregate consideration paid by Forest for the acquisition (which
included the acquisition through a tender offer of a 22% equity
interest in BCI) was approximately $95.6 million. Pursuant to
supply arrangements completed together with the acquisition, BCI
has agreed to supply Forest's requirements of Tiazac and Forest
has agreed to pay BCI certain on-going royalties based upon
Forest's net sales of the product.
In May 1996, Forest sold its common equity interest in
BCI to four institutional investors in a privately negotiated
transaction for an aggregate consideration, net of related costs,
of $102,500,000. The sale did not affect any of Forest's rights
to Tiazac.
CLIMARA-R- CO-PROMOTION: On September 8, 1996, Forest
acquired co-promotion rights in the United States to the Climara
estrodiol transdermal system, a seven day estrogen patch
developed and marketed by Berlex Laboratories, Inc. Climara is
the only patch product for estrogen replacement therapy currently
approved by the FDA for once weekly administration. Forest is
marketing this product to primary care physicians, as well as to
female healthcare specialists.
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CERVIDIL: On March 30, 1995, the FDA approved an 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.
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- .
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.
In July 1995, an advisory committee of the FDA voted
against recommending approval of the Monurol NDA principally
because the committee felt that there was insufficient efficacy
data in the NDA. Forest subsequently submitted additional
efficacy data based upon an additional clinical study and has met
with representatives of the FDA to review such additional data.
Forest believes the additional data presented will adequately
address the comments of the FDA advisory committee.
INFASURF: In June 1991, the Company entered into a
licensing agreement with ONY, Inc. ("ONY") 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.
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 that data it has
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and will submit to the FDA will demonstrate that Infasurf is not
covered by the Orphan Drug Act. 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. In March 1996,
the Company and ONY commenced an action against Abbott
Laboratories in the Federal District Court for the Western
District of New York seeking a declaration that Infasurf does not
infringe the Survanta patents and that the Survanta patents are
invalid.
NEW SCIENTIFIC AFFAIRS OFFICER: On October 24, 1995,
Dr. Lawrence S. Olanoff was appointed as Forest's new Vice
President - Scientific Affairs. In such capacity, Dr. Olanoff
serves as Forest's senior executive officer overseeing medical
and scientific affairs. Dr. Olanoff formerly served as Senior
Vice President, Clinical Research and Development of Sandoz
Pharmaceutical Corporation and Corporate Vice President, Clinical
Development and Medical Affairs of The Upjohn Company.
PRINCIPLE 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 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, the Climara estrodiol transdermal system, and Tiazac,
Forest's recently launched once daily diltiazem for the treatment
of hypertension (See "Recent Developments").
Aerobid is a metered dose inhaled steroid used in the
treatment of asthma. Sales of Aerobid accounted for 33.0% of
Forest's sales for the fiscal year ended March 31, 1996 as
compared to 24.2% and 21.3% for the fiscal years ended March 31,
1995 and 1994, respectively. Aerochamber is a spacer device
used to improve the delivery of aerosol administered products,
including Aerobid.
ESGIC and ESGIC Plus are combination analgesic/sedatives
for the relief of tension headaches, while Lorcet is a line of
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potent analgesics. Lorcet sales accounted for 15.9% of sales for
the fiscal year ended March 31, 1996, as compared to 17.0% and
11.2% of sales for the fiscal years ended March 31, 1995 and
1994, respectively. Tessalon is a solid dose non-narcotic cough
suppressant.
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 did not account for more than 10% of Forest's sales
for the fiscal year ended March 31, 1996, and accounted for 16.0%
and 14.3% for the fiscal years ended March 31, 1995 and 1994,
respectively.
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-R-, a topical preparation for the treatment of
diaper rash, Colomycin-R- , an antibiotic used in the treatment of
Cystic Fibrosis and Suscard-R- and Sustac-R- , 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 638
persons, which details products directly to physicians,
pharmacies and managed care organizations. Forest's salesforce
was increased by approximately 40% during the fiscal year ended
March 31, 1996 in connection with the launch of Tiazac and the
acquisition of co-promotion rights to Climara. In the United
Kingdom, the Company's Pharmax subsidiary's salesforce, currently
40 persons, markets its products directly. Forest's products are
sold elsewhere through independent distributors.
In August, 1995, the Company entered into a co-promotion
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agreement with The Proctor & Gamble Company ("P&G") pursuant to
which the salesforce of P&G will promote Lorcet 10/650 and Lorcet
Plus to dental professionals. 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 promotes Forest's Flumadine-R- and Lorcet 10/650
products.
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
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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
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.
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,
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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; however, the debate as to reform of the health care
system is expected to be protracted and the Company cannot
predict the outcome or effect on the marketing of prescription
drug products of the legislative process.
PRINCIPLE CUSTOMERS
McKesson Drug Company, a national drug wholesaler,
accounted for 12% of Forest's consolidated net sales for the year
ended March 31, 1996 and 11% of 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 year ended
March 31, 1994.
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
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against Forest in the future would be covered by Forest's present
insurance.
RESEARCH AND DEVELOPMENT
During the year ended March 31, 1996, Forest spent
$34,197,000 for research and development, as compared to
$32,010,000 and $27,998,000 in the fiscal years ended March 31,
1995 and 1994, 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.
EMPLOYEES
At March 31, 1996, Forest had a total of 1,612
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, Tiazac, Cervidil,
Monurol, Synapton-TM- (the Company's sustained release
cholinesterase inhibitor being developed for the amelioration of
the symptoms of Alzheimer's Disease), 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.
