Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
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]
------------
For the Fiscal Year Ended March 31, 1998
---
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
---------------
For the transition period from _________ to _____________________
Commission File No. 1-5438
FOREST LABORATORIES, INC.
-------------------------
(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
------------------- ------------------------
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
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 / /.
---
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 23, 1998 is
$2,638,836,361.
Number of shares outstanding of registrant's Common Stock as of
June 23, 1998: 80,540,076.
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 1998 Annual
Meeting of Stockholders of registrant.
Portions of the registrant's Annual Report to Stockholders
for the fiscal year ended March 31, 1998.
---------------
PAGE
PART I
------
ITEM 1. BUSINESS
- ------- --------
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 Forest Pharmaceuticals and Forest
Therapeutics salesforces 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
CELEXA-TM-: In May 1997, Forest filed a New Drug
Application (an "NDA") with the United States Food and Drug
Administration ("FDA") for Celexa (citalopram), Forest's
selective serotonin reuptake inhibitor for the treatment of
depression. Citalopram is currently marketed in most European
countries and is the leading antidepressant in several European
markets. On May 12, 1998 the FDA found Celexa to be approvable
and Forest expects to receive final approval to market Celexa
following the determination of final labeling. Forest licenses
the United States rights to Celexa from H. Lundbeck A/S, a
privately held pharmaceutical company based in Copenhagen and the
drug's originator.
In March 1998, Forest entered into an agreement with the
Parke-Davis division of the Warner-Lambert Company providing for
the co-promotion of Celexa by Forest and the Parke-Davis
salesforces for the three year period following the launch of the
product. Parke-Davis will be paid a co-promotion fee during the
co-promotion period and will receive a reduced fee for a three
year period thereafter. Management believes that the additional
promotional support by Parke-Davis, together with the efforts of
Forest's recently expanded salesforces, will help assure the
successful launch and marketing of Celexa in the United States.
Pursuant to an agreement dated July 1, 1997 among Forest
and a private investor group, the investors have agreed to fund
up to $60 million of the development, pre-launch and costs of
expanding Forest's salesforces to promote Celexa over an
approximate two-year period. Pursuant to the agreement, Forest
is obligated to pay the investors royalties on sales of Celexa
commencing 15 months after FDA approval at varying rates from 25%
to 5%, depending on sales levels. Forest has the option to buy
out all but a limited one percent royalty for a lump sum payment
of $85,000,000. The investors also received five-year warrants
to purchase 1,000,000 shares of Forest's common stock at a price
of $25.725 per share.
STRATEGIC ALLIANCE WITH H. LUNDBECK A/S: On March 27,
1998, Forest entered into a strategic alliance with H. Lundbeck
A/S ("Lundbeck")covering United States marketing rights to
central nervous system products developed by Lundbeck. Lundbeck,
founded in 1915, is a privately held pharmaceutical company based
in Copenhagen specializing in the development of pharmaceutical
compounds for the treatment of central nervous system disorders.
Lundbeck is also the originator and Forest's licensor of Celexa.
The strategic alliance specifically provides for the
license to Forest of marketing rights in the United States to
three products presently under active development by Lundbeck:
(1) an active enantiomer of Celexa, which will enter clinical
trials later in 1998 and has patent protection in the United
States until the year 2009; (2) Lu25-109, a selective muscarinic
agonist for Alzheimer's Disease which is presently in Phase
II/III clinical studies in the United States; and (3) Lu28-179, a
new anxiolytic compound presently in a Phase I study. In
addition, the alliance sets forth the terms for joint development
of future products resulting from Lundbeck's research programs
for marketing in the United States under the name of Forest-
Lundbeck.
Forest paid Lundbeck $32 million for the United States
rights to the compounds presently under development, which,
together with related expenses, was written off as special
research and development expenses in the fourth quarter of the
fiscal year ended March 31, 1998. Lundbeck will receive on-going
license fees and product payments from the marketing of the
strategic alliance products in the United States.
AEROBID-R-: In February 1998, Forest filed two
supplemental NDA's relating to Aerobid, Forest's metered dose
inhaled steroid for the treatment of asthma. One filing was for
a once daily dosing of Aerobid; the second was for Aeropak, a
combination of Aerobid with Aerochamber-R-, Forest's aerosol
holding chamber for use with metered dose inhaled products.
Management believes that both supplemental NDA's address the
recognized problem of poor patient compliance in asthma therapy,
and by improving patient compliance with a once-daily dosing
regimen and optimizing the drug delivery system, should enhance
Aerobid's position in this market.
TIAZAC-R-: In February 1998, the FDA approved the use of
Tiazac for treating angina. Tiazac is Forest's once daily
diltiazem (a calcium channel blocker) which received FDA approval
in 1995 for the treatment of hypertension.
SYNAPTON-TM-: In November 1997, Forest filed an NDA for
Synapton, an extended release acetylcholinesterase inhibitor for
the treatment of the dementia caused by Alzheimer's Disease. The
filing included four clinical trials which demonstrated
statistically significant efficacy under the two primary clinical
endpoints presently used by the FDA to evaluate drugs of this
class.
MONUROL-R-: In April 1997, Forest commercially launched
Monurol, Forest's single dose antibiotic for the treatment of
uncomplicated urinary tract infections. Monurol is the only
single dose antibiotic currently available in the United States
for the treatment of urinary tract infections.
INFASURF-R-: 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 for the treatment of respiratory
distress syndrome in premature infants. Such licensing
arrangements were expanded in May 1992 to include worldwide
rights to the product.
The FDA has approved the NDA for Infasurf, but has
determined not to permit Forest to market the product until July
1998 as a result of the "orphan drug" status of Survanta-R-, a
competing product marketed by Abbott Laboratories, within the
meaning of the Orphan Drug Act. In addition, the Company has
been notified by Abbott Laboratories 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.
STOCK SPLIT; SHARE REPURCHASE PROGRAM: On March 25,
1998, Forest's common stock was split on a two-for-one basis by
means of the payment of a 100% stock dividend. All share numbers
set forth in this Report or in any financial statement or other
document incorporated by reference herein have been restated to
give effect to such stock split.
In December 1997, Forest's Board of Directors authorized
an increase in Forest's share repurchase program of 4,000,000
shares, bringing such total authorization to 17,000,000 shares.
Pursuant to the program, Forest may repurchase shares on the open
market at prices prevailing from time to time. As of June 23,
1998, Forest has purchased 12,321,000 shares pursuant to this
program. No date for completing the share repurchase program has
been established.
NEW DIRECTORS: In February 1998, Forest's Board of
Directors appointed Lester B. Salans, M.D. to serve on the Board
of Directors. Dr. Salans was formerly Vice President Academic
and Scientific Affairs and Vice President, Preclinical Research
at Sandoz Pharmaceuticals. Dr. Salans also served as Director of
the National Institute of Arthritis, Diabetes, Digestive and
Kidney Diseases at the National Institutes of Health (NIH) and
was Professor of Medicine and Dean of the Faculty of the Mount
Sinai Medical School. Dr. Salans is currently Clinical Professor
and member of the Clinical Attending Staff in Internal Medicine
at Mount Sinai and a member of the Adjunct Faculty at Rockefeller
University. Dr. Salans also serves as a consultant to the
pharmaceutical industry.
The Board of Directors also appointed Phillip M. Satow,
Executive Vice President and Kenneth E. Goodman, Executive Vice
President - Operations and Chief Financial Officer as new members
of the Board. Joseph M. Schor, Ph.D., retired Vice President -
Scientific Affairs of the Company, resigned from the Board of
Directors in February 1998.
PRINCIPAL PRODUCTS
The Company actively promotes in the United States those
of its branded products which the Company's management believes
have the most potential for growth and which enable its
salesforces to concentrate on groups of physicians who are high
prescribers of its products. Such products include the
respiratory products Aerobid, Aerochamber and Tessalon-R-, Tiazac,
Forest's once-daily diltiazem for the treatment of hypertension
and angina, the Climara-R- estrodiol transdermal system (which
Forest co-markets with Berlex Laboratories, Inc.), Cervidil-R-,
used for the initiation or continuation of cervical ripening and
Monurol, a single-dose antibiotic for the treatment of
uncomplicated urinary tract infections (See "Recent
Developments").
Aerobid is a metered dose inhaled steroid used in the
treatment of asthma. Sales of Aerobid accounted for 24.5% of
Forest's sales for the fiscal year ended March 31, 1998 as
compared to 20.6% and 33% for the fiscal years ended March 31,
1997 and 1996, respectively. Aerochamber is a spacer device
used to improve the delivery of products administered by aerosol
delivery, including Aerobid.
Sales of Lorcet-R-, a line of potent analgesics, accounted
for 15.9% of sales for the fiscal year ended March 31, 1996.
Sales of Tiazac, launched in 1996, accounted for 19.7% and 9.0%
of sales for the fiscal years ended March 31, 1998 and 1997,
respectively.
Forest's generic line emphasizes the Company's
capability to produce difficult to formulate controlled release
products which are sold in the United States by Forest's Inwood
Laboratories, Inc. subsidiary. Inwood's most important products
include Propranolol E.R., a controlled release beta blocker used
in the treatment of hypertension, Indomethacin E.R., a controlled
release non-steroidal anti-inflammatory drug used in the
treatment of arthritis and Theochron-TM-, a controlled release
theophylline tablet used in the treatment of asthma.
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
nitroglyerin 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 salesforces, Forest Pharmaceuticals
and Forest Therapeutics, currently numbering 860 persons, which
detail products directly to physicians, pharmacies and managed
care organizations. Forest's salesforces were increased by
approximately 32% during the fiscal year ended March 31, 1998 in
anticipation of the launch of Celexa (see "Recent Developments").
Forest's salesforce was increased by approximately 45% 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 44 persons, markets its products directly.
Forest's products are sold elsewhere through independent
distributors.
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. Failure to be included or
to have a preferred position in a managed care organization's
drug formulary could result in decreased prescriptions of a
manufacturer's products.
GOVERNMENT REGULATION
The pharmaceutical industry is subject to comprehensive
government regulation which substantially increases the
difficulty and cost incurred in obtaining the approval to market
newly proposed drug products and maintaining the approval to
market existing drugs. In the United States, products developed,
manufactured or sold by Forest are subject to regulation by the
FDA, principally under the Federal Food, Drug and Cosmetic Act,
as well as by other federal and state agencies. The FDA
regulates all aspects of the testing, manufacture, safety,
labeling, storage, record keeping, advertising and promotion of
new and old drugs, including the monitoring of compliance with
good manufacturing practice regulations. Non-compliance with
applicable requirements can result in fines and other sanctions,
including the initiation of product seizures, injunction actions
and criminal prosecutions based on practices that violate
statutory requirements. In addition, administrative remedies can
involve voluntary recall of products as well as the withdrawal of
approval of products in accordance with due process procedures.
Similar regulations exist in most foreign countries in which
Forest's products are manufactured or sold. In many foreign
countries, such as the United Kingdom, reimbursement under
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.
In March 1997, the FDA announced a proposed rule which
could result in the withdrawal of approval to market metered dose
inhaler formulations of corticosteroids (such as the Company's
Aerobid product) containing chlorofluorocarbons ("CFC's") once
three distinct non-CFC products are available in that therapeutic
category. The Company is currently developing a non-CFC
formulation of Aerobid and expects to complete its development in
time to meet the proposed regulation.
The cost of human health care products continues to be a
subject of investigation and action by governmental agencies,
legislative bodies and private organizations in the United States
and other countries. In the United States, most states have
enacted generic substitution legislation requiring or permitting
a dispensing pharmacist to substitute a different manufacturer's
version of a drug for the one prescribed. Federal and state
governments continue to press efforts to reduce costs of Medicare
and Medicaid programs, including restrictions on amounts agencies
will reimburse for the use of products. Under the Omnibus Budget
Reconciliation Act of 1990 (OBRA), manufacturers must pay certain
statutorily-prescribed rebates on Medicaid purchases for
reimbursement on prescription drugs under state Medicaid plans.
Federal Medicaid reimbursement for drug products of original
NDA-holders is denied if less expensive generic versions are
available from other manufacturers. In addition, the Federal
government follows a diagnosis related group (DRG) payment system
for certain institutional services provided under Medicare or
Medicaid. The DRG system entitles a health care facility to a
fixed reimbursement based on discharge diagnoses rather than
actual costs incurred in patient treatment, thereby increasing
the incentive for the facility to limit or control expenditures
for many health care products.
Under the Prescription Drug User Fee Act of 1992, the
FDA has imposed fees on various aspects of the approval,
manufacture and sale of prescription drugs. In 1993, the Clinton
Administration presented to Congress a proposal for reforming the
United States healthcare system. Other healthcare reform
proposals were also introduced in Congress. These proposals were
highly regulatory and contain provisions which would affect the
marketing of prescription drug products. None of these proposals
were enacted; 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.
PRINCIPAL CUSTOMERS
McKesson Drug Company, Bergen Brunswig Corp. and
Cardinal Distributors, Inc., national drug wholesalers, accounted
for 13%, 12% and 11%, respectively, of Forest's consolidated net
sales for the fiscal year ended March 31, 1998. For the year
ended March 31, 1997, Bergen Brunswig Corp. and Cardinal
Distributors, Inc. accounted for 10.4% and 10.2% of Forest's
consolidated net sales. McKesson Drug Company accounted for 12%
of Forest's consolidated net sales for the year ended March 31,
1996. No other customer accounted for 10% or more of Forest's
consolidated net sales for those fiscal years.
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 $150 million of product
liability coverage per "occurrence" and in the aggregate.
Although in the past there have been claims asserted against
Forest, none for which Forest has been found liable, there can be
no assurance that all potential claims which may be asserted
against Forest in the future would be covered by Forest's present
insurance.
RESEARCH AND DEVELOPMENT
During the year ended March 31, 1998, Forest spent
$79,150,000 for research and development, as compared to
$40,689,000 and $34,197,000 in the fiscal years ended March 31,
1997 and 1996, respectively. Forest's research and development
expense in the 1998 fiscal year included $32,250,000 for the
license fee and related expenses of the license of the Lundbeck
CNS products (see "Recent Developments") and otherwise consisted
primarily of the conduct of clinical studies required to obtain
approval of new products and the development of additional
products.
EMPLOYEES
At March 31, 1998, Forest had a total of 1,854
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, Celexa, Cervidil,
Monurol, Synapton, Flumadine-R-, Forest's licensed oxycodone/
ibuprofen analgesic and Methoxatone (an anti-inflammatory
compound being evaluated for use in head trauma and for other
uses) and those products under development pursuant to the joint
venture with Lundbeck (see "Recent Developments"), 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-R- technology and to other controlled release
technology, which patents expire through 2008. Forest believes
that these patents are useful in its business, however, there are
numerous patents and unpatented technologies owned by others
covering other controlled release processes.
Forest owns various trademarks and trade names which it
believes are of significant benefit to its business.
BACKLOG -- SEASONALITY
Backlog of orders is not considered material to Forest's
business prospects. Forest's business is not seasonal in nature.
ITEM 2. PROPERTIES
- ------- ----------
Forest owns a 150,000 square foot building on 28 acres
in Commack, New York. This facility is used for packaging,
warehousing, administration and sales training. Forest also owns
five buildings and leases two 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. In addition,
Forest leases approximately 23,000 square feet in Farmingdale,
New York for use as a clinical laboratory testing facility.
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. FPI has recently purchased 26 acres of land and
a 145,000 square foot building in St. Louis, Missouri and has
contracted to expand the building by an additional 150,000 square
feet. When complete, FPI will use this facility for warehousing,
distribution and administration and intends to sell its 87,000
square foot facility and not renew its 63,000 square foot
facility lease which expires in April 1999.
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's Tosara subsidiary owns an 18,000 square foot
manufacturing and distribution facility located in an industrial
park in Dublin, Ireland. Forest Ireland, a newly-formed
subsidiary of Forest, has recently completed the development,
together with the Development Authority of the Republic of
Ireland, of an approximately 86,000 square foot manufacturing
and distribution facility located in Dublin, Ireland. The
facility will be used for the manufacture and distribution of
products in the U.S. and Europe, including the manufacture of
Celexa tablets.
Forest presently leases approximately 90,000 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, 1998 aggregated approximately $2,977,000 and for the
fiscal year ended March 31, 1997 aggregated approximately
$2,953,000.
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
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. Certain manufacturer
defendants (but not the Company) reached a settlement of the
federal class action which received court approval in June 1996,
pursuant to which they agreed to pay an aggregate of
approximately $350 million and make certain commitments with
regard to pricing practices. A trial of the federal class action
is scheduled for September 1998.
Similar actions alleging price discrimination and
conspiracy claims under state law are pending against many
pharmaceutical manufacturers, including the Company, in 12 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
- ------ -------------------------------
Not Applicable.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON
- ------- EQUITY AND RELATED STOCKHOLDER
MATTERS
------------------------------
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
- ------- -----------------------
The information required by this item is incorporated by
reference to page 14 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND
- ------- ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-------------------------------
The information required by this item is incorporated by
reference to pages 12 and 13 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND
- ------- SUPPLEMENTARY DATA
------------------------
The information required by this item is incorporated by
reference to pages 15 through 27 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS
- ------- WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
------------------------------
Not Applicable.
PART III
--------
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 1998
Annual Meeting of Stockholders.
PAGE
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
-------- AND REPORTS ON FORM 8-K
---------------------------------------
(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, 1998 and 1997
Consolidated statements of operations -
years ended March 31, 1998, 1997 and 1996
Consolidated statements of shareholders'
equity -
years ended March 31, 1998, 1997 and 1996
Consolidated statements of cash flows -
years ended March 31, 1998, 1997 and 1996
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
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
------------------
10.1 Benefit Continuation Agreement dated as
of December 1, 1989 between Forest and
Howard Solomon. Incorporated by
reference to Forest's Annual Report on
Form 10-K for the fiscal year ended
March 31, 1990 (the "1990 l0-K").
10.2 Benefit Continuation Agreement dated as
of May 27, 1990 between Forest and
Kenneth E. Goodman. Incorporated by
reference to the 1990 10-K.
10.3 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 (the "1995 10-K").
10.4 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").
10.5 Option Agreement dated December 10, 1990
between Forest and Kenneth E. Goodman.
Incorporated by reference to the 1991
10-K.
10.6 Option Agreement dated December 10,
1990 between Forest and Phillip M.
Satow. Incorporated by reference
to the 1991 10-K.
10.7 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").
10.8 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Phillip M. Satow. Incorporated by
reference to the 1994 10-K.
10.9 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Kenneth E. Goodman. Incorporated by
reference to the 1994 10-K.
10.10 Employment Agreement dated as of
September 30, 1994 by and between Forest
and Howard Solomon. Incorporated by
reference to 1995 10-K.
10.11 Employment Agreement dated as of
September 30, 1994 by and between Forest
and Phillip M. Satow. Incorporated by
reference to the 1995 10-K.
10.12 Employment Agreement dated as of
September 30, 1994 by and between Forest
and Kenneth E. Goodman. Incorporated by
reference to the 1995 10-K.
10.13 Employment Agreement dated as of October
24, 1995 by and between Forest and Dr.
Lawrence S. Olanoff. Incorporated by
reference to Forest's Annual Report on
Form 10-K for the fiscal year ended March
31, 1996.
10.14 Employment Agreement dated June 24, 1998
between Forest and Elaine Hochberg.
10.15 Employment Agreement dated January 16,
1995 between Forest and Mary Prehn.
10.16 Employment Agreement dated February 23,
1998 between Forest and Raymond Stafford.
10.17 Development and Marketing Agreement dated
July 1, 1997 by and among Forest
Laboratories, Inc. and FRXC Corp.
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, LLP
27 Financial Data Schedule.
PAGE
SIGNATURES
----------
Pursuant to the requirements of Section 13 and 15(d) of
the Securities Exchange Act of 1934, Forest has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: June 29, 1998
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 29, 1998
------------------------- Executive Officer
Howard Solomon and Director
PRINCIPAL FINANCIAL
-------------------
AND ACCOUNTING OFFICER:
----------------------
/s/ Kenneth E. Goodman Executive Vice June 29, 1998
------------------------- President, Operations
Kenneth E. Goodman and Chief Financial
Officer and Director
DIRECTORS
/s/ Phillip M. Satow Executive Vice June 29, 1998
---------------------------- President and Director
Phillip M. Satow
/s/ George S. Cohan Director June 29, 1998
----------------------------
George S. Cohan
/s/William J. Candee, III Director June 29, 1998
----------------------------
William J. Candee, III
/s/ Dan L. Goldwasser Director June 29, 1998
----------------------------
Dan L. Goldwasser
/s/ Lester B. Salans Director June 29, 1998
- -----------------------------
Lester B. Salans
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------
Board of Directors and Shareholders
Forest Laboratories, Inc.
The audits referred to in our report dated April 30, 1998,
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.
/s/BDO SEIDMAN, LLP
- ---------------------------
BDO Seidman, LLP
New York, New York
April 30, 1998
S-1
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, 1998:
Allowance for doubtful
accounts $9,594,000 $3,237,000 $5,640,000 $6,055,000 $12,416,000
========== ========== ========== ========== ===========
Year ended March 31, 1997:
Allowance for doubtful
accounts $5,309,000 $4,371,000 $1,143,000 $1,229,000 $ 9,594,000
========== ========== ========== ========== ===========
Year ended March 31, 1996:
Allowance for doubtful
accounts $5,016,000 $ 514,000 ($ 134,000) $ 87,000 $ 5,309,000
========== ========== ========== ========== ===========
(A) Includes allowances for wholesale chargebacks, medicaid rebates and cash discounts.
(B) Includes adjustments for wholesale chargebacks, medicaid rebates, cash discounts and bad debt write-offs.
S-2
EXHIBIT 13
QUARTERLY STOCK MARKET PRICES
HIGH LOW
---- ---
April-June 1996 25 1/8 18 15/16
July-September 1996 21 9/16 16 1/2
October-December 1996 20 5/16 14 1/8
January-March 1997 21 1/4 15 13/16
April-June 1997 22 9/16 16 1/16
July-September 1997 24 3/16 20 1/16
October-December 1997 24 11/16 20 15/16
January-March 1998 38 24 5/16
As of June 5, 1998 there were 2,269 stockholders of record of the
Company's common stock.
SELECTED FINANCIAL DATA
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
March 31, (In thousands)
Financial Position:
Current Assets $371,647 $359,630 $470,612 $348,969 $345,929
Current Liabilities 129,889 73,544 89,571 57,649 52,223
Net Current Assets 241,758 286,086 381,041 291,320 293,706
Total Assets 744,323 700,281 899,361 757,205 619,211
Total Shareholders' Equity 614,161 626,399 809,517 699,334 566,782
YEAR ENDED MARCH 31, (IN
THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Summary of Operations:
Net Sales $427,086 $280,745 $446,883 $393,359 $351,641
Other Income 47,618 28,316 13,061 11,470 9,680
Costs and Expenses 419,932 348,060 297,569 248,683 235,843
Income (Loss) Before Income
Taxes (Benefit) 54,772 ( 38,999) 162,375 156,146 125,478
Income Taxes (Benefit) 18,075 ( 15,458) 58,130 55,997 45,280
Net Income (Loss) 36,697 ( 23,541) 104,245 100,149 80,198
Net Income (Loss) Per Share:
Basic $0.45 ($0.27) $1.15 $1.13 $0.93
Diluted $0.44 ($0.27) $1.12 $1.09 $0.89
Weighted Average Number of
Common and Common
Equivalent Shares
Outstanding (Note A):
Basic 80,906 86,018 90,628 88,798 86,544
Diluted 83,425 86,018 92,872 91,702 90,080
No dividends were paid on common shares in any period.
A. Basic net income (loss) per share was computed by dividing net income (loss)
by the weighted average number of common shares outstanding during each year.
Diluted net income (loss) per share includes the potential dilution that could
occur if options and warrants outstanding were included in the weighted average
number of common shares outstanding for the period. All amounts give effect to
the March 1998 100% stock dividend and the adoption in December 1997 of
SFAS No. 128, "Earnings Per Share" (refer to Note 1 of the Company's notes to
consolidated financial statements).
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
-----------------------------------------
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, 1998 and
1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in
the period ended March 31, 1998. 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, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended March
31, 1998 in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
New York, New York
April 30, 1998
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
MARCH 31,
----------------------
1998 1997
-------- --------
ASSETS
- ------
Current assets:
Cash (including cash equivalent investments of $149,653 $162,842
$143,423 in 1998 and $157,897 in 1997)
Marketable securities 32,199 9,401
Accounts receivable, less allowances of $12,416
in 1998 and $9,594 in 1997 41,464 21,896
Inventories 82,718 92,539
Deferred income taxes 47,675 34,896
Refundable income taxes 9,432 29,636
Other current assets 8,506 8,420
-------- --------
Total current assets 371,647 359,630
-------- --------
Marketable securities 47,748 17,417
-------- --------
Property, plant and equipment:
Land and buildings 64,406 64,994
Machinery and equipment 43,282 41,994
Vehicles and other 8,577 8,592
-------- --------
116,265 115,580
Less accumulated depreciation 34,815 32,256
-------- --------
81,450 83,324
-------- --------
Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $8,117 in 1998 and $7,491
in 1997 16,842 17,468
License agreements, product rights and other
intangible assets, net 197,095 205,785
Deferred income taxes 17,639 6,055
Other 11,902 10,602
-------- --------
243,478 239,910
-------- --------
$744,323 $700,281
======== ========
See accompanying notes to consolidated financial statements.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS, EXCEPT FOR PAR VALUES)
MARCH 31,
------------------------
1998 1997
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 30,409 $ 22,311
Accrued expenses 70,998 36,976
Income taxes payable 28,482 14,257
-------- --------
Total current liabilities 129,889 73,544
-------- --------
Deferred income taxes 273 338
-------- --------
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 98,054 shares in 1998 and
96,672 shares in 1997 9,805 9,668
Capital in excess of par 334,781 309,487
Retained earnings 555,161 518,464
Other ( 4,530) ( 633)
-------- --------
895,217 836,986
Less common stock in treasury, at cost
(17,651 shares in 1998 and 14,342 shares
in 1997) 281,056 210,587
-------- --------
614,161 626,399
-------- --------
$744,323 $700,281
======== ========
See accompanying notes to consolidated financial statements.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(IN THOUSANDS, EXCEPT FOR PAR VALUES)
YEARS ENDED MARCH 31,
---------------------------------
1998 1997 1996
-------- -------- --------
Net sales $427,086 $280,745 $446,883
Contract revenue (expense) 28,102 ( 1,904) ( 1,076)
Other income 19,516 11,071 14,137
Non-recurring income, net 19,149
-------- -------- --------
474,704 309,061 459,944
-------- -------- --------
Costs and expenses:
Cost of sales 104,412 85,874 90,485
Selling, general and administrative 236,370 221,497 172,887
Research and development 46,900 40,689 34,197
Purchased research and development 32,250
-------- -------- --------
419,932 348,060 297,569
-------- -------- --------
Income (loss) before income tax
expense (benefit) 54,772 ( 38,999) 162,375
Income tax expense (benefit) 18,075 ( 15,458) 58,130
-------- -------- --------
Net income (loss) $ 36,697 ($ 23,541) $104,245
======== ======== ========
Earnings (loss) per common and common
equivalent share:
Basic $0.45 ($0.27) $1.15
===== ===== =====
Diluted $0.44 ($0.27) $1.12
Weighted average number of common
and common equivalent shares outstanding:
Basic 80,906 86,018 90,628
====== ====== ======
Diluted 83,425 86,018 92,872
====== ====== ======
See accompanying notes to consolidated financial statements.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
-----------------------------------------
(In thousands)
Common stock Capital in Treasury stock
---------------- excess of Retained --------------
Shares Amount par earnings Other Shares Amount
------ ------ -------- -------- ----- ------ ------
Balance, April 1, 1995 95,648 $9,564 $292,143 $437,760 $ 458 5,286 $40,591
Shares issued upon exercise of stock options 618 62 8,354
Treasury stock acquired from employees upon
exercise of stock options 14 360
Tax benefit related to stock options exercised
by employees 1,325
Other ( 3,443)
Net income 104,245
------ ------ -------- ------- ------- ----- -------
Balance, March 31, 1996 96,266 9,626 301,822 542,005 ( 2,985) 5,300 40,951
Shares issued upon exercise of stock options 406 42 5,844
Treasury stock acquired from employees upon
exercise of stock options 14 243
Purchase of treasury stock 9,028 169,393
Tax benefit related to stock options exercised
by employees 1,821
Other 2,352
Net loss ( 23,541)
------ ----- ------- ------- ------- ------ -------
Balance, March 31, 1997 96,672 9,668 309,487 518,464 ( 633) 14,342 210,587
Shares issued upon exercise of stock options 1,382 137 14,054
Treasury stock acquired from employees upon
exercise of stock options 16 360
Purchase of treasury stock 3,293 70,109
Warrants issued, net of expenses 3,500
Tax benefit related to stock options exercised
by employees 7,740
Other ( 3,897)
Net income 36,697
------ ------ -------- -------- ------ ------ --------
Balance, March 31, 1998 98,054 $9,805 $334,781 $555,161 ($4,530) 17,651 $281,056
====== ====== ======== ======== ====== ====== ========
See accompanying notes to consolidated financial statements.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
YEARS ENDED MARCH 31,
--------------------------------
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 36,697 ($ 23,541) $104,245
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 6,660 6,017 4,634
Amortization 13,396 13,168 11,885
Gain on sale of investment in
unconsolidated affiliate ( 26,399)
Gain on sale of assets of
closed facilities ( 564)
Deferred income tax benefit ( 24,427) ( 13,077) ( 6,624)
Foreign currency translation
(gain) loss ( 1,036) 57 329
Equity in income of unconsolidated
affiliate ( 261)
Net change in operating assets
and liabilities:
Decrease (increase) in:
Accounts receivable, net ( 19,568) 232,812 ( 105,053)
Inventories 8,646 ( 33,590) ( 19,986)
Refundable income taxes 20,204 ( 29,636)
Other current assets ( 86) 4,417 ( 6,398)
Increase (decrease) in:
Accounts payable 8,098 8,317 ( 240)
Accrued expenses 34,022 6,644 6,408
Income taxes payable 14,225 ( 10,988) 5,754
Increase in other assets ( 1,300) ( 851) ( 455)
-------- -------- --------
Net cash provided by
(used in) operating
activities 94,967 133,350 ( 5,762)
------- -------- --------
Cash flows from investing activities:
Purchase of property, plant and
equipment, net ( 6,899) ( 9,655) ( 11,645)
Purchase of investment in
unconsolidated affiliate ( 76,328)
Proceeds from sale of assets of closed
facilities 1,875
Proceeds from sale of investment in
unconsolidated affiliate 102,301
Purchase of marketable securities:
Available-for-sale ( 75,010) ( 41,606) ( 64,529)
Redemption of marketable securities:
Available-for-sale 19,674 75,118 166,432
Held-to-maturity 2,207 2,004 4,504
Purchase of license agreements, product
rights and other intangible assets,
net ( 1,352) ( 22,250) ( 44,476)
------- -------- --------
Net cash provided by
(used in) investing
activities ( 59,505) 105,912 ( 26,042)
------- ------- --------
See accompanying notes to consolidated financial statements.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED MARCH 31,
-------------------------------
1998 1997 1996
------- ------- -------
Cash flows from financing activities:
Net proceeds from common stock options
exercised by employees under stock
option plans 13,830 5,643 8,056
Tax benefit realized from the exercise
of stock options by employees 7,740 1,821 1,325
Purchase of treasury stock, net ( 70,109) ( 169,393)
-------- -------- --------
Net cash provided by (used in)
financing activities ( 48,539) ( 161,929) 9,381
-------- -------- --------
Effect of exchange rate changes on cash ( 112) 1,966 ( 1,645)
-------- -------- --------
Increase (decrease)in cash and cash
equivalents ( 13,189) 79,299 ( 24,068)
Cash and cash equivalents, beginning
of year 162,842 83,543 107,611
-------- -------- --------
Cash and cash equivalents, end of year $149,653 $162,842 $ 83,543
======== ======== ========
Supplemental disclosures of cash flow
information: (In thousands)
1998 1997 1996
------- ------- -------
Cash paid during the year for:
Income taxes $20,538 $35,036 $57,675
======= ======= =======
Supplemental schedule of noncash
financing activities:
Accrued license fee $20,000
=======
Issuance of warrants in
connection with development
and marketing agreements $3,500
======
See accompanying notes to consolidated financial statements.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION: The consolidated financial statements include the
accounts of Forest Laboratories, Inc. (the "Company") and its subsidiaries,
all of which are wholly owned. 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: Marketable securities are stated at fair market value
or historical cost in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", and consist of investments in municipal bonds maturing through
2000 and a bond of the Commonwealth of Puerto Rico maturing in 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 using the
straight-line method over 25 to 40 years. The costs of obtaining license
agreements, product rights and other intangible assets are being amortized
using the straight-line method over the estimated lives of the assets, 10 to
40 years.