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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 a 150,000 square foot building on 29 acres
in Commack, New York. This facility is used for packaging,
warehousing and administration. In addition, Forest owns six
buildings and leases three buildings in and around Inwood, Long
Island, New York, containing a total of approximately 145,000
square feet. The buildings are used for manufacturing, research
and development, warehousing and administration.
Forest Pharmaceuticals, Inc. ("FPI"), a wholly owned
subsidiary of the Company, owns two facilities in Cincinnati,
Ohio aggregating approximately 108,000 square feet. In St.
Louis, Missouri, FPI owns facilities of 22,000 square feet and
87,000 square feet and leases a facility of 63,000 square feet.
These facilities are used for manufacturing, warehousing and
administration.
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
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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, 1996 aggregated approximately $2,535,000 and for the
fiscal year ended March 31, 1995 aggregated approximately
$2,220,000.
ITEM 3. LEGAL PROCEEDINGS
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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." On April 4, 1996,
motions for summary judgment filed by the manufacturer defendants
(including the Company) with respect to conspiracy claims alleged
in those actions were denied by the Court. In addition, the
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Court refused to approve a settlement agreement entered into by
15 of the manufacturer defendants (but not the Company) which
provided for aggregate payments of approximately $400 million but
which did not require any changes in the manufacturers' pricing
practices. A revised settlement entered into by 13 of the
manufacturer defendants (but not the Company) which contains
certain commitments with respect to pricing practices has been
reached and received court approval on June 21, 1996.
Proceedings in this action have been stayed pending the
interlocutory appeal to the Court of Appeals for the Seventh
Circuit of certain rulings of the trial court.
Similar actions alleging price discrimination and
conspiracy claims under state law are pending against many
pharmaceutical manufacturers, including the Company, in nine
state courts and the District of Columbia. Such actions include
actions purported to be brought on behalf of consumers, as well
as those brought by retail pharmacists.
While the Company believes these actions are without
merit, there can be no assurance that these cases will not result
in the payment of damages or the entering into of injunctive
relief which could have an adverse effect upon the Company's
marketing or pricing policies.
In March 1996, the Company was informed that the Federal
Trade Commission has begun an investigation of the existence of
concerted action among 22 pharmaceutical manufacturers, including
the Company, with respect to pricing practices. The Company
believes that no such concerted activity has taken place
involving the Company and intends to cooperate with the FTC's
investigation.
See "Item 1, Business, Recent Developments" for a
description of an action commenced by the Company against Abbott
Laboratories seeking a declaration that Infasurf does not
infringe certain patent rights of Abbott.
The Company is not subject to any other material pending
legal proceedings, other than ordinary routine claims incidental
to its business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE
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OF SECURITY HOLDERS
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Not Applicable.
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
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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.
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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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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 1996
Annual Meeting of Stockholders.
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PART IV
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, 1996 and 1995
Consolidated statements of income -
years ended March 31, 1996, 1995 and 1994
Consolidated statements of shareholders'
equity -
years ended March 31, 1996, 1995 and 1994
Consolidated statements of cash flows -
years ended March 31, 1996, 1995 and 1994
Notes to consolidated financial statements
2. Financial statement schedules. The following
consolidated financial statement schedule of
Forest Laboratories, Inc. and Subsidiaries is
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
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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,
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").
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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. Incorporated by
reference to Forest's Annual Report on
Form 10-K for the Fiscal Year ended
March 31, 1995.
10.7 Option Agreement dated December 10, 1990
between Forest and Howard Solomon.
Incorporated by reference to Forest's
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.
-20-
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
September 30, 1994 by and between Forest
and Howard Solomon. Incorporated by
reference to Forest's Annual Report on
Form 10-K for the fiscal year ended March
31, 1995 (the "1995 10-K").
10.15 Employment Agreement dated as of
September 30, 1994 by and between Forest
and Philip M. Satow. Incorporated by
reference to the 1995 10-K.
10.16 Employment Agreement dated as of
September 30, 1994 by and between Forest
and Kenneth E. Goodman. Incorporated by
reference to the 1995 10-K.
10.17 Employment Agreement dated as of October
24, 1995 by and between Forest and Dr.
Lawrence S. Olanoff.
13 Portions of the Registrant's Annual
Report to Stockholders.
22 List of Subsidiaries. Incorporated by
reference to Exhibit 22 to the 1988
10-K.
23 Consent of BDO Seidman, L.L.P.
27 Financial Data Schedule.
-21-
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 26, 1996
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 26, 1996
------------------------- Executive Officer
Howard Solomon and Director
PRINCIPAL FINANCIAL
-------------------
AND ACCOUNTING OFFICER:
----------------------
/s/ Kenneth E. Goodman Vice President, June 26, 1996
- ----------------------- Finance
Kenneth E. Goodman
-22-
DIRECTORS
/s/ George S. Cohan Director June 26, 1996
- ------------------------
George S. Cohan
/s/William J. Candee, III Director June 26, 1996
- --------------------------
William J. Candee, III
/s/ Dan L. Goldwasser Director June 26, 1996
-------------------------
Dan L. Goldwasser
/s/Joseph M. Schor Director June 26, 1996
------------------------
Joseph Martin Schor
-23-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------
Board of Directors and Shareholders
Forest Laboratories, Inc.
The audits referred to in our report dated May 3, 1996, except for Note 14
which is as of May 22, 1996, relating to the consolidated financial statements
of Forest Laboratories, Inc. and Subsidiaries, which is referred to in Item 8 of
this Form 10-K, include 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, LLP
New York, New York
May 3, 1996
-S1-
SCHEDULE II
FOREST LABORATORIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
============================================================================================================================
Column A Column B | Column C | Column D | Column E
- --------------------------------------|-----------------------------------------------|-----------------|-------------------
| | |
| Additions | |
| | | |
| | | |
Balance at | (1) | (2) | | Balance at
beginning | Charged to costs | Charged to other | Deductions-- | end of
Description of period | and expenses | accounts-describe(A) | describe(B) | period
- --------------------------------------|------------------|----------------------------|-----------------|------------------------
| | | |
| | | |
Year ended March 31, 1996: | | | |
Allowance for doubtful | | | |
accounts $5,016,000 | $514,000 | ($134,000) | $ 87,000 | $5,309,000
========== | ======== | ======== | ======== | ==========
| | | |
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
========== | ======== | ======== | ======== | ==========
(A) Includes allowances for medicaid rebates and cash discounts
(B) Includes adjustments for wholesale chargebacks and bad debt write-offs.
S-2
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a Delaware
corporation (the "Company") and LAWRENCE S. OLANOFF (the "Executive"), dated
as of the 24th day of October 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 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
2
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
3
Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of 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
4
for the whole of such fiscal 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
5
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.
(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
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
6
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 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
7
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 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.
8
(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) 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
9
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 ofTermination 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 hereinafter referred to as
the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
10
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
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
11
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
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
12
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:
-------------------
Lawrence S. Olanoff, M.D., Ph.D.
9 Rippling Brook Way
Randolph, NJ 07869
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.
15
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/ LAWRENCE S. OLANOFF, M.D., Ph.D.
---------------------------------------
LAWRENCE S. OLANOFF, M.D., Ph.D.
FOREST LABORATORIES, INC.
By:
/s/ KENNETH E. GOODMAN
---------------------------------------
KENNETH E. GOODMAN
VICE PRESIDENT-FINANCE
16
EXHIBIT 13
QUARTERLY STOCK MARKET PRICES
- -----------------------------
High Low
---- ---
April - June 1994 49 40
_________________________________________________________________________
July-September 1994 50 40 l/2
_________________________________________________________________________
October-December 1994 49 1/2 44 7/8
_________________________________________________________________________
January - March 1995 52 1/4 43 1/8
_________________________________________________________________________
April - June 1995 48 1/8 41 1/8
_________________________________________________________________________
July - September 1995 48 3/8 41
_________________________________________________________________________
October - December 1995 45 7/8 40 3/8
_________________________________________________________________________
January - March 1996 55 3/4 45
_________________________________________________________________________
As of June 5, 1996, there were 2,745 stockholders of record of the Company's
common stock.
SELECTED FINANCIAL DATA
- -----------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- --------
March 31, (In thousands)
Financial Position:
Current Assets $470,612 $348,969 $345,929 $314,636 $243,874
Current Liabilities 89,571 57,649 52,223 41,145 55,943
Net Current Assets 381,041 291,320 293,706 273,491 187,931
Total Assets 899,361 757,205 619,211 520,512 431,080
Long-Term Debt and Deferred
Income Taxes 273 222 206 191 2,068
Total Shareholders' Equity 809,517 699,334 566,782 479,176 373,069
Year Ended March 31, (In thousands,
except per share data) 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Summary of Operations:
Net Sales $446,883 $393,359 $351,641 $285,364 $239,193
Other Income 14,919 11,470 9,680 11,070 9,244
Costs and Expenses 299,427 248,683 235,843 195,748 170,932
Income Before Income Taxes 162,375 156,146 125,478 100,686 77,505
Income Taxes 58,130 55,997 45,280 36,379 27,936
Net Income 104,245 100,149 80,198 64,307 49,569
Net Income Per Share:
Primary $2.22 $2.15 $1.75 $1.42 $1.13
Fully Diluted $2.20 $2.14 $1.72 $1.41 $1.13
Weighted Average Number of
Common and Common
Equivalent Shares
Outstanding (Note A):
Primary 47,053 46,682 45,957 45,432 43,992
Fully Diluted 47,289 46,768 46,614 45,764 44,044
No dividends were paid on common shares during the period.
PAGE
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.