REVENUE 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: Substantially all non-bargaining unit
employees of the Company's domestic subsidiaries may participate in the
savings and profit sharing plan after becoming eligible (as defined). Profit
sharing 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 $5,600,000,
$4,100,000 and $3,145,000 for 1998, 1997 and 1996, respectively.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE: During 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 (ASFAS No. 128"),
"Earnings Per Share," which provides for the calculation of "basic" and
"diluted" earnings per share. This statement is effective for financial
statements issued for periods ending after December 15, 1997. Basic earnings
per share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect, in periods in
which they have a dilutive effect, the effect of common shares issuable upon
exercise of stock options and warrants. As required by this statement, all
periods presented have been restated to comply with the provisions of SFAS
No. 128. The two-for-one stock split effected as a 100% stock dividend in
March 1998 has been reflected retroactively for all outstanding common stock.
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. No impairment losses have been necessary through
March 31, 1998.
STOCK-BASED COMPENSATION: The Company accounts for its stock option awards
under the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the intrinsic value based method, compensation cost is the excess,
if any, of the quoted market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.
The Company makes pro forma disclosures of net income and earnings per share as
if the fair value based method of accounting had been applied as required by
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation."
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.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
1. SUMMARY SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT ACCOUNTING STANDARDS: In June 1997, the Financial Accounting Standards
Board issued two new disclosure standards. Results of operations and financial
position will be unaffected by the implementation of these new standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income", established standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Related Information", which
supersedes SFAS No. 14, AFinancial Reporting for Segments of a Business
Enterprise", establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the Company in deciding how to allocate resources and
in assessing performance.
Both of these new standards are effective for financial statements for fiscal
years beginning after December 15, 1997 and require comparative information
for earlier years to be restated. These standards are not expected to
materially impact the Company's disclosures when they are adopted.
2. EARNINGS PER SHARE:
A reconciliation of shares used in calculating basic and diluted earnings per
share follows (in thousands):
1998 1997 1996
------ ------ ------
Basic 80,906 86,018 90,628
Effect of assumed conversion
of employee stock options
and warrants 2,519 2,244
------ ------ ------
Diluted 83,425 86,018 92,872
Options and warrants to purchase approximately 1,021,000 and 2,608,000 shares
of common stock at exercise prices ranging from $24.09 to $30.75 per share
were outstanding during a portion of 1998 and 1996, but were not included
in the computation of diluted earnings per share because they are anti-dilutive.
For fiscal year 1997 all options and warrants outstanding were anti-dilutive.
These options and warrants expire through 2008.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
3. ACQUISITIONS:
(A) PRODUCT LICENSES: (i) On March 27, 1998, the Company entered into an
agreement with H. Lundbeck A/S ("Lundbeck"), obtaining the U.S. marketing
rights to certain products which are in the early stages of development by
Lundbeck. The cost to the Company was $32,250,000 which was charged during
the fourth quarter of fiscal 1998 to purchased research and development expense.
Royalties are payable to Lundbeck from the future sales, if any, of the
products.
(ii) On November 1, 1995, the Company purchased an exclusive product license
from Biovail Laboratories, Inc., a wholly owned subsidiary of Biovail
Corporation International ("BCI"), for $20,000,000. The exclusive license is
for Tiazac, a once daily formulation of diltiazem. The cost of the
acquisition is included in license agreements, product rights and other
intangible assets, net and is being amortized, using the straight-line method,
over the estimated life of the product of 25 years.
(iii) On September 8, 1995, the Company entered into a Development and Co-
Promotion Agreement, with Berlex Laboratories, Inc., to co-promote the Climara
Patch Product. The Company paid $44,500,000 in connection with the agreement,
which is included in license agreements, product rights and other intangible
assets, net and is being amortized, using the straight-line method, over the
estimated life of the product of 20 years. The Company may be required to
make additional payments of up to $50,000,000 based on the performance of the
product.
(B) BIOVAIL CORPORATION INTERNATIONAL: On November 1, 1995, the Company
purchased approximately 22% of the total outstanding common shares of stock of
BCI for $76,328,000. This investment was accounted for under the equity
method of accounting. The purchase price exceeded the Company's share of BCI's
underlying book value by $68,689,000 which was accounted for as goodwill. The
goodwill was amortized, using the straight-line method, based on an estimated
life of the investment of 25 years and charged against the equity in income
of BCI. For the year ended March 31, 1996, the Company recorded its share of
BCI's equity in income, as of BCI's year end of December 31. On May 22, 1996,
the Company sold its entire investment in BCI for net proceeds of $102,301,000
which resulted in a net non-recurring gain of $26,399,000 or $17,019,000 after
taxes.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
4. BUSINESS OPERATION:
The Company and its subsidiaries, which are located in the United States, 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, 1998, 1997 and
1996 follows:
Domestic operations
---------------------------
United
Exports, Kingdom
principally and Ireland
1998 (IN THOUSANDS) United States Europe operations Eliminations Consolidated
- ------------------- ------------- ----------- ----------- ------------ ------------
Net sales to unaffiliated
customers $390,530 $ 596 $35,960 $427,086
Sales between geographic
areas 1,952* $1,952
-------- ------ ------- ----- --------
Net sales $390,530 $2,548 $35,960 $1,952 $427,086
======== ====== ======= ====== ========
Operating profit $ 14,281 $ 127 $ 2,420 $ 448 $ 16,380
======== ====== ======= ======
Other income and contract
revenue, net 47,618
Unallocated expenses ( 9,226)
-------
Income before income taxes $ 54,772
Identifiable assets $476,572 $42,272 $518,843
======== =======
Corporate assets 225,480
--------
Total assets $744,323
*AT NORMAL PROFIT MARGINS
Domestic operations
--------------------------
United
Exports, Kingdom
principally and Ireland
1997 (IN THOUSANDS) United States Europe operations Eliminations Consolidated
- ------------------- ------------- ----------- ----------- ------------ ------------
Net sales to unaffiliated
customers $247,778 $1,540 $31,427 $280,745
Sales between geographic areas 1,200* $1,200
-------- ------ ------- ------ --------
Net sales $247,778 $2,740 $31,427 $1,200 $280,745
======== ====== ======= ====== ========
Operating profit (loss) ($ 62,585) $ 239 $ 4,534 $ 448 ($ 58,260)
Other income and contract
revenue, net 28,316
Unallocated expenses ( 9,055)
-------
Income (loss) before income tax
expense (benefit) ($ 38,999)
Identifiable assets $482,423 $31,507 $513,930
Corporate assets 186,351
--------
Total assets $700,281
========
*AT NORMAL PROFIT MARGINS
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
4. BUSINESS OPERATIONS: (CONTINUED)
Domestic operations
---------------------------
United
Exports, Kingdom
principally and Ireland
1996 (IN THOUSANDS) United 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 and contract
revenue, net 13,061
Unallocated expenses ( 6,922)
------
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
The Company sells primarily in the United States and European markets.
Operating profit (loss) is net sales less operating expenses, and does not
include contract revenue, other income, unallocated expenses or income taxes
(benefit).
Three customers accounted for 13%, 12% and 11%, respectively, of the Company's
consolidated net sales for the year ended March 31, 1998. Two customers each
accounted for 10% of the Company=s consolidated net sales for the year ended
March 31, 1997 and one customer accounted for 12% of the Company=s consolidated
net sales for the year ended March 31, 1996.
5. INVENTORIES:
Inventories consist of the following:
March 31, (IN THOUSANS) 1998 1997
------ ------
Raw materials $34,723 $29,702
Work in process 4,320 2,328
Finished goods 43,675 60,509
------- -------
$82,718 $92,539
======= =======
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
6. MARKETABLE SECURITIES:
The composition of the investment portfolio at March 31, was:
Gross Gross
unrealized unrealized Market
Cost gains losses value
------ ---------- ---------- -------
1998
- ----
Available-for-sale:
- ------------------
State and local obligations $78,247 ($300) $77,947
Held-to-maturity:
- ----------------
Foreign government obligations 2,000 $138 2,138
------- ---- ---- -------
$80,247 $138 ($300) $80,085
======= ==== ==== =======
1997
- ----
Available-for-sale:
- ------------------
State and local obligations $23,074 ($463) $22,611
Held-to-maturity:
- -----------------
Foreign government obligations 4,207 $210 4,417
------- ---- ---- -------
$27,281 $210 ($463) $27,028
======= ==== ==== =======
The contractual maturities of debt securities at March 31, 1998, regardless of
their balance sheet classification, consist of the following:
Amortized Fair
cost value
--------- -----
Available-for-sale:
- ------------------
Less than one year $32,419 $32,199
One to three years 45,828 45,748
------- -------
78,247 77,947
------- -------
Held-to-maturity:
- ----------------
Three to ten years 2,000 2,138
------- -------
$80,247 $80,085
======= =======
The net unrealized holding loss at March 31, 1998, 1997 and 1996 of $300, $463
and $1,445, respectively, from available-for-sale securities is included in
Shareholders' equity: Other.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
7. 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 1998 1997
--------- -------- --------
License agreements (refer to Note 3) 10-40 $143,162 $141,810
Product rights 10-14 37,238 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 2,790 3,561
------- --------
273,285 269,204
Less accumulated amortization ( 76,190) ( 63,419)
-------- --------
$197,095 $205,785
======== ========
8. ACCRUED EXPENSES:
Accrued expenses consist of the following:
MARCH 31, (IN THOUSANDS) 1998 1997
------- -------
Employee compensation and other benefits $13,867 $11,638
Clinical research 7,884 5,677
Royalties 5,933 636
Purchased research and development (refer to Note 3) 32,250
Other 11,064 19,025
------- -------
$70,998 $36,976
======= =======
9. COMMITMENTS:
LEASES: The Company leases manufacturing, office and warehouse facilities,
equipment and automobiles under operating leases expiring through 2010. Rent
expense approximated $7,196,000 for 1998, $7,115,000 for 1997 and $4,158,000
for 1996. Aggregate minimum rentals under noncancellable leases are as
follows:
YEAR ENDING MARCH 31, (IN THOUSANDS)
1999 $ 7,657
2000 6,273
2001 5,039
2002 3,352
2003 3,134
Thereafter 24,285
-------
$49,740
=======
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. COMMITMENTS: (CONTINUED)
-----------
ROYALTY AGREEMENTS: In 1986, the Company entered into an agreement for
research and development (the "1986 Prutech Agreement") with Prutech Research
and Development Partnership ("Prutech"). In accordance with the provisions of
this agreement, the Company granted Prutech a nonexclusive license to certain
of the Company's controlled release technologies for the purpose of developing
controlled release forms of physostigmine. Prutech contracted with the Company
to perform research necessary to develop the product. In addition, Prutech
granted the Company options to acquire exclusive manufacturing and marketing
rights to the product if it is successfully developed. Under the agreement,
the Company will pay to Prutech an initial royalty on sales of the product 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 (refer to
Note 3), the Company entered into a license agreement. The license agreement
provides for an 8% royalty on net sales, as defined. Royalties under this
agreement amounted to $7,530,000 for 1998, $2,003,000 for 1997 and $1,043,000
for 1996. The license agreement also required the Company to spend $15,000,000
in advertising and on samples, as defined, in 1996 and 1997.