Common equivalent shares consist of unissued shares under options and warrants,
and are included to the extent that they have a dilutive effect. Fully
diluted 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 1996 was
computed as follows:
Primary Fully Diluted
------- -------------
Weighted average number of shares outstanding 45,181 45,181
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 1,872 2,108
------ ------
Weighted average number of common and common
equivalent shares outstanding 47,053 47,289
====== ======
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
-----------------------------------------
-1-
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, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended March 31,
1996. 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, 1996 and
1995, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 1996 in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
May 3, 1996
except for note 14
which is as of
May 22, 1996
-2-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
--------------
MARCH 31,
-----------------------
1996 1995
-------- --------
ASSETS
- ------
Current assets:
Cash (including cash equivalent investments of $ 83,543 $107,611
$78,818 in 1996 and $103,847 in 1995)
Marketable securities 40,164 33,512
Accounts receivable, less allowance for
possible losses of $5,309 in 1996 and
$5,016 in 1995 254,708 149,655
Inventories 58,949 38,963
Deferred income taxes 20,411 12,789
Other current assets 12,837 6,439
-------- --------
Total current assets 470,612 348,969
-------- --------
Marketable securities 22,170 136,674
-------- --------
Property, plant and equipment:
Land and buildings 61,160 60,312
Machinery and equipment 37,027 28,059
Vehicles and other 7,977 8,408
-------- --------
106,164 96,779
Less accumulated depreciation 26,807 23,751
-------- -------
79,357 73,028
-------- -------
Other assets:
Investment in unconsolidated affiliate 75,902
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $6,866 in 1996 and $6,240
in 1995 18,093 18,719
License agreements, product rights and other
intangible assets, net 216,078 162,174
Deferred income taxes 7,398 8,343
Other 9,751 9,298
-------- --------
327,222 198,534
-------- --------
$899,361 $757,205
======== ========
-3-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS, EXCEPT FOR PAR VALUES)
MARCH 31,
-----------------------
1996 1995
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 13,994 $ 14,234
Accrued expenses 50,332 23,924
Income taxes payable 25,245 19,491
-------- --------
Total current liabilities 89,571 57,649
-------- --------
Deferred income taxes 273 222
-------- --------
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 48,133 shares in 1996 and
47,824 shares in 1995 4,813 4,782
Capital in excess of par 306,635 296,925
Retained earnings 542,005 437,760
Other ( 2,985) 458
-------- --------
850,468 739,925
Less common stock in treasury, at cost
(2,650 shares in 1996 and 2,643 shares in 1995) 40,951 40,591
-------- --------
809,517 699,334
-------- --------
$899,361 $757,205
======== ========
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,
-----------------------------
1996 1995 1994
-------- -------- --------
Net sales $446,883 $393,359 $351,641
Other income 14,919 11,470 9,680
-------- -------- --------
461,802 404,829 361,321
-------- -------- --------
Costs and expenses:
Cost of sales 90,485 75,794 64,150
Selling, general and administrative 174,745 140,879 143,695
Research and development 34,197 32,010 27,998
-------- -------- --------
299,427 248,683 235,843
-------- -------- --------
Income before income taxes 162,375 156,146 125,478
Income taxes 58,130 55,997 45,280
-------- -------- --------
Net income $104,245 $100,149 $ 80,198
======== ======== ========
Earnings per common and common
equivalent share:
Primary $2.22 $2.15 $1.75
===== ===== =====
Fully diluted $2.20 $2.14 $1.72
===== ===== =====
Weighted average number of common
and common equivalent shares outstanding:
Primary 47,053 46,682 45,957
====== ====== ======
Fully diluted 47,289 46,768 46,614
====== ====== ======
See accompanying notes to consolidated financial statements.
-5-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
-----------------------------------------
(IN THOUSANDS)
Common stock Capital in Treasury stock
-------------------- excess of Retained ----------------
Shares Amount par earnings Other Shares Amount
------ ------ --------- -------- ------ ------ ------
Balance, April 1, 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
Other ( 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
Other 4,275
Net income 100,149
------- ------- -------- -------- -------- ----- ------
Balance, March 31, 1995 47,824 4,782 296,925 437,760 458 2,643 40,591
Shares issued upon exercise of
stock options 309 31 8,385
Treasury stock acquired from
employees upon exercise of
stock options 7 360
Tax benefit related to stock options exercised
by employees 1,325
Other ( 3,443)
Net income 104,245
------- ------- -------- -------- ------- ----- -------
Balance, March 31, 1996 48,133 $4,813 $306,635 $542,005 ($2,985) 2,650 $40,951
======= ======= ======== ======== ====== ===== =======
See accompanying notes to consolidated financial statements.
-6-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
YEAR ENDED MARCH 31,
----------------------------------
1996 1995 1994
--------- --------- ---------
Cash flows from operating activities:
Net income $104,245 $100,149 $ 80,198
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 4,634 3,954 3,763
Amortization 11,885 10,097 8,110
Deferred income tax benefit ( 6,624) ( 5,157) ( 385)
Foreign currency translation
(gain) loss 329 ( 53) ( 240)
Equity in income of unconsolidated
affiliate ( 261)
Net change in operating assets
and liabilities:
Decrease (increase) in:
Accounts receivable, net ( 105,053) ( 37,985) ( 20,705)
Inventories ( 19,986) ( 1,783) 1,041
Other current assets ( 6,398) ( 2,626) 312
Increase (decrease) in:
Accounts payable ( 240) 3,727 2,549
Accrued expenses 6,408 ( 1,628) 4,361
Income taxes payable 5,754 3,327 4,168
Decrease (increase) in other
assets ( 455) ( 6,779) 3,320
-------- -------- ------
Net cash provided by (used in)
operating activities ( 5,762) 65,243 86,492
-------- -------- ------
Cash flows from investing activities:
Purchase of property, plant and
equipment, net ( 11,645) ( 22,230) ( 27,070)
Purchase of investment in unconsolidated
affiliate ( 76,328)
Purchase of license agreements,
product rights and other intangibles ( 44,476) ( 22,287) ( 30,464)
Purchase of marketable securities:
Available-for-sale ( 64,529)
Held-to-maturity ( 131,110) ( 43,541)
Redemption of marketable securities:
Available-for-sale 166,432
Held-to-maturity
4,504 8,877 15,646
------- -------- --------
Net cash used in investing
activities ( 26,042) ( 166,750) ( 85,429)
-------- -------- --------
-7-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In Thousands)
YEAR ENDED MARCH 31,
-------------------------------
1996 1995 1994
------- ------- -------
Cash flows from financing activities:
Net proceeds from common stock options
exercised by employees under stock
option plans and warrants 8,056 15,119 6,682
Tax benefit realized from the exercise
of stock options by employees 1,325 10,309 1,885
------- -------- --------
Net cash provided by
financing activities 9,381 25,428 8,567
------- -------- --------
Effect of exchange rate changes on cash ( 1,645) 2,596 ( 822)
Increase (decrease)in cash and cash -------- -------- --------
equivalents ( 24,068) ( 73,483) 8,808
Cash and cash equivalents, beginning
of year 107,611 181,094 172,286
-------- -------- --------
Cash and cash equivalents, end of year $ 83,543 $107,611 $181,094
======== ======== ========
Supplemental disclosures of cash flow
information:
1996 1995 1994
------- ------- -------
Cash paid during the year for:
Income taxes $57,675 $47,519 $39,612
------- ------- -------
Supplemental schedule of noncash investing
and financing activities:
Accrued license fee $20,000
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 wholly owned
subsidiaries. The Company accounts for investments in unconsolidated
affiliates which are 50% or less owned under the equity method. 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. Due to certain changes in management's
investment philosophy during 1996, the Company has transferred substantially
all of its investments in securities from held-to-maturity to the
available-for-sale category and are accordingly stated at fair value.
The effect of this change was immaterial. Marketable securities consist of
investments in municipal bonds maturing through 1997 and bonds of the
Commonwealth of Puerto Rico maturing through 2002.
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 eing amortized over the estimated lives of the
assets, 10 to 40 years.
EVENUE RECOGNITION: Sales are recorded in the period the merchandise is
shipped. Provisions for estimated sales allowances, returns and losses are
accrued at the time revenues are recognized.
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
$3,145,000, $3,320,000 and $2,818,000 for 1996, 1995 and 1994, 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, 1996, 1995
and 1994, the primary and fully diluted common equivalent shares amounted to
1,872,000 and 2,108,000, 2,206,000 and 2,287,000, 2,672,000 and 3,329,000,
respectively.
INCOME TAXES: The Company accounts 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.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company reviews all significant estimates
affecting the financial statements on a recurring basis and records the effect
of any adjustments when necessary.
LONG-LIVED ASSETS: Long-lived assets, such as goodwill, intangible assets and
property and equipment, are evaluated for impairment when events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use
of these assets. When any such impairment exists, the related assets will be
written down to fair value. This policy is in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"which is
effective for fiscal years beginning after December 15, 1995. No impairment
losses have been necessary through March 31, 1996.
STOCK BASED COMPENSATION: In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS" No. 123). SFAS No. 123 requires entities
which have arrangements under which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of its stock to either record the fair
value of the arrangements or disclose the proforma effects of the fair value of
the arrangements. The Company will adopt the disclosure method of SFAS
No. 123. The adoption of this method will not effect the Company's financial
position, operating results or cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of cash, accounts
receivable, accounts payable, accrued expenses and income taxes payable are
reasonable estimates of their fair value because of the short maturity of these
items.
RECLASSIFICATIONS: Certain amounts as previously reported have been
reclassified to conform to current year classifications.
-10-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
2. ACQUISITIONS:
(a) Biovail Corporation International: On November 1, 1995, the Company
purchased approximately 22% of the total outstanding common shares of stock
of Biovail Corporation International ("BCI") for $76,328,000. This
investment is accounted for under the equity method of accounting. The
purchase price exceeds the Company's share of BCI's underlying book value
by $68,689,000 which is accounted for as goodwill. The goodwill is
amortized, using the straight-line method, over 25 years and charged against
the equity in income of BCI. The Company is recording its share of BCI's
equity in income, as of BCI's year end of December 31. At March 31, 1996,
accumulated amortization of this goodwill amounted to $687,000. The quoted
market value at March 31, 1996, of the Company's investment in BCI was
$153,225,000. This investment was sold subsequent to year-end (see
Note 14.)
(b) Product licenses: i. On November 1, 1995, the Company purchased an
exclusive product license from Biovail Laboratories, Inc., a wholly owned
subsidiary of BCI, for $20,000,000. The exclusive license is for Tiazac,
a once daily formulation of diltiazem and provides that the Company purchase
this product from BCI. The cost of the acquisition is included in license
agreements, product rights and other intangible assets and is being
amortized, using the straight-line method, over the estimated life of the
product of 25 years.
ii. On September 8, 1995, the Company entered into a Development and
Co-Promotion Agreement with Berlex Laboratories, Inc. to co-promote
Climara, a seven day estrogen patch. The Company paid $24,500,000 upon
execution of the Agreement and has made a provision for an additional
$20,000,000 which will be paid in the first quarter of fiscal 1997. The
cost of the product rights and other intangible assets is being amortized,
using the straight-line method, over the estimated life of the product of
20 years. In connection with the Agreement, the Company will receive a
co-promotion fee equal to 50% of co-promotion income.
-11-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
3. 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, 1996, 1995 and 1994 follows:
Domestic operations
-----------------------
United
Exports, Kingdom
United principally and Ireland
1996 (IN THOUSANDS) States Europe operations Eliminations Consolidated
- ------------------ ------ ----------- ----------- ------------ ------------
Net sales to unaffiliated
customers $413,794 $2,591 $30,498 $446,883
Sales between geographic
areas 1,232* $1,232
-------- ------ ------ ------ --------
Net sales $413,794 $3,823 $30,498 $1,232 $446,883
======== ====== ======= ====== ========
Operating profit $152,494 $1,435 $ 2,755 $ 448 $156,236
======== ====== ======= ======
Other income 14,919
Unallocated expenses ( 8,780)
--------
Income before income taxes $162,375
========
Identifiable assets $650,339 $31,772 682,111
======== =======
Corporate assets 217,250
--------
Total assets $899,361
========
*At normal profit margins
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
-12-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
3. BUSINESS OPERATIONS: (CONTINUED)
Domestic operations
------------------------------------
United
Exports, Kingdom
United principally and Ireland
1994 (IN THOUSANDS) 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
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 12% and 11% of the Company's consolidated net
sales for the years ended March 31, 1996 and 1995, respectively. No customer
accounted for more than 10% of the Company's consolidated net sales in the
fiscal year ended March 31, 1994.