In connection with the acquisition of the Climara Patch Product (refer to Note
3), the Company will receive a co-promotion fee based on 50% of co-promotion
income, as defined. For fiscal year 1998, co-promotion income
exceeded co-promotion expense resulting in income of $6,489,000. For fiscal
years 1997 and 1996, co-promotion expenses incurred exceeded co-promotion
income resulting in a loss of $1,904,000 and $1,076,000, respectively. These
amounts have been included in contract revenue (expense).
10. SHAREHOLDERS' EQUITY:
PREFFERRED STOCK PURCHASE RIGHTS: 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.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. 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 15,000,000 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. Both incentive and non-qualified options may be issued under the plans.
The options are exercisable up to the tenth anniversary of the date of
issuance, subject to acceleration upon termination of employment.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company
to provide pro forma information regarding net income and earnings per share as
if compensation cost for the Company's stock option plans had been determined
in accordance with the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants: dividend yield of zero for all three
years; expected volatility of 29.61% in 1998, 35.37% in 1997 and 35.37% in
1996; risk-free interest rates between 5.75% and 6.5% in 1998, 6.5% in 1997 and
6.5% in 1996; and expected lives of four to seven years for all three years.
Under the accounting provisions of SFAS No. 123, the Company's net income
(loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below:
1998 1997 1996
-------- -------- --------
Net income (loss)
As reported $36,697 ($23,541) $104,245
Pro forma 24,953 ( 27,911) 102,162
Net income (loss) per common
share - diluted
As reported $0.44 ($0.27) $1.12
Pro forma 0.30 ( 0.32) 1.10
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
10. SHAREHOLDERS' EQUITY: (CONTINUED)
The following table summarizes information about stock options outstanding at
March 31, 1998:
Options outstanding Options exercisable
------------------------------------------------- -------------------------------
Number Weighted-average Number
Range of outstanding remaining Weighted-average exercisable Weighted average
exercise prices at 3/31/98 contractual life exercise price at 3/31/98 exercisable price
- --------------- ----------- ---------------- ---------------- ----------- -----------------
$ 4.95 to $10.00 732,748 0.6 $ 5.82 732,748 $ 5.82
10.01 to 20.00 6,804,390 4.1 14.92 3,851,283 12.61
20.01 to 30.75 3,591,276 6.2 22.16 1,938,514 22.22
---------- --- ------ --------- ------
11,128,414 4.5 $16.66 6,522,545 $14.70
Transactions under the stock option plans and individual non-qualified options
not under the plans are summarized as follows:
Weighted average
Shares exercise price
--------- ----------------
Shares under option at March 31, 1995
(at $4.25 to $24.09 per share) 9,490,554 $14.58
Granted (at $20.84 to $22.09 per share) 2,781,800 21.56
Exercised (at $4.96 to $23.31 per share) ( 617,412) 13.66
Cancelled ( 314,630) 21.79
---------- -----
Shares under option at March 31, 1996
(at $4.25 to $24.44 per share) 11,340,312 16.12
Granted (at $14.84 to $23.28 per share) 4,093,844 18.21
Exercised (at $9.98 to $21.41 per share) ( 405,452) 14.48
Cancelled ( 3,733,190) 21.93
----------- -----
Shares under option at March 31, 1997
(at $4.25 to $24.09 per share) 11,295,514 15.02
Granted (at $21.25 to $30.75 per share) 1,763,500 22.20
Exercised (at $4.25 to $23.31 per share) ( 1,382,342) 10.27
Cancelled ( 548,258) 16.37
----------- -----
Shares under option at March 31, 1998
(at $4.95 to $30.75 per share) 11,128,414 16.66
Options exercisable at March 31:
1996 7,239,716 13.19
1997 6,730,316 12.89
1998 6,522,545 14.70
Weighted average fair value
of options granted during:
1996 $10.50
1997 8.94
1998 8.86
At March 31, 1998, 1997 and 1996, 422,494, 1,852,444 and 2,057,690 shares,
respectively, were available for grant.
FOREST LABORATORIES, INC.
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
10. SHAREHOLDERS' EQUITY: (CONTINUED)
In connection with the private investors group arrangement (refer to Note 12),
the Company issued five-year warrants to the investors to purchase an aggregate
of 1,000,000 shares of the Company=s common stock at $25.73 per share.
In connection with the acquisition of product rights in fiscal 1995, the
Company issued 560,000 warrants, which expire on July 7, 2004, at an exercise
price of $22.86 per share which was equal to the then fair market value of the
Company's common stock.
Included in the caption Shareholders' equity: Other are the cumulative effects
of foreign currency translation adjustments and the unrealized holding loss
from available-for-sale securities (net of taxes).
11. 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." Similar actions alleging price discrimination claims
under state law are pending against many pharmaceutical manufacturers,
including the Company, in 12 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. Certain manufacturer defendants (but
not the Company) reached a settlement of the Federal class action which
received court approval in June 1996, pursuant to which they agreed to pay an
aggregate of approximately $350 million and make certain commitments with
regard to pricing practices. A trial of the Federal class action is scheduled
for September 1998. 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.
FOREST LABORATORIES, INC.
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
11. CONTINGENCIES: (CONTINUED)
Abbott Laboratories ("Abbott") notified the Company that it considers that
Infasurf, a lung surfactant licensed by the Company from
ONY, Inc. ("ONY"), infringes on the patents on Abbott's Survanta-R-
surfactant product. In response, the Company and ONY commenced
an action against Abbott seeking a declaration that Infasurf does
not infringe the Survanta patents and that the Survanta patents are invalid.
The Company believes, following consultation with its patent counsel, that
Abbott's claim is without merit.
12. DEVELOPMENT AND MARKETING AGREEMENT:
On March 27, 1998, the Company entered into an agreement with the Parke-Davis
division of the Warner-Lambert Company to co-promote Celexa, a selective
serotonin reuptake inhibitor for the treatment of depression. The term of the
agreement is three years upon commencement of physician detailing by the
salesforces of Parke-Davis and the Company followed by a residual period for an
additional three years. The Company shall pay to Parke-Davis each contract year
a co-promotion fee (as defined).
On July 1, 1997, the Company arranged for a private investor group to reimburse
the Company for up to $60,000,000 of expenses, over an approximate two-year
period, in connection with Celexa's development and marketing. At the date of
the agreement, the Company had only recently submitted the product for FDA
approval and there could be no assurances as to the approval and/or marketing
success of the product. In exchange for the investment, the investors will
receive royalties on Celexa's sales commencing fifteen months after FDA
approval at varying rates from twenty-five percent to five percent, depending
on sales levels. The Company has an option to buy out all but a limited one
percent royalty for $85,000,000. The investor group bears all of the financial
risks of any amounts so funded. The funded amounts which totaled approximately
$21,600,000 in fiscal 1998 are being recorded as contract revenue as they are
earned, of which $11,738,000 is included in accounts receivable at March 31,
1998.
In lieu of higher royalty rates, the Company has also issued five-year warrants
to the investors to purchase an aggregate of 1,000,000 shares of the
Company's common stock at $25.73 per share (refer to Note 10).
13. OTHER INCOME:
Other income consists of the following:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1998 1997 1996
------- ------- -------
Interest and dividends $ 9,542 $ 9,698 $12,921
Other income, net 9,974 1,373 1,216
------- ------- -------
$19,516 $11,071 $14,137
======= ======= =======
FOREST LABORATORIES, INC.
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
13. OTHER INCOME: (CONTINUED)
During the last two quarters of fiscal 1998, the Company received payments
amounting to $10,000,000 from the settlement in its arbitration with Pharmacia
& Upjohn, Inc. with respect to the Company's claimed option to negotiate for
the rights to Detrol, Pharmacia & Upjohn, Inc.'s treatment for urinary
incontinence. Pursuant to the terms of settlement, the Company may receive
future payments which are dependent upon certain events, including product
approvals and sales of Detrol with a maximum payment to the Company of
$25,000,000. The payments received were included in other income, net of
$2,306,000 of related expenses.
14. INCOME TAXES:
The Company and its mainland U.S. subsidiaries file a consolidated federal
income tax return.
Income (loss) before income tax expense (benefit) includes income from foreign
operations of $4,451,000, $5,982,000 and $3,540,000 for the years ended March
31, 1998, 1997 and 1996, respectively.
The Company has tax holidays in Ireland which expire in 2010, and Puerto Rico
which expired primarily in 1997. The net impact of these tax holidays in 1998
and 1996, was to increase net income and net income per share (diluted) by
approximately $2,343,000 and $.03 and $2,131,000 and $.02, respectively. In
1997 the effect was to decrease the net loss and net loss per share (diluted)
by approximately $1,149,000 and $.01 per share.
The provision for income taxes (benefit) consists of the following:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1998 1997 1996
- ---------------------------------- ------- ------- -------
Current:
U.S. federal $34,058 ($ 3,352) $53,147
State and local 5,025 ( 2,572) 8,809
Foreign 2,083 1,722 1,473
------- ------- -------
41,166 ( 4,202) 63,429
------- ------- -------
Deferred:
Domestic ( 24,754) ( 12,521) ( 6,589)
Foreign 327 ( 556) ( 35)
------- ------- -------
( 24,427) ( 13,077) ( 6,624)
------- ------- -------
Charge in lieu of income taxes,
relating to the tax effect of
stock option tax deduction 1,336 1,821 1,325
------- ------- -------
$18,075 ($15,458) $58,130
======= ======= =======
FOREST LABORATORIES, INC.
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
14. INCOME TAXES: (CONTINUED)
No provision has been made for income taxes on the undistributed earnings of
the Company's foreign subsidiaries of approximately $49,666,000 at
March 31,1998 as the Company intends to indefinitely reinvest such earnings.
The reasons for the difference between the provision for income taxes (benefit)
and expected federal income taxes at statutory rates are as follows:
Year ended March 31, (In thousands) 1998 1997 1996
- ----------------------------------- ------- ------- -------
Expected federal income taxes (tax benefit) $19,170 ($13,650) $56,831
State and local income taxes (tax benefit),
less federal income tax benefit 2,740 ( 2,120) 5,396
Net benefit of tax-exempt earnings ( 2,316) ( 3,020) ( 2,159)
Tax effect of permanent differences ( 3,532) 2,118 ( 2,767)
Other 2,013 1,214 829
------- ------- -------
$18,075 ($15,458) $58,130
Net deferred income taxes consist of the following:
March 31, (IN THOUSANDS) 1998 1997
------- -------
Inventory valuation $10,921 $10,444
Receivable reserves and other allowances 25,934 21,316
State and local net operating loss
carryforwards 3,841 3,420
Depreciation ( 2,430) ( 2,030)
Amortization 3,226 4,214
Tax credits and other carryforwards 255 255
Accrued liabilities 4,434 3,124
Purchased research and development 12,917
Employee stock option tax benefits 6,404
Other ( 461) ( 130)
------- -------
$65,041 $40,613
======= =======
FOREST LABORATORIES, INC.
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------
15. QUARTERLY FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Diluted
earnings
Net income/ (loss)
Net sales Gross profit (loss) per share
--------- ------------ ----------- ---------
1998
- ----
First quarter $ 86,366 $64,062 $ 659 $.01
Second quarter 104,461 79,413 15,516 .19
Third quarter 115,942 88,226 19,484 .24
Fourth quarter 120,317 90,973 1,038 .01
1997
- ----
First quarter $90,316 $70,511 $21,866 $.24
Second quarter 90,182 67,499 5,573 .06
Third quarter 40,604 20,377 ( 32,313) ( .38)
Fourth quarter 59,643 36,484 ( 18,667) ( .23)
During the last two quarters of fiscal 1998, the Company received payments
amounting to $10,000,000 from the settlement in its arbitration with Pharmacia
& Upjohn, Inc. with respect to the Company's claimed option to negotiate for
the rights to Detrol, Pharmacia & Upjohn, Inc.'s treatment for urinary
incontinence (refer to Note 13.) The payments received were recorded in other
income, net of $2,306,000 of related expenses.
During the fourth quarter of fiscal 1998, the Company entered into an agreement
with Lundbeck, for the United States marketing rights to certain products
under development by Lundbeck. The Company recognized a $32,250,000 charge for
the agreement and has recorded the charge as purchased research and development
expense in the last quarter of fiscal 1998 (refer to Note 3.)
During the first quarter of fiscal 1997, the Company reported a net non-
recurring gain of $19,149,000 or $12,687,000 ($.14 per diluted share) after
taxes. The gain resulted from the sale of the Company's approximate 22% equity
holding in Biovail Corporation International which resulted in a gain of
$26,399,000 or $17,019,000 ($.18 per diluted share) after taxes partially
offset by non-recurring charges of $7,250,000 or $4,332,000 ($.05 per diluted
share) after tax for expenses relating to the closing of certain of the
Company's facilities and for a reserve for the estimated cost of settlement of
certain litigations.
During the third fiscal quarter of 1997, the Company announced that it had
decided to eliminate trade incentives for all of its branded products in order
to reduce high trade inventory levels, principally of Aerobid, and thus improve
profit margins in future periods. As a result of this policy change,
distributors deferred purchases of products in order to reduce their
inventories to minimal levels. Lower sales resulting from this policy change,
as well as lower sales of Lorcet due to generic competition and lower prices
received for the Company's generic product line, were principally responsible
for the losses reported during the last two quarters of fiscal 1997.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
Net current assets decreased by $44,328,000 during fiscal 1998. During
the year the Company purchased an additional 3,293,000 shares of the
Company's common stock at a cost of $70,109,000. During the third
quarter, the Company announced that its Board of Directors had
authorized the purchase, from time to time, of an additional 4,000,000
shares of outstanding common stock bringing the total authorization to
17,000,000 shares. At March 31, 1998, the Company had repurchased a
total of 12,321,000 shares at a cost of $239,502,000. As a result of
sales returning to more normal levels (refer to Results of Operations
below), inventories declined $9,821,000, net of a buildup of Celexa
inventory, the Company's selective serotonin reuptake inhibitor for
depression, which the Company anticipates will be launched during the
second quarter of fiscal 1999, and trade accounts receivable increased
$6,020,000. Other accounts receivable increased $13,548,000 primarily
from the Company's arrangement with a private investor group to
reimburse the Company for up to $60,000,000 of expenses, over an
approximate two-year period, in connection with development and
marketing costs for Celexa. The increase in deferred income taxes -
current was due to various sales allowances that are not currently
deductible for tax purposes. Accrued expenses at March 31, 1998
include $32,250,000 for an arrangement the Company entered into with
H. Lundbeck A/S of Denmark for the United States marketing rights to
certain products under development by Lundbeck. The amount was charged
to purchased research and development but is not currently deductible
for tax purposes, resulting in the increases in deferred income taxes
- noncurrent and income taxes payable.