4. INVENTORIES:
Inventories consist of the following:
March 31, (In thousands) 1996 1995
------- -------
Raw materials $19,500 $14,912
Work in process 2,638 2,907
Finished goods 36,811 21,144
------- -------
$58,949 $38,963
======= =======
-13-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
5. MARKETABLE SECURITIES:
The composition of the investment portfolio at March 31, was:
Gross Gross
unrealized unrealized Market
Cost gains losses value
-------- ---------- ---------- ------
1996
- ----
Available-for-sale:
- ------------------
State and local obligations $ 57,568 $ 38 ($1,483) $ 56,123
Held-to-maturity:
- ----------------
Foreign government obligations 4,211 154 4,365
Corporate debt securities 2,000 83 2,083
-------- ---- ------ -------
6,211 237 6,448
-------- ---- ------ -------
$ 63,779 $275 ($1,483) $ 62,571
======== ==== ====== ========
1995
- ----
Held-to-maturity:
- ----------------
State and local obligations $159,471 $131 ($3,628) $155,974
Foreign government obligations 8,715 340 9,055
Corporate debt securities 2,000 105 2,105
-------- ---- ------ --------
$170,186 $236 ($3,288) $167,134
======== ==== ====== ========
The contractual maturities of debt securities at March 31, 1996 regardless of
their balance sheet classification, consist of the following:
Amortized Fair
cost value
--------- -------
Available-for-sale:
- ------------------
Less than one year $39,452 $38,164
One to three years 18,116 17,959
------- -------
57,568 56,123
Held-to-maturity:
- ----------------
Less than one year 2,000 2,015
One to three years 2,211 2,350
Three to ten years 2,000 2,083
------- -------
6,211 6,448
------- -------
$63,779 $62,571
======= =======
The net unrealized holding loss at March 31, 1996 of $1,445 from available-
for-sale securities is included in Shareholders' equity: Other.
-14-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
6. 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 1996 1995
- ----------------------------------------- --------- -------- --------
License agreements (see note 2) 10-40 $139,560 $ 75,071
Product rights 10-14 33,738 33,738
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 3,561 3,574
266,954 202,478
Less accumulated amortization ( 50,876) ( 40,304)
-------- --------
$216,078 $162,174
======== ========
7. ACCRUED EXPENSES:
Accrued expenses consist of the following:
MARCH 31, (IN THOUSANDS) 1996 1995
------- -------
Employee compensation and other benefits $ 8,029 $ 7,320
Clinical research 4,832 4,659
Customer discounts 3,782 3,478
Royalties 4,617 1,566
License fee 20,000
Other 9,072 6,901
------- -------
$50,332 $23,924
======= =======
8. COMMITMENTS:
LEASES: The Company leases manufacturing, office and warehouse facilities,
equipment and automobiles under operating leases expiring through 2010. Rent
expense approximated $4,158,000 for 1996, $4,869,000 for 1995 and $4,215,000
for 1994. Aggregate minimum rentals under noncancellable leases are as follows:
YEAR ENDING MARCH 31, (IN THOUSANDS)
1997 $ 6,148
1998 5,165
1999 4,463
2000 2,469
2001 2,214
Thereafter 24,403
-------
$44,862
=======
-15-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
8. COMMITMENTS: (CONTINUED)
ROYALTY AGREEMENTS: 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 in 1994.
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.
In connection with the acquisition of the product license of Tiazac (Note 2),
the Company entered into a license agreement. The license agreement provides
for an 8% royalty on net sales.
9. 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 on February 18, 1988 at the redemption price of $.001 per right.
Additionally, 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.
-16-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
9. SHAREHOLDERS EQUITY: (CONTINUED)
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.
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, 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)
--------- ---------
-17-
FOREST LABORATORIES, INC.
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
9. SHAREHOLDERS EQUITY: (CONTINUED)
Non-
Stock qualified
option individual
plans options
------- ----------
Shares under option at March 31, 1995
(at $8.50 to $48.19 per share) 3,412,651 1,332,626
Granted (at $41.69 to $44.19 share) 1,384,900 6,000
Exercised (at $9.91 to $46.63 per share) ( 305,706) ( 3,000)
Cancelled ( 157,315)
--------- ---------
Shares under option at March 31, 1996
(at $8.50 to $48.88 per share) 4,334,530 1,335,626
Options exercisable at March 31:
1994 2,511,247 1,607,498
1995 2,094,341 1,286,626
1996 2,335,832 1,284,026
At March 31, 1996 and 1995, 1,028,845 and 2,259,373 shares, respectively, were
available for grant.
In connection with the acquisition of product rights in fiscal 1995, the
Company issued 280,000 warrants, which expire on July 7, 2004, at an exercise
price of $45.71 per share which was equal to the then fair market value of the
Company's common stock.
Included in the caption Stockholders' equity: Other are the cumulative effects
of foreign currency translation adjustments and the unrealized holding loss from
available-for-sale securities.