Management believes that current cash levels, coupled with funds to be
generated by ongoing operations, will continue to provide adequate
liquidity to facilitate potential acquisitions of products, capital
investments and the share repurchase program.
RESULTS OF OPERATIONS
---------------------
In December 1996, the Company announced that it had decided to
eliminate trade incentives for all of its branded products in order to
reduce high trade inventory levels, principally of Aerobid, and thus
improve profit margins in future periods. The result of this policy
change was that distributors deferred purchases of products until such
time as they had reduced their inventories to minimal levels,
resulting in lower sales. Lower sales resulting from this policy
change were principally responsible for the losses reported during the
last two quarters of the 1997 fiscal year and the modest earnings
reported in the first quarter of the current fiscal year. During the
last three quarters of the current fiscal year, sales were not
adversely affected by the destocking of wholesalers' inventories. The
Company believes that sales now more closely reflect prescription
demand for its products.
Net sales for fiscal 1998 increased $146,341,000 from fiscal 1997
which was adversely affected by the destocking of wholesalers'
inventories as discussed above. During the year, as sales returned to
more normal levels, the Company's principal promoted products,
particularly Aerobid and Tiazac, experienced higher unit sales and
accounted for most of the increase. Aerobid, which returned to normal
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
levels during the second quarter of the current fiscal year, accounted
for $47,142,000 of the increase in fiscal 1998, despite a decline in
prescriptions for the product as a result of new competitive products
in the inhaled steroid market. Tiazac, Cervidil and the Company's
other promoted products contributed $70,541,000, principally all of
which was due to volume increases. The Company's older and less
promoted products added $41,152,000 to the net sales increase, also
due principally to volume increases following fiscal 1997's reduced
sales levels. These increases were offset by a $12,494,000 decline in
sales of the Company's generic products as a result of continuing
price and volume competition, a trend which the Company expects will
continue in future years. Net sales for fiscal 1997 decreased
$166,138,000 from fiscal 1996 due principally to the Company's
decision to eliminate trade incentives on all of its branded products,
as discussed above. $146,342,000 of the decrease was attributable to
volume declines and $19,796,000 was due to price declines. The
principal volume declines, amounting to $126,949,000, resulted from
lower sales of Aerobid, Lorcet-R- and the Company's generic products.
Other unpromoted products accounted for the remaining net volume
decline of $19,393,000, which was also due to distributors reducing
inventory levels. The principal price declines resulted from
heightened pricing competition in the Company's generic business.
Contract revenue (expense) for fiscal 1998 includes $21,613,000 from
the Company's arrangement with a private investor group to reimburse
the Company for certain expenses incurred in connection with Celexa.
This arrangement was not in effect in prior years. The remainder of
the increase was a result of co-promotion income on sales of Climara,
now exceeding co-promotion expenses as compared to losses in prior
years.
Non-recurring income in fiscal 1997 represents a net non-recurring
gain from the sale of the Company's equity holding in Biovail
Corporation International of $26,399,000 partially offset by non-
recurring charges of $7,250,000 for expenses relating to the closing
of certain of the Company's facilities and for the estimated cost of
settlement of certain litigation.
Other income for fiscal 1998 includes $10,000,000 less $2,306,000 of
related expenses from the settlement with Pharmacia & Upjohn, Inc.
with respect to the Company's claimed option to negotiate for the
rights to Detrol-R-. The Company may receive the remaining $15,000,000 of
the settlement, subject to the achievement of certain sales objectives
for Detrol, over the next five quarters.
Cost of sales as a percentage of sales was 24% in fiscal 1998, 31% in
fiscal 1997 and 20% in fiscal 1996. As a result of sales returning to
more normal levels during the current period, the proportion of high
margin branded products to total product sales increased significantly
and together with improved overhead absorption from higher production
levels, resulted in improved profit margins. The increase during
fiscal 1997 was due primarily to lower sales of high margin branded
products which was a result of trade inventory reductions, a higher
percentage of low margin generic product sales which were not affected
by trade inventory reductions, lower prices received on generic
products due to heightened competition, and under absorbed overhead
which resulted from lower production levels needed to support lower
sales.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Selling, general and administrative expense increased $14,873,000
during fiscal 1998. The increase was principally due to costs incurred
in conjunction with the upcoming launch of Celexa, including a further
expansion during the current fiscal year of the Company's salesforce
by approximately 200 representatives. These increased expenses,
together with the research and development expenses related to Celexa,
were reimbursed by the private investor group as discussed above. The
increase during fiscal 1997 reflected the full year's impact of the
expansion of the Company's U.S. salesforce by 200 representatives
during that fiscal year and for costs incurred in conjunction with the
launches of Tiazac and Monurol and for a write-down of accounts
receivable owed to the Company by Foxmeyer Drug.
The increases in research and development expense during the periods
presented were due to costs associated with conducting clinical trials
in order to obtain approval for new products and from staff increases
and associated costs required to support an increased number of
products under development and submitted to the FDA. During
the 1998 fiscal year, particular emphasis was placed on clinical
studies and new formulations for Aerobid and on clinical studies for
Celexa.
Purchased research and development of $32,250,000 resulted from the
Company's license of three products from H. Lundbeck A/S which are in
early stages of development.
Income tax expense as a percentage of income before taxes was 33% in
fiscal 1998, as compared to 36%, which was the Company's effective tax
rate prior to last year's net loss. The lower effective rate was due
principally to a decrease in proportion of the Company's profit
derived from fully taxable operations, as compared to tax-exempt
operations, and tax-free interest income and from increases in the
amounts of tax credits.
The Company expects to continue its profitability into fiscal 1999 as
sales of current products continue at normal levels following the
reduction of trade inventories. The continuing decline in the generic
market should be offset by increases in the sales of recently launched
and growing products, such as Cervidil and Tiazac, as well as from new
products, such as Celexa, when they are brought to market.
At March 31, 1998, primarily all computer systems and software (the
"Systems") of the Company's U.S. operations are Year 2000 compliant.
Presently, the Company=s European subsidiaries are preparing to
replace existing Systems that are not Year 2000 compliant. The Company
anticipates that all Systems will be compliant by the end of 1999.
Management believes that the cost to modify these Systems is
immaterial.
Inflation has not had a material effect on the Company's operations
for the periods presented.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FORWARD LOOKING STATEMENTS Except for the historical information
--------------------------
contained herein, the Management Discussion and other portions of this
annual report contain forward looking statements that involve a number
or risks and uncertainties, including the difficulty of predicting FDA
approvals, acceptance and demand for new pharmaceutical products, the
impact of competitive products and pricing, the timely development and
launch of new products and the risk factors listed from time to time
in the Company's SEC reports, including the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998.
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a
Delaware corporation (the "Company") and ELAINE HOCKBERG (the
"Executive"), dated as of the 24th day of June 1997.
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 Executive's
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 Iindividual
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 Consolidation"), 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 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 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 such Business Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the
Company.
3. Employment Period. The Company hereby agrees to
------------------
continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of
the Company subject to the terms and conditions of
this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the
Executive's position (including status,
offices, titles and reporting
requirements), authority, duties, and
responsibilities shall be at least
commensurate in all material respects with
the most significant of those held,
exercised and assigned at any time during
the 120-day period immediately preceding
the Effective Date and (B) the Executive's
services shall be performed at the location
where the Executive was employed
immediately preceding the Effective Date or
any office or location less than 35 miles
from such location.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to
which the Executive is entitled, the
Executive agrees to devote reasonable
attention and time during normal business
hours to the business and affairs of the
Company and, to the extent necessary to
discharge the responsibilities assigned to
the Executive thereunder, 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 Executive's
responsibilities as an employee of the
Company in accordance with this Agreement.
It is expressly understood and agreed that
to the extent that any such activities
have been conducted by the Executive prior
to the Effective Date, the continued
conduct of such activities (or the conduct
of activities similar in nature and scope
thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere
with the performance of the Executives
responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period,
------------
the Executive shall receive an annual base
salary ("Annual Base Salary"), which shall
be paid at a Monthly rate, at least equal
to twelve times the highest monthly base
salary paid or payable, including any base
salary which has been earned but deferred,
to the Executive by the Company and its
affiliated companies in respect of the
twelve-month period immediately preceding
the month in which the Effective Date
occurs. During the Employment Period, the
Annual Base Salary shall be reviewed no
more than 12 months after the last salary
increase awarded to the Executive prior to
the Effective Date and thereafter at least
annually. Any increase in Annual Base
Salary shall not serve to limit or
reduce any other obligation to the
Executive under this Agreement. Annual
Base Salary shall not be reduced after any
such increase and the term Annual Base
Salary as utilized in this Agreement shall
refer to Annual Base Salary as so
increased. As used in this Agreement,
the term, "affiliated companies" shall
include any company controlled by,
controlling or under common control with
the Company.
(ii) Annual Bonus. In addition to Annual Base
-------------
Salary, the Executive shall be awarded, for
each fiscal year ending during the
Employment Period, an annual bonus (the
"Annual Bonus") in cash at least equal to
the highest aggregate amount awarded to the
Executive under all annual bonus, incentive
and other similar plans of the Company with
respect to any of the last three full
fiscal years prior to the Effective Date
(annualized in the event that the Executive
was not employed by the Company for the
whole of such fiscal 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 and
policies and programs as in effect at any time
during the 120-day period immediately preceding the
Effective Date or if more favorable to the Executive,
those provided generally at any time after the
Effective Date to other peer executives of the
Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the
-------------------------
Employment Period, the Executive and/or
the Executive's family, as the case may be,
shall be eligible for participation in and
shall receive all benefits under welfare
benefit plans, practices, policies and
programs provided by the Company and its
affiliated companies (including, without
limitation, medical, prescription, dental,
disability, employee life, group life,
accidental death and travel accident
insurance plans and programs) to the extent
applicable generally to other peer
executives of the Company and its
affiliated companies, but in no event shall
such plans, practices, policies and
programs provide the Executive with
benefits which are less favorable in the
aggregate, than the most favorable of such
plans, practices, policies and programs in
effect for the Executive at any time during
the 120-day period immediately preceding
the Effective Date or, if more
favorable to the Executive, those provided
generally at any time after the Effective
Date to other peer executives of the
Company and its affiliated companies.
(v) Expenses. During the Employment Period,
--------
the Executive shall be entitled to receive
prompt reimbursement for all reasonable
expenses incurred by the Executive in
accordance with the most favorable
policies, practices and procedures of the
Company and its affiliated companies in
effect for the Executive at any time during
the 120-day period immediately preceding
the Effective Date or, if more favorable to
the Executive, as is 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 Executive's 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 Executive's
employment. In such event, the Executive's
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 30 days
after such receipt, the Executive shall not have
returned to full-time performance of the
Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence
of the Executive from the Executive's 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
Executive's 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 continues failure of the
Executive to perform substantially the
Executive's 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 Executive's duties, or
(ii) the willful engaging by the Executive in
illegal conduct or gross misconduct which
is naturally 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 the 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 Executive's 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
Executive's position (including status,
offices, titles and reporting
requirements), authority, duties or
responsibilities as contemplated by Section
4(a) of this Agreement, or any other action
by the Company which results in a
diminution in such position, authority,
duties or responsibilities, excluding for
this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith
and which is remedied by the Company
promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4(b) of
this Agreement, other than an isolated,
insubstantial and inadvertent failure not
occurring in bad faith and which is
remedied by the Company promptly after
receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive
to be based at any office or location other
than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the
Executive to travel on Company business
to a substantially greater extent than
required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of
the Executive's 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.
(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 of
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
Executive's 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 retirement plan
(the"Retirement Plan") (utilizing
actuarial assumptions no less
favorable to the Executive than those
in effect under the Company's
Retirement Plan immediately prior to
the Effective Date), and any excess or
supplemental retirement plan in which
the Executive participates (together,
the "SERP") which the Executive would
receive if the Executive's employment
continued for three years after the
Date of Termination assuming for this
purpose that all accrued benefits are
fully vested, and, assuming that the
Executive's compensation in each of
the three years is that required by
Section 4(b)(i) and Section 4(b)(ii),
over (b) the actuarial equivalent of
the Executive's actual benefit (paid
or payable), if any, under the
Retirement Plan and the SERP as of the
Date of Termination.
(ii) for three years after the Executive's Date
of Termination, or such longer period as
may be provided by the terms of the
appropriate plan, program, practice or
policy, the Company shall continue benefits
to the Executive and/or the Executive's
family at least equal to those which would
have been provided to them in accordance
with the plans, programs, practices and
policies described in Section 4(b)(iv) of
this Agreement if the Executive's
employment had not been terminated or, if
more favorable to the Executive, as in
effect generally at any time thereafter
with respect to other peer executives of
the Company and its affiliated companies
and their families, provided, however, that
if the Executive becomes reemployed with
another employer 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 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
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
without further obligations to the Executive,
other than for Accrued Obligations and the
timely payment of 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 280G of the Code, then the aggregate
present value of amounts payable or
distributable to or for the benefit of the
Executive pursuant to this Agreement (such
payments or distributions pursuant to this
Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced (but not
below zero) to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present
value which maximizes the aggregate present
value of Agreement Payments without causing any
Payment to be nondeductible by the Company
because of Section 280G of the Code. For
purposes of this Section 9 present value shall
be determined in accordance with Section
280G(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 280G 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.
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 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 assigned 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 representative.
(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.
(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:
Elaine Hochberg
73 Christopher Street
Montclair, N.J. 07042
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
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.
i. 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.
ii. 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.
iii. The Executive and the Company acknowledge
that, except as may otherwise be provided
under any written agreement between the
Executive and the Company, the employment
of the Executive by the Company is "at
will" and, subject to Section i(a) hereof,
prior to the Effective Date, the
Executive's employment and/or this
Agreement may be terminated by either the
Executive or the Company at any time prior
to the Effective Date, in which case the
Executive shall have no further rights
under this Agreement. From and after the
Effective Date this Agreement shall
supersede any other agreement between the
parties with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in
its name on its behalf, all as of the day and year first above
written.
---------------------------
ELAINE HOCHBERG
FOREST LABORATORIES, INC.
By:
-----------------------------
KENNETH E GOODMAN
Vice President-Finance
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a
Delaware corporation (the "Company") and MARY PREHN (the
"Executive"), dated as of the 16th day of January 1995.
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions:
-------------------
(a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined
in Section 1(b) on which a Change of Control
(as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding,
if a Change of Control occurs and if the Executive's
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 Iindividual
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 Consolidation"), 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 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 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 such Business Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the
Company.
3. Employment Period. The Company hereby agrees to
------------------
continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of
the Company subject to the terms and conditions of
this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the
Executive's position (including status,
offices, titles and reporting
requirements), authority, duties, and
responsibilities shall be at least
commensurate in all material respects with
the most significant of those held,
exercised and assigned at any time during
the 120-day period immediately preceding
the Effective Date and (B) the Executive's
services shall be performed at the location
where the Executive was employed
immediately preceding the Effective Date or
any office or location less than 35 miles
from such location.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to
which the Executive is entitled, the
Executive agrees to devote reasonable
attention and time during normal business
hours to the business and affairs of the
Company and, to the extent necessary to
discharge the responsibilities assigned to
the Executive thereunder, 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 Executive's
responsibilities as an employee of the
Company in accordance with this Agreement.
It is expressly understood and agreed that
to the extent that any such activities
have been conducted by the Executive prior
to the Effective Date, the continued
conduct of such activities (or the conduct
of activities similar in nature and scope
thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere
with the performance of the Executives
responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period,
------------
the Executive shall receive an annual base
salary ("Annual Base Salary"), which shall
be paid at a Monthly rate, at least equal
to twelve times the highest monthly base
salary paid or payable, including any base
salary which has been earned but deferred,
to the Executive by the Company and its
affiliated companies in respect of the
twelve-month period immediately preceding
the month in which the Effective Date
occurs. During the Employment Period, the
Annual Base Salary shall be reviewed no
more than 12 months after the last salary
increase awarded to the Executive prior to
the Effective Date and thereafter at least
annually. Any increase in Annual Base
Salary shall not serve to limit or
reduce any other obligation to the
Executive under this Agreement. Annual
Base Salary shall not be reduced after any
such increase and the term Annual Base
Salary as utilized in this Agreement shall
refer to Annual Base Salary as so
increased. As used in this Agreement,
the term, "affiliated companies" shall
include any company controlled by,
controlling or under common control with
the Company.
(ii) Annual Bonus. In addition to Annual Base
-------------
Salary, the Executive shall be awarded, for
each fiscal year ending during the
Employment Period, an annual bonus (the
"Annual Bonus") in cash at least equal to
the highest aggregate amount awarded to the
Executive under all annual bonus, incentive
and other similar plans of the Company with
respect to any of the last three full
fiscal years prior to the Effective Date
(annualized in the event that the Executive
was not employed by the Company for the
whole of such fiscal 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 and
policies and programs as in effect at any time
during the 120-day period immediately preceding the
Effective Date or if more favorable to the Executive,
those provided generally at any time after the
Effective Date to other peer executives of the
Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the
-------------------------
Employment Period, the Executive and/or
the Executive's family, as the case may be,
shall be eligible for participation in and
shall receive all benefits under welfare
benefit plans, practices, policies and
programs provided by the Company and its
affiliated companies (including, without
limitation, medical, prescription, dental,
disability, employee life, group life,
accidental death and travel accident
insurance plans and programs) to the extent
applicable generally to other peer
executives of the Company and its
affiliated companies, but in no event shall
such plans, practices, policies and
programs provide the Executive with
benefits which are less favorable in the
aggregate, than the most favorable of such
plans, practices, policies and programs in
effect for the Executive at any time during
the 120-day period immediately preceding
the Effective Date or, if more
favorable to the Executive, those provided
generally at any time after the Effective
Date to other peer executives of the
Company and its affiliated companies.
(v) Expenses. During the Employment Period,
--------
the Executive shall be entitled to receive
prompt reimbursement for all reasonable
expenses incurred by the Executive in
accordance with the most favorable
policies, practices and procedures of the
Company and its affiliated companies in
effect for the Executive at any time during
the 120-day period immediately preceding
the Effective Date or, if more favorable to
the Executive, as is 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 Executive's 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 Executive's
employment. In such event, the Executive's
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 30 days
after such receipt, the Executive shall not have
returned to full-time performance of the
Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence
of the Executive from the Executive's 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
Executive's 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 continues failure of the
Executive to perform substantially the
Executive's 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 Executive's duties, or
(ii) the willful engaging by the Executive in
illegal conduct or gross misconduct which
is naturally 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 the 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 Executive's 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
Executive's position (including status,
offices, titles and reporting
requirements), authority, duties or
responsibilities as contemplated by Section
4(a) of this Agreement, or any other action
by the Company which results in a
diminution in such position, authority,
duties or responsibilities, excluding for
this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith
and which is remedied by the Company
promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4(b) of
this Agreement, other than an isolated,
insubstantial and inadvertent failure not
occurring in bad faith and which is
remedied by the Company promptly after
receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive
to be based at any office or location other
than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the
Executive to travel on Company business
to a substantially greater extent than
required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of
the Executive's 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.
(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 of
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
Executive's 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 retirement plan
(the"Retirement Plan") (utilizing
actuarial assumptions no less
favorable to the Executive than those
in effect under the Company's
Retirement Plan immediately prior to
the Effective Date), and any excess or
supplemental retirement plan in which
the Executive participates (together,
the "SERP") which the Executive would
receive if the Executive's employment
continued for three years after the
Date of Termination assuming for this
purpose that all accrued benefits are
fully vested, and, assuming that the
Executive's compensation in each of
the three years is that required by
Section 4(b)(i) and Section 4(b)(ii),
over (b) the actuarial equivalent of
the Executive's actual benefit (paid
or payable), if any, under the
Retirement Plan and the SERP as of the
Date of Termination.
(ii) for three years after the Executive's Date
of Termination, or such longer period as
may be provided by the terms of the
appropriate plan, program, practice or
policy, the Company shall continue benefits
to the Executive and/or the Executive's
family at least equal to those which would
have been provided to them in accordance
with the plans, programs, practices and
policies described in Section 4(b)(iv) of
this Agreement if the Executive's
employment had not been terminated or, if
more favorable to the Executive, as in
effect generally at any time thereafter
with respect to other peer executives of
the Company and its affiliated companies
and their families, provided, however, that
if the Executive becomes reemployed with
another employer 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 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
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
without further obligations to the Executive,
other than for Accrued Obligations and the
timely payment of 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 280G of the Code, then the aggregate
present value of amounts payable or
distributable to or for the benefit of the
Executive pursuant to this Agreement (such
payments or distributions pursuant to this
Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced (but not
below zero) to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present
value which maximizes the aggregate present
value of Agreement Payments without causing any
Payment to be nondeductible by the Company
because of Section 280G of the Code. For
purposes of this Section 9 present value shall
be determined in accordance with Section
280G(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 280G 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.
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 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 assigned 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 representative.
(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.
(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:
Mary Prehn
4 McGuire Lane
Croton-on-Hudson, NY 10520
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
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.
i. 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.
ii. 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.
iii. The Executive and the Company acknowledge
that, except as may otherwise be provided
under any written agreement between the
Executive and the Company, the employment
of the Executive by the Company is "at
will" and, subject to Section i(a) hereof,
prior to the Effective Date, the
Executive's employment and/or this
Agreement may be terminated by either the
Executive or the Company at any time prior
to the Effective Date, in which case the
Executive shall have no further rights
under this Agreement. From and after the
Effective Date this Agreement shall
supersede any other agreement between the
parties with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in
its name on its behalf, all as of the day and year first above
written.
---------------------------
MARY PREHN
FOREST LABORATORIES, INC.
By:
-----------------------------
KENNETH E GOODMAN
Vice President-Finance
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a
Delaware corporation (the "Company") and RAYMOND STAFFORD (the
"Executive"), dated as of the 23rd day of February 1998.
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 Executive's
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 Iindividual
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 Consolidation"), 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 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 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 such Business Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the
Company.
3. Employment Period. The Company hereby agrees to
------------------
continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of
the Company subject to the terms and conditions of
this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the
Executive's position (including status,
offices, titles and reporting
requirements), authority, duties, and
responsibilities shall be at least
commensurate in all material respects with
the most significant of those held,
exercised and assigned at any time during
the 120-day period immediately preceding
the Effective Date and (B) the Executive's
services shall be performed at the location
where the Executive was employed
immediately preceding the Effective Date or
any office or location less than 35 miles
from such location.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to
which the Executive is entitled, the
Executive agrees to devote reasonable
attention and time during normal business
hours to the business and affairs of the
Company and, to the extent necessary to
discharge the responsibilities assigned to
the Executive thereunder, 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 Executive's
responsibilities as an employee of the
Company in accordance with this Agreement.
It is expressly understood and agreed that
to the extent that any such activities
have been conducted by the Executive prior
to the Effective Date, the continued
conduct of such activities (or the conduct
of activities similar in nature and scope
thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere
with the performance of the Executives
responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period,
------------
the Executive shall receive an annual base
salary ("Annual Base Salary"), which shall
be paid at a Monthly rate, at least equal
to twelve times the highest monthly base
salary paid or payable, including any base
salary which has been earned but deferred,
to the Executive by the Company and its
affiliated companies in respect of the
twelve-month period immediately preceding
the month in which the Effective Date
occurs. During the Employment Period, the
Annual Base Salary shall be reviewed no
more than 12 months after the last salary
increase awarded to the Executive prior to
the Effective Date and thereafter at least
annually. Any increase in Annual Base
Salary shall not serve to limit or
reduce any other obligation to the
Executive under this Agreement. Annual
Base Salary shall not be reduced after any
such increase and the term Annual Base
Salary as utilized in this Agreement shall
refer to Annual Base Salary as so
increased. As used in this Agreement,
the term, "affiliated companies" shall
include any company controlled by,
controlling or under common control with
the Company.
(ii) Annual Bonus. In addition to Annual Base
-------------
Salary, the Executive shall be awarded, for
each fiscal year ending during the
Employment Period, an annual bonus (the
"Annual Bonus") in cash at least equal to
the highest aggregate amount awarded to the
Executive under all annual bonus, incentive
and other similar plans of the Company with
respect to any of the last three full
fiscal years prior to the Effective Date
(annualized in the event that the Executive
was not employed by the Company for the
whole of such fiscal 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 and
policies and programs as in effect at any time
during the 120-day period immediately preceding the
Effective Date or if more favorable to the Executive,
those provided generally at any time after the
Effective Date to other peer executives of the
Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the
-------------------------
Employment Period, the Executive and/or
the Executive's family, as the case may be,
shall be eligible for participation in and
shall receive all benefits under welfare
benefit plans, practices, policies and
programs provided by the Company and its
affiliated companies (including, without
limitation, medical, prescription, dental,
disability, employee life, group life,
accidental death and travel accident
insurance plans and programs) to the extent
applicable generally to other peer
executives of the Company and its
affiliated companies, but in no event shall
such plans, practices, policies and
programs provide the Executive with
benefits which are less favorable in the
aggregate, than the most favorable of such
plans, practices, policies and programs in
effect for the Executive at any time during
the 120-day period immediately preceding
the Effective Date or, if more
favorable to the Executive, those provided
generally at any time after the Effective
Date to other peer executives of the
Company and its affiliated companies.
(v) Expenses. During the Employment Period,
--------
the Executive shall be entitled to receive
prompt reimbursement for all reasonable
expenses incurred by the Executive in
accordance with the most favorable
policies, practices and procedures of the
Company and its affiliated companies in
effect for the Executive at any time during
the 120-day period immediately preceding
the Effective Date or, if more favorable to
the Executive, as is 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 Executive's 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 Executive's
employment. In such event, the Executive's
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 30 days
after such receipt, the Executive shall not have
returned to full-time performance of the
Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence
of the Executive from the Executive's 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
Executive's 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 continues failure of the
Executive to perform substantially the
Executive's 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 Executive's duties, or
(ii) the willful engaging by the Executive in
illegal conduct or gross misconduct which
is naturally 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 the 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 Executive's 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
Executive's position (including status,
offices, titles and reporting
requirements), authority, duties or
responsibilities as contemplated by Section
4(a) of this Agreement, or any other action
by the Company which results in a
diminution in such position, authority,
duties or responsibilities, excluding for
this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith
and which is remedied by the Company
promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4(b) of
this Agreement, other than an isolated,
insubstantial and inadvertent failure not
occurring in bad faith and which is
remedied by the Company promptly after
receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive
to be based at any office or location other
than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the
Executive to travel on Company business
to a substantially greater extent than
required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of
the Executive's 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.
(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 of
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
Executive's 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 retirement plan
(the"Retirement Plan") (utilizing
actuarial assumptions no less
favorable to the Executive than those
in effect under the Company's
Retirement Plan immediately prior to
the Effective Date), and any excess or
supplemental retirement plan in which
the Executive participates (together,
the "SERP") which the Executive would
receive if the Executive's employment
continued for three years after the
Date of Termination assuming for this
purpose that all accrued benefits are
fully vested, and, assuming that the
Executive's compensation in each of
the three years is that required by
Section 4(b)(i) and Section 4(b)(ii),
over (b) the actuarial equivalent of
the Executive's actual benefit (paid
or payable), if any, under the
Retirement Plan and the SERP as of the
Date of Termination.
(ii) for three years after the Executive's Date
of Termination, or such longer period as
may be provided by the terms of the
appropriate plan, program, practice or
policy, the Company shall continue benefits
to the Executive and/or the Executive's
family at least equal to those which would
have been provided to them in accordance
with the plans, programs, practices and
policies described in Section 4(b)(iv) of
this Agreement if the Executive's
employment had not been terminated or, if
more favorable to the Executive, as in
effect generally at any time thereafter
with respect to other peer executives of
the Company and its affiliated companies
and their families, provided, however, that
if the Executive becomes reemployed with
another employer 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 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
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
without further obligations to the Executive,
other than for Accrued Obligations and the
timely payment of 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 280G of the Code, then the aggregate
present value of amounts payable or
distributable to or for the benefit of the
Executive pursuant to this Agreement (such
payments or distributions pursuant to this
Agreement are hereinafter referred to as
"Agreement Payments") shall be reduced (but not
below zero) to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present
value which maximizes the aggregate present
value of Agreement Payments without causing any
Payment to be nondeductible by the Company
because of Section 280G of the Code. For
purposes of this Section 9 present value shall
be determined in accordance with Section
280G(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 280G 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.
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 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 assigned 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 representative.
(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.
(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:
Raymond Stafford
Tosara Products Limited
Baldoyle Industrial Estate
Grange Road
Dublin 13
Ireland
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
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.
i. 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.
ii. 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.
iii. The Executive and the Company acknowledge
that, except as may otherwise be provided
under any written agreement between the
Executive and the Company, the employment
of the Executive by the Company is "at
will" and, subject to Section i(a) hereof,
prior to the Effective Date, the
Executive's employment and/or this
Agreement may be terminated by either the
Executive or the Company at any time prior
to the Effective Date, in which case the
Executive shall have no further rights
under this Agreement. From and after the
Effective Date this Agreement shall
supersede any other agreement between the
parties with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in
its name on its behalf, all as of the day and year first above
written.
---------------------------
RAYMOND STAFFORD
FOREST LABORATORIES, INC.
By:
-----------------------------
KENNETH E GOODMAN
Vice President-Finance
EXHIBIT 10.17
DEVELOPMENT AND MARKETING AGREEMENT dated this 1st day of
-----------------------------------
July, 1997 by and between FRXC COMPANY, INC., a corporation
------------------
organized under the laws of the State of Delaware having its
principal executive offices c/o Princes Gate Investors II, LP,
1585 Broadway, New York, New York 10036 ("Newco") and FOREST
LABORATORIES, INC., a corporation organized under the laws of the
State of Delaware having its principal executive offices at 909
Third Avenue, New York, New York 10022 ("Forest").
R E C I T A L S :
A. Forest develops, manufactures and markets
pharmaceutical products. Pursuant to a License and Supply
Agreement (the "Lundbeck License") dated October 3, 1995 between
Forest Laboratories (Ireland) Limited, a wholly-owned subsidiary
of Forest, and H. Lundbeck A/S, Forest, through its wholly-owned
subsidiary, has been granted the exclusive right and license
under the patents and technology referred to therein to develop,
market, use and distribute finished pharmaceutical products
containing the compound Citalopram as their only active
ingredient in the United States of America and its territories,
for use in the treatment of depression and certain other
disorders. Pursuant to the Lundbeck License, Forest is obligated
to use its best efforts to obtain regulatory approval to market
Citalopram in the United States and to market Citalopram,
including the undertaking of all required research, development
and marketing activities.
B. Newco has been formed to fund a portion of the
research, development and pre- and post-launch marketing efforts
of Forest with respect to Citalopram, in consideration of which
Forest has agreed to pay certain royalties to Newco in respect of
the net sales of the Product (as hereinafter defined) following
the receipt of necessary regulatory approval to market
Citalopram, and to provide other consideration to Newco, all in
accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual terms and conditions hereinafter set forth, the parties
hereto do hereby agree as follows:
1. Definitions.
-----------
As used herein, the following terms shall have the
respective meanings set forth below:
1.1 "Act" shall mean the Federal Food and Drug Act and
regulations promulgated thereunder.
1.2 "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with the
person with respect to whom such status is at issue.
1.3 "Commencement Date" shall mean the first to occur
of (i) the first day of the first month which is at least fifteen
months after the FDA approves the NDA or (ii) April 1, 2000, if
such FDA approval has been received by such date, or the first
day of the first month following the date of receipt of such FDA
approval if thereafter.
1.4 "Contract Year" means the 12 month period
beginning on the Commencement Date and each successive 12 month
period thereafter.
1.5 "FDA" shall mean the United States Food and Drug
Administration or any successor agency having comparable
jurisdiction.
1.6 "Net Sales" of the Product shall mean the proceeds
from sales of the Product (but, for purposes of Section 4.4, only
sales of Licensed Product) by Forest, its Affiliates or sub-licensees and their
Affiliates to persons other than Affiliates of Forest or its
sublicensees, and recorded in accordance with generally
accepted accounting principles, less (i) allowances for
returns, rebates, chargebacks and discounts actually given to
customers in the ordinary course of business and (ii) taxes and
duties (other than income taxes) collected on such sales,
including, without limitation, taxes or charges under the Medical
Prescription Drug Rebate and Improved Access to Medicines
requirements of the Omnibus Budget Reconciliation Act of 1990 and
comparable federal and state requirements, as now or hereafter in
effect.
1.7 "NDA" shall mean a New Drug Application filed with
the FDA in respect of the Licensed Product, and all amendments or
supplements thereto.
1.8 "Product" shall mean any product that contains
Citalopram or an enantiomer of Citalopram as an active ingredient
(alone or together with one or more other active ingredients),
any product produced in reliance upon the Lundbeck License, or,
during the first five Contract Years, any product which is a
selective serotonin reuptake inhibitor approved for the treatment
of depression. "Licensed Product" shall mean a Product marketed
pursuant to the Lundbeck License as in effect as of the date
hereof.
1.9 "quarter" shall refer to each calendar quarter
during the term hereof.
1.10 "Territory" shall mean the United States of
America and its permanent territorial possessions as at the date
of the Lundbeck License.
2. Development Activities.
----------------------
2.1 Forest agrees to use its best efforts to obtain
all approvals (including an approved NDA) necessary or desirable
to commercialize the Product in the Territory and to market,
promote and distribute the Product in the Territory and to engage
in a program of pre-launch and post-launch marketing and
promotional programs designed to maximize the commercial
potential for the Product in the Territory. As used herein,
"best efforts" includes all financial commitments and capital
expenditures necessary to fund any and all development and
marketing costs not covered by the Contract Price. A budget and
timetable for development, marketing and promotional programs
currently believed to be required to obtain approval of the NDA
and to successfully launch and market the Product in light of
current market conditions is annexed hereto as Schedule A (the
"Development and Marketing Plan"). The Development and Marketing
Plan will be subject to change by Forest from time to time in
light of the progress and results of the development work and
Forest's assessment of market conditions; provided that no such
change shall increase the Contract Price (as defined below)
without the prior written approval of Newco. Forest will make
available the services of its scientific, regulatory, marketing
and other personnel as may reasonably be required to perform
Forest's obligations hereunder and shall be entitled to use sub-contractors
in Forest's reasonable discretion.
2.2 Newco agrees to fund Forest's costs incurred in
the performance of the Development and Marketing Plan on a
quarterly basis to a maximum aggregate cumulative amount of US
$60,000,000 (the "Contract Price"), subject to the further terms
and conditions hereof. The Contract Price shall be paid in
quarterly installments in arrears commencing with the quarter
ending September 30, 1997 up to the amounts for each quarter set
forth on Schedule 2.2 hereto. Within 30 days following the end
of each quarter, Newco shall receive a statement of the costs
incurred (the "Development Costs") and work performed, specified
in reasonable detail, under the Development and Marketing Plan
for the immediately preceding quarter, together with a
certificate of the Chief Financial Officer of Forest which
certifies the incurrence of the costs and performance of the work
described therein. Development Costs shall include only Forest's
direct costs incurred in connection with the Development and
Marketing Plan together with an allowance for overheads of 25% of
such direct costs. Payments of the Contract Price shall be made
within 10 business days after receipt of such statement to which
such payment relates by wire transfer to a bank account
designated by Forest. Payments of the Contract Price made later
than 20 business days following such due date will accrue
interest at an annual rate equal to the Prime Rate as published
in The Wall Street Journal, Eastern Edition, in effect from time
-----------------------
to time during the period from the due date to the date of
payment. Such interest shall be payable at the same time as the
payment to which it relates and shall be calculated daily on the
basis of a year of 365 days and the actual number of days
elapsed.
2.3 In the event that the Development Costs for any
quarter are less than as set forth on Schedule 2.2 for such
quarter, the amount by which such costs are less than the
scheduled costs shall be added to the scheduled payments for the
immediately following quarter. In addition, Forest shall have
the right to defer payments required by Schedule 2.2 to quarters
beyond such schedule in light of the progress of work under the
Development and Marketing Plan, but may not defer such payments
beyond April 1, 2000.
2.4 The parties acknowledge that the research and
development activities necessary to obtain an approved NDA and
the launch and successful marketing of new pharmaceutical
products are subject to many risks and uncertainties and there
can be no assurance that any of the objectives contemplated by
this Agreement or by the Development and Marketing Plan can be
successfully achieved. Newco agrees that, subject to Newco's
rights under Section 2.5, payment of the Contract Price in the
manner set forth herein is not contingent upon the successful
achievement of such objectives and shall be deemed earned by
Forest and non-refundable as each installment is required to be
paid hereunder and the failure by Forest to achieve such
objectives shall not be deemed a breach of any term or condition
of this Agreement.
2.5 Newco shall have the option, but shall not be
required, to terminate its obligations to pay any installment of
the Contract Price in the event that Newco shall reasonably
determine at any time, in light of developments in the review of
the NDA by the FDA, that it is unlikely that the FDA will approve
the NDA in a reasonable period of time, giving due regard to
customary time periods for FDA review and for preparation of
responses to matters raised by the FDA. Newco may exercise this
option by providing written notice to Forest which sets forth the
basis for Newco's determination with reasonable specificity. In
the event that Newco exercises the option set forth in this
Section, Newco shall remain entitled, following the Commencement
Date, to the royalty payments provided by Section 3 (or, in the
event Forest exercises the Purchase Option (as hereinafter
defined), the Interest Holders shall remain entitled to the
royalty payments provided by Section 4), but in each such case
only to the extent vested based upon the percentage of the
Contract Price paid or required to be paid to Forest as of the
date of exercise of such option by Newco as set forth on Schedule
2.5.
2.6 Forest agrees to maintain a cost accounting system
and books, records and files to enable Forest to provide Newco
with complete and accurate information regarding all aspects of
the Development and Marketing Plan and expenditures of the
Development Costs. Newco shall have the right, upon reasonable
advance notice during normal business hours to request an audit
(with auditors reasonably acceptable to Forest) of the financial
and technical books and records of Forest relating to the
Development and Marketing Plan, the work performed thereunder and
the Development Costs incurred. Newco shall hold such
information in the strictest confidence and shall use such
information solely for the purpose of verifying Forest's
compliance with its obligations hereunder.
2.7 Notwithstanding any other provision to the
contrary, Newco shall not be obligated to pay any portion of the
Contract Price until Forest has received notification from the
FDA that the NDA for Licensed Product has been filed by the FDA,
pursuant to the provisions of 21 C.F.R. Section 314.101(a)(2), or
provides other assurances reasonably satisfactory to Newco that
such NDA has been filed by the FDA.
3. Royalty Obligations; Warrant.
----------------------------
3.1 In consideration of the payment of the Contract
Price, Forest agrees to pay Newco a royalty equal to that
percentage of Net Sales set forth and determined in accordance
with Schedule 3.1 (the "Royalty Rate"), subject to adjustment as
set forth in Section 2.5. Such royalty obligation shall commence
with respect to sales of the Product made from and after the
Commencement Date and shall continue until the expiration of the
tenth Contract Year. Royalty payments shall be made quarterly
with respect to Net Sales for the immediately preceding quarter
within 30 days from the end of the quarter to which such payment
relates, and shall be accompanied by an officer's certificate
which sets forth the Net Sales and the calculation of the royalty
payment accompanying such certificate. Royalty payments made
later than 45 days following the end of the quarter to which they
relate will accrue interest at an annual rate equal to the Prime
Rate as published in The Wall Street Journal, Eastern Edition, in
-----------------------
effect from time to time during the period from the due date to
the date of payment. Such interest shall be payable at the same
time as the payment to which it relates and shall be calculated
daily on the basis of a year of 365 days and the actual number of
days elapsed. Forest agrees that it will not accelerate or delay
the recognition of sales or sales related charges with the
intention or effect of altering the calculation of Net Sales, and
that all sales comprising Net Sales will be made and recorded in
the ordinary course of business.
3.2 Forest shall maintain complete and accurate books
and records of Net Sales, which shall be made available for audit
by Newco and its representatives, no more than once per Contract
Year, on the same basis as set forth in Section 2.6, solely for
the purpose of verifying the royalties payable by Forest
hereunder. In the event that the auditor retained by Newco
discovers any variations in the calculation of Net Sales and the
accompanying royalties which affect the calculation of royalties
by five (5%) percent or more for any quarter, Forest shall be
responsible for all reasonable fees and expenses incurred by such
auditor during the audit in question and shall reimburse Newco
for such fees and expenses.
3.3 In the event Newco has exercised its option
provided by Section 2.5 hereof to terminate Newco's obligation to
pay installments of the Contract Price, the Royalty Rate shall be
reduced from and after the date of such exercise to the vested
portion of the Royalty Rate as determined in accordance with
Section 2.5 and Schedule 2.5.
3.4 Simultaneously herewith, Forest has issued to the
Interest Holders warrants (the "Warrants") to purchase an
aggregate of 500,000 shares (the "Shares") of Forest's common
stock, par value $.10 per share, in substantially the form and
substance as annexed hereto as Schedule 3.4.
4. Purchase Option.
---------------
4.1 Forest shall have the right, but not the
obligation, to purchase all (but not less than all) of the debt
and equity interests (however denominated and of whatever nature,
the "Interests") in Newco (the "Purchase Option") in accordance
with the terms and conditions set forth in this Section. Forest
may exercise the Purchase Option by providing written notice of
its election to exercise the Purchase Option to the Interest
Holders, which notice shall specify a date for a closing of the
purchase and sale of the Interests no sooner than 10 nor later
than 60 days from the date of the exercise notice. At the
closing, Forest shall pay to the Interest Holders the Option
Price (as defined below) in immediately available funds against
delivery to Forest of certificates and all other instruments or
documents which evidence the Interests, free and clear of all
liens, claims, encumbrances, royalty obligations or any other
restriction of any nature whatsoever.
4.2 The aggregate purchase price (the "Option Price")
to be paid by Forest upon exercise of the Purchase Option shall
be US $85,000,000 in the event the closing of the Purchase Option
occurs prior to July 1, 1999. In the event the closing of the
Purchase Option does not occur prior to such date, the Option
Price shall be as set forth on Schedule 4.2. In the event Newco
has exercised its option pursuant to Section 2.5, the Option
Price determined in accordance with the preceding provisions
shall, from and after the date of such exercise, be determined by
multiplying the applicable Option Price as then determined in
accordance with the preceding provisions of this Section by the
applicable vesting percentage determined in accordance with
Section 2.5.
4.3 The Purchase Option shall expire unless notice of
exercise is delivered prior to 5:00 p.m. New York City time on
the earlier of (i) the Commencement Date or (ii) April 1, 2000.
4.4 As additional consideration for the purchase of
the Interests pursuant to the Purchase Option, Forest agrees to
pay an aggregate royalty of 1% of Net Sales following the closing
of the Purchase Option to the Interest Holders, subject to
adjustment as set forth in Section 2.5. Such royalty payments
shall be made quarterly to each Interest Holder in the respective
percentages for each Interest Holder set forth on Schedule 5.2(c)
hereto. Such royalty obligation shall terminate with respect to
all Net Sales made on or after the fifth anniversary of the date
of FDA approval of the NDA.