10. CONTINGENCIES:
The Company is subject to product liability and other claims which management
does not believe will have a material effect on the financial position,
operations or liquidity of the Company.
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." On April 4, 1996, motions for summary
judgment filed by the manufacturer defendants (including the Company) with
respect to conspiracy claims alleged in those actions were denied by the Court,
In addition, the Court refused to approve a settlement agreement entered into by
15 of the manufacturer defendants which provided for aggregate payments of
approximately $400 million but which did not require any changes in the
manufacturers' pricing practices. A revised settlement entered into by
13 of the manufacturer defendants (but not the Company) which contains certain
commitments with respect to pricing practices has been reached and is pending
subject to court approval. Proceedings in this action have been stayed pending
the appeal to the Court of Appeals for the Seventh Circuit of certain rulings
of the trial.
-18-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
10. CONTINGENCIES (Continued)
Similar actions alleging price discrimination and conspiracy claims under state
law are pending against many pharmaceutical manufacturers, including the
Company, in nine state courts and the District of Columbia. Such actions
include actions purported to be brought on behalf of consumers, as well as those
brought by retail pharmacists.
While the Company believes these actions are without merit, there can be no
assurance that these cases will not result in the payment of damages or the
entering into injunctive relief which could have an adverse effect upon the
Company's marketing or pricing policies.
In March 1996, the Company was informed that the Federal Trade Commission has
begun an investigation of the existence of concerted action among 22
pharmaceutical manufacturers, including the Company, with respect to pricing
practices. The Company believes that no such concerted activity has taken place
involving the Company and intends to cooperate with the FTC's investigation.
11. OTHER INCOME:
Other income consists of the following:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------- ------- ------- ------
Interest and dividends $12,921 $10,817 $7,077
Commissions 1,342
Other 1,998 653 1,261
------- ------- ------
$14,919 $11,470 $9,680
======= ======= ======
12. 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
$3,540,000, $7,238,000 and $7,615,000 for the years ended March 31, 1996, 1995
and 1994, 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
$2,131,000 and $.05 in 1996, $2,794,000 and $.06 in 1995 and $1,938,000 and
$.04 in 1994.
-19-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
12. INCOME TAXES: (continued)
The provision for income taxes consists of the following:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------- ------- ------- -------
Current:
U.S. federal $53,147 $40,617 $36,845
State and local 8,809 7,729 4,909
Foreign 1,473 2,499 2,026
------- ------- -------
63,429 50,845 43,780
------- ------- -------
Deferred:
Domestic ( 6,589) ( 4,964) ( 382)
Foreign ( 35) ( 193) ( 3)
------- ------- -------
( 6,624) ( 5,157) ( 385)
------- ------- -------
Charge in lieu of income taxes,
relating to the tax effect of
stock option tax deduction 1,325 10,309 1,885
------- ------- -------
$58,130 $55,997 $45,280
======= ======= =======
No provision has been made for income taxes on the undistributed earnings
of the Company's foreign subsidiaries of approximately $43,355,000 at
March 31, 1996, 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) 1996 1995 1994
- ----------------------------------- ------- ------- -------
Expected federal income taxes $56,831 $54,651 $43,917
State and local income taxes, less
federal income tax benefit 5,396 5,876 3,274
Net benefit of tax-exempt earnings ( 2,159) ( 3,234) ( 2,582)
Tax effect of permanent differences ( 2,767) ( 2,117) 631
Other 829 821 40
------- ------- -------
$58,130 $55,997 $45,280
======= ======= =======
-20-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
12. INCOME TAXES (CONTINUED)
Net deferred income taxes consist of the following:
MARCH 31, (IN THOUSANDS): 1996 1995
------- -------
Inventory valuation $ 2,298 $ 1,370
Receivable reserves and other allowances 15,174 8,493
State and local net operating loss
carryforwards 3,792 5,008
Depreciation ( 1,785) ( 1,521)
Amortization 4,327 4,009
Tax credits and other carryforwards 704 514
Accrued liabilities 1,648 1,889
Other 1,378 1,148
------- -------
$27,536 $20,910
======= =======
13. QUARTERLY FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Primary
earnings
1996 Net sales Gross profit Net income per share
- ---- --------- ------------ ---------- ---------
First quarter $106,943 $86,045 $26,555 $.57
Second quarter 109,685 87,963 29,189 .62
Third quarter 122,870 96,790 24,871 .53
Fourth quarter 107,385 85,599 23,630 .50
1995
- ----
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
Fully diluted earnings per share are not presented, as the results obtained are
substantially the same as primary earnings per share.
14. SUBSEQUENT EVENT:
On May 22, 1996, the Company sold its entire investment in BCI resulting in a
pretax profit of approximately $26,500,000, net of commissions and other
expenses.
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY
During fiscal 1996, the Company acquired 22% of the common shares of
Biovail Corporation International ("BCI") for $76,328,000 and the exclusive
license for the product Tiazac, a once daily calcium channel blocker for
treating hypertension for $20,000,000. The Company also acquired certain
product rights for the product Climara, a once weekly transdermal estrogen
product for hormone replacement for $44,500,000 of which $24,500,000 was
paid in fiscal 1996. These transactions resulted in increases in investment
in unconsolidated affiliate, license agreements, product rights and other
intangible assets and accrued expenses and corresponding decreases in cash
and marketable securities. In conjunction with the launch of Tiazac and
other marketing programs, the Company offered extended dating terms to
customers in the third and fourth fiscal quarters causing a substantial
increase in accounts receivable and a reduction in the accounts receivable
turnover rate from 3.0 times in fiscal 1995 to 2.2 times in fiscal 1996.