4.5 In order to effectuate the terms of the Purchase
Option, including the provisions of Section 4.7, Newco has caused
each holder of an Interest (the "Interest Holders") to execute
and deliver to Forest on the date hereof its agreement to perform
the Purchase Option (each an "Interest Holder Agreement") in form
and substance as annexed hereto as Schedule 4.5.
4.6 Newco shall use its best efforts to ensure that,
except as otherwise permitted by this Agreement, the
representation and warranty made by Newco in Section 5.2(d) shall
remain true throughout the period from the date hereof until the
exercise (and related closing) or expiration of the Purchase
Option. Newco shall maintain complete and accurate books and
records which fairly and accurately reflect all of its assets and
liabilities in accordance with United States generally accepted
accounting principles. Forest shall be entitled to inspect and
audit such books and records with auditors reasonably acceptable
to Newco to confirm the continuing accuracy of such
representation.
4.7 (a) Within 60 days of the closing of a purchase of the
Interests pursuant to the Purchase Option, the Interest Holders
will cause to be prepared and delivered to Forest a balance sheet
for Newco (the "Closing Balance Sheet"), together with an
unqualified certification and report of Newco's accountants
thereon, and a calculation of the adjustment to the Option Price
paid by Forest for Newco required by any variation between the
assets and liabilities appearing on the Closing Balance Sheet and
Newco's representation and warranty contained in Section 5.2(d)
(respectively, the "Calculation of Purchase Price Adjustment" and
the "Purchase Price Adjustment"). The Closing Balance Sheet
shall fairly present the consolidated financial position of Newco
at the close of business on the date of such closing on a basis
consistent with the books and records maintained by Newco in
accordance with Section 4.6. If Forest disagrees with the
Closing Balance Sheet and the Calculation of Purchase Price
Adjustment, Forest may, within 20 days after delivery of the
Closing Balance Sheet and Calculation of Purchase Price
Adjustment, deliver a notice to the Interest Holders disagreeing
with such calculation and setting forth Forest's basis for such
disagreement. Any such notice of disagreement shall specify
those items or amounts as to which Forest disagrees, and Forest
shall be deemed to have agreed with all other items and amounts
contained in the Closing Balance Sheet and the Calculation of
Purchase Price Adjustment.
(b) If a notice of disagreement shall be duly
delivered, Forest and the Interest Holders shall, during the 15
days following such delivery, use their best efforts to reach
agreement on the disputed items or amounts in order to determine,
as may be required, the appropriate Purchase Price Adjustment.
If, during such period, Forest and Interest Holders are unable to
reach such agreement, they shall promptly thereafter cause
independent accountants of nationally recognized standing
reasonably satisfactory to Forest and the Interest Holders (who
shall not, unless otherwise agreed, have any material
relationship with Forest or the Interest Holders), promptly to
review this Agreement and the disputed items or amounts for the
purpose of calculating the Purchase Price Adjustment. In making
such calculation, such independent accountants shall consider
only those items or amounts in the Closing Balance Sheet or the
Calculation of Purchase Price Adjustment to which Forest has
disagreed. Such independent accountants shall deliver to Forest
and the Interest Holders, as promptly as practicable, a report
setting forth such calculation. Such report shall be final and
binding upon Forest and the Interest Holders. The cost of such
review and report shall be borne equally by the parties. Forest
and the Interest Holders agree that they will, and agree to cause
their respective independent accountants to, cooperate and assist
in the preparation of the Closing Balance Sheet and the
Calculation of Purchase Price Adjustment, including without
limitation, the making available to the extent necessary of
books, records, work papers and personnel.
(c) If the Purchase Price Adjustment is positive,
Forest shall remit such excess to the Interest Holders, within 10
days after the Purchase Price Adjustment has been finally
determined (either by agreement or the procedure set forth
above), by delivery of a certified or official bank check payable
in immediately available funds, but only to the extent such
excess is comprised of cash or cash equivalents. If the Purchase
Price Adjustment is negative, upon final determination of the
Purchase Price Adjustment (either by agreement or the procedure
set forth above), the Interest Holders shall pay to Forest the
amount by which such adjustment is negative by delivery of a
certified check or official bank check payable in immediately
available funds. In addition, the Interest Holders shall,
jointly and severally, hold Forest harmless from, and defend and
indemnify Forest against, any cost, loss, damage, claim,
litigation or action (including, without limitation, the fees and
expenses of counsel) to which Forest or Newco or any of their
respective assets, properties or businesses may become subject as
a result of the failure of the representation set forth in
Section 5.2(d) to be true and correct as at the time of closing
of the Purchase Option to the extent such cost, loss, damage or
claim is not reflected or reserved for in the Closing Balance
Sheet. Such obligation of indemnification shall expire on the
sixth anniversary of the closing of the Purchase Option, except
that in the case of matters relating to taxation, such
indemnification obligation shall not expire until the expiration
of the applicable statute of limitations with respect to any such
matter. The amount of any Purchase Price Adjustments to be made
pursuant to this Section 4.7 shall bear interest from (and
including) the date of the closing of the Purchase Option to (but
excluding) the date of payment at a rate per annum equal to the
Prime Rate as published in The Wall Street Journal, Eastern
-----------------------
Edition, in effect from time to time during the period from the
date of closing to the date of payment. Such interest shall be
payable at the same time as the payment to which it relates and
shall be calculated daily on the basis of a year of 365 days and
the actual number of days elapsed.
4.8 Notwithstanding anything to the contrary herein
contained, in the event that the purchase of the Interests
pursuant to the Purchase Option requires the filing of
Notification and Report Forms pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules promulgated
thereunder (collectively, the "HSR Act") and the expiration or
termination of the "waiting period" provided thereunder, each of
Forest and Newco shall take, and shall cause their respective
Affiliates to take, all necessary and appropriate steps to make
the required filings under the HSR Act as promptly as possible
following exercise of the Purchase Option and to cooperate as may
be reasonably required to achieve as early a termination of the
"waiting period" as possible. In the event filing under the HSR
Act is required, the closing of the purchase and sale of
Interests pursuant to the Purchase Option shall take place on the
third business day following expiration or termination of the
"waiting period."
5. Representations and Warranties.
------------------------------
5.1 Forest hereby represents and warrants to Newco as
follows:
(a) Forest is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as
currently conducted.
(b) Each of this Agreement, the Warrant and the
registration rights agreement of even date herewith among Forest
and the Interest Holders (the "Registration Rights Agreement")
have been duly and validly authorized by all necessary corporate
action on the part of Forest and constitutes the legally valid
and binding obligations of Forest, enforceable in accordance with
its respective terms.
(c) The execution and performance by Forest of
its obligations under this Agreement, the Warrant and the
Registration Rights Agreement do not conflict with, or constitute
a breach under, the terms and conditions of any contract,
agreement or arrangement to which Forest is a party or by which
any of Forest's assets or properties are bound. Except for
filings under the HSR Act in the event the Purchase Option is
exercised and filings under the Securities Act of 1933, as
amended, and compliance with any applicable state blue sky laws
in connection with any registration of securities pursuant to the
Registration Rights Agreement, no consent or approval of any
governmental entity or other third party is required for the
performance by Forest of its obligations hereunder, under the
Warrant or under the Registration Rights Agreement.
(d) Newco has been furnished with a true and
complete copy of the Lundbeck License. The Lundbeck License
constitutes a legally binding agreement enforceable in accordance
with its terms. No event has occurred which (with the giving of
notice, the passage of time or both) would constitute a breach of
or default under either party's obligations thereunder or any
term or condition thereof. Pursuant to the Lundbeck License and
subject to the terms and conditions therein set forth, Forest,
through a wholly-owned subsidiary, has been granted the exclusive
right and license to market the Licensed Product in the
Territory.
(e) (i) Subject to FDA approval of the Licensed
Product, Forest shall be the beneficiary of a five-year period of
exclusivity in connection with the marketing and sale of the
Licensed Product in the Territory following FDA approval of the
NDA, pursuant to the provisions of the Drug Price Competition and
Patent Term Restoration Act of 1984.
(ii) Forest has all Intellectual Property Rights
necessary to produce, market and sell the Licensed Product in the
Territory, subject only to the terms of the Lundbeck License.
None of the activities of Forest in producing, marketing or
selling the Licensed Product in the Territory shall infringe upon
the Intellectual Property Rights of any party.
"Intellectual Property Rights" means any trademark,
service mark, trade name, invention, patent, trade secret, trade
dress, copyright, know-how (including any registrations or
applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right.
(f) Forest has delivered to Newco true and
complete copies of Forest's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997, and Forest's Quarterly Reports
on Form 10-Q for each of the quarters ended June 30, September 30
and December 31, 1996 (the "Public Filings") in each case as
filed with the Securities and Exchange Commission (the "SEC").
The Public Filings do not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein not misleading (in each case, as at the respective dates
thereof). The financial statements of Forest included or
incorporated by reference in the Public Filings comply in all
material respects with published rules and regulations of the
SEC, have been prepared in accordance with United States
generally accepted accounting principles and present fairly the
consolidated financial position of Forest as of the dates
thereof, and the consolidated results of operations, cash flows
and stockholders' equity for the periods then ended.
(g) The Shares, when issued pursuant to the due
exercise of the Warrant, will be duly authorized, fully paid and
validly issued Shares of the Common Stock of Forest and will not
have been issued in violation of, and will not be subject to, any
preemptive, first refusal or other subscription rights and will
not result in the anti-dilution provisions of any security of
Forest becoming applicable.
5.2 Newco hereby represents and warrants to Forest as
follows:
(a) Newco is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to carry on
its business as currently conducted.
(b) Newco has received equity capital
contributions or borrowed monies (or legally binding commitments
therefor) of at least $60,000,000, payable to Newco in cash by
such date or dates as will be sufficient for the timely payment
by Newco of installments of the Contract Price. Schedule 5.2(b)
sets forth the name and address of each Interest Holder, and sets
forth the amount and nature of each Interest held at the date
hereof.
(c) Newco has furnished to Forest true and
complete copies of Newco's Certificate of Incorporation, By-Laws
and all agreements (including subscription, investment and
stockholders' agreements) to which Newco is a party or pursuant
to which Newco is capitalized or governed.
(d) Except for the Interests of the Interest
Holders (which may be debt or equity capital) and commitments
therefor referred to in Schedule 5.2(b) and the terms and
conditions of this Agreement and except as otherwise contemplated
by this Agreement, Newco has no assets or liabilities of any
nature whatsoever, conducts no business other than pursuant to
this Agreement and is not a party to any contract, agreement or
arrangement with any third party which has not been disclosed to
Forest as of the date hereof, except in each case for immaterial
items that are incidental to the organization of Newco, the
maintenance of its existence as a corporation, the keeping of its
books and records, and other similar ministerial matters. Newco
is the sole owner of Newco's rights under this Agreement, which
rights are not subject to any lien, claim, encumbrance,
assignment, royalty obligation or other restriction, limitation
or transfer of any nature whatsoever, except for any immaterial,
non-consensual liens that may arise by operation of law.
(e) This Agreement has been duly and validly
authorized by all necessary corporate action of Newco and
constitutes the legally valid and binding obligation of Newco in
accordance with its terms.
(f) The execution and performance by Newco of its
obligations under this Agreement do not conflict with, or
constitute a default under, the terms or conditions of any
contract, agreement or arrangement to which Newco is a party or
by which Newco's assets or properties are bound. Except for
filings under the HSR Act in the event the Purchase Option is
exercised, no consent or approval of any governmental agency or
other third party is required for the performance by Newco of its
obligations hereunder.
6. Marketing Obligations; Additional Covenants of Forest.
-----------------------------------------------------
6.1 Subject to obtaining FDA approval of the NDA,
Forest agrees to market and promote the Product in the Territory
in accordance with terms of the Lundbeck License and all
applicable laws and regulations. Without limiting the generality
of the foregoing, during the period commencing with FDA approval
of the NDA (but ending on the date of exercise by Forest of the
Purchase Option) Forest agrees to provide the marketing support
and related expenditures for the Product as set forth on Schedule
6.1 hereto.
6.2 Forest shall comply in all material respects with
the terms and conditions of the Lundbeck License, shall not
voluntarily terminate the Lundbeck License and shall use its best
efforts to maintain the Lundbeck License in full force and effect
and shall not agree to the waiver or modification of any of
Forest's material rights thereunder without the prior written
consent of Newco.
6.3 In order to enable Newco to make the determination
contemplated by Section 2.5, Forest agrees to continue to use its
best efforts to obtain FDA approval of the NDA and to keep Newco
reasonably informed as to the status and progress of the FDA
approval process. Forest will promptly notify Newco of any
action or communication from the FDA relating to the approval, or
timing of approval, of the NDA and will cooperate with Newco and
Newco's advisors so that Newco will, at all times, be in a
position to make the determination contemplated by Section 2.5.
Without limiting the generality of the foregoing, Forest (a) will
use reasonable efforts to maintain a continuous dialogue with the
FDA regarding the status of the NDA, (b) will provide written
summaries to Newco of all discussions or meetings with the FDA
(other than routine communications which are ministerial in
nature), including copies of minutes of meetings prepared by the
FDA when received, (c) will use reasonable efforts to schedule
periodic status discussions with the FDA and (d) will advise
Newco of the projected timing of any such status meetings or
discussions with the FDA and the outcomes thereof.
7. Indemnification.
---------------
7.1 Forest shall indemnify and hold Newco and the
Interest Holders harmless from and against any costs, expenses
(including, without limitation, reasonable attorneys' fees),
liabilities, losses or damages which arise from breach by Forest
of any of its representations or warranties or covenants set
forth herein. In addition, Forest shall defend at its own
expense, with counsel reasonably satisfactory to Newco and the
Interest Holders, any actions brought against Newco or any
Interest Holder by a third party alleging that the development,
manufacture or marketing of the Product infringes any
intellectual property right of such third party.
7.2 Promptly after the receipt by Newco or any
Interest Holder of notice of any claim or the commencement of any
action or proceeding, such party will, if a claim with respect
thereto is to be made against Forest pursuant to Section 7.1
hereof, give Forest written notice of such claim or the
commencement of such action or proceeding. Forest shall have the
right, at its option, to compromise or defend, at its own
expense, with counsel reasonably satisfactory to Newco and the
Interest Holders, any such matter involving the asserted
liability of the party seeking indemnification. Failure to give
such notice, and the opportunity to compromise or defend, shall
not be a condition precedent to any liability of Forest under the
indemnification agreement contained in Section 7.1, unless and to
the extent such failure results in actual prejudice to Forest.
In the event Forest shall undertake to compromise or defend any
such asserted liability, it shall promptly notify the party
seeking indemnification of its intention to do so, and the party
seeking indemnification agrees to cooperate fully with Forest and
its counsel in the compromise of, or defense against, any such
asserted liability. Any election by Forest to compromise or
defend a claim