Approximately 45% of the receivable balance was collected early in the
first quarter of fiscal 1997 in accordance with their terms. It is
anticipated that with the completion of the launch and other incentive
programs the accounts receivable turnover rate will return to more normal
levels in the next fiscal period. The increase in inventories was also
the result of the initial inventory buildup of Tiazac, including advance
payments against inventory purchase orders. Property, plant and
equipment increased as the result of the Company completing its facilities
expansion in the United States and Ireland, which expansion, should meet
the Company's foreseeable needs for the manufacturing, warehousing and
distribution of its existing and presently anticipated future products.
The increase in deferred income taxes-current was caused by provisions for
various sales allowances not currently deductible for tax purposes. Income
taxes payable increased as a result of lower tax benefits realized during
the current period as compared with last year relating to the exercise of
employee stock options.
In addition to the collection of a significant portion of the accounts
receivable balance - approximately $110,000,000 - the Company sold its
investment in BCI during the first quarter of fiscal 1997 for $102,500,000
(net of commissions and expenses). On May 6, 1996, the Company announced
its intention to repurchase, from time to time, up to 10% of its
outstanding shares in the open market. Company operations have historically
provided a strong, positive cash flow and management believes that on-going
operations and its present cash position will continue to provide adequate
liquidity to facilitate potential acquisitions of products or companies,
capital investments and the share repurchase.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------
RESULTS OF OPERATIONS
Net sales increased $53,524,000 in fiscal 1996 as a result of the
continued growth of the Company's branded promoted products, particularly
Aerobid, and the launch of Climara and Tiazac. Net volume growth of the
Company's principal promoted products accounted for $51,530,000 of the
increase. Sales of Climara and Tiazac amounted to $28,760,000. For the
first time, the Company is experiencing generic competition for its Lorcet
10 product and is realizing aggressive pricing competition for its other
generic products. As a result, sales of the Company's generic product
lines decreased by $27,667,000, of which $15,229,000 was the result
of volume declines and $12,438,000 was attributed to price decreases.
The Company expects that there will be further erosion of its generic
business and Lorcet 10 sales. Sales declines of certain of the Company's
unpromoted product lines amounted to $11,678,000. The remainder of the
net sales change was due to net price increases on certain of the Company's
principal promoted products amounting to $13,539,000. The impact of the
reduction in foreign exchange translation rates was $960,000. Net sales
increased in 1995 by $41,718,000 as compared to fiscal 1994 as a result
of the continued growth of the Company's principal promoted and generic
product lines. Net volume growth of these product lines amounted to
$57,014,000. Sales decreases of certain of the Company s unpromoted
product lines resulted in a net volume decline of $4,574,000. The remaining
$10,722,000 of the net sales change was primarily the result of lower
prices.
Other income increased $3,449,000 during fiscal 1996. Interest income
increased as compared with last year as a result of higher yields received
on the Company's investments. Miscellaneous income increased as a result of
the Climara co-promotion fee from Berlex Laboratories, Inc. The increase
in other income in fiscal 1995 as compared to 1994 was due to a combination
of increased funds available for investment along with higher yields.
Cost of sales as a percentage of sales increased to 20% in fiscal 1996
from 19% in fiscal 1995 and 18% in 1994 due to increases in overhead costs
related to the Company s facilities expansion and lower net prices received
on certain products.
Selling, general and administrative expense increased $33,866,000
during fiscal 1996. The increase was principally the result of the initial
launch costs for Tiazac and Climara and the cost of expanding the sales
force by 200 representatives in conjunction with the product launches
and other planned new product introductions. The decrease in selling,
general and administrative expense in 1995 as compared to 1994 resulted
from a reduction in royalty expense due to the acquisition of product
rights for certain products and the absence of substantial launch costs
for Flumadine-R- which were incurred in fiscal 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------------
Research and development expense increased by $2,187,000 during fiscal
1996 over 1995 and $4,012,000 in 1995 over 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 both fiscal years 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. Methoxatone is a novel anti-inflammatory compound
being evaluated for treating various indications, including head trauma.
AF102B is an M1 agonist for the treatment of Alzheimer s Disease.
Phase II/III clinical trials are currently in progress for AF102B.
The Company is also conducting several clinical studies for both existing
and new formulations of Aerobid. The Company anticipates a continued
increase in research and development expense as these and other potential
products are developed and tested.
As a result of the sharp declines in prices and dilution of market
share in the Company s generic business, generic competition for Lorcet 10,
the costs associated with the significant increase in its salesforce and
the continued costs of promotional programs in support of the new products
recently launched, the Company expects that earnings for fiscal 1997 will
be significantly lower when compared to the prior year. The Company expects
that the investments it is making in expanding its salesforce and launching
new products will result in significant increases in earnings in future years.
Inflation has not had a material effect on the Company's operations
for the periods presented.
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- ---------------------------------------------------
Forest Laboratories, Inc.
New York, N.Y.
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
Form S-3, filed with the Securities and Exchange Commission on November 30,
1993 and August 8, 1994, of our reports dated May 3, 1996, except for Note 14
which is as of May 22, 1996, on the consolidated financial statements and
schedule of Forest Laboratories, Inc. Annual Report on Form 10-K for the year
ended March 31, 1996.
BDO Seidman, LLP
New York, New York
June 26, 1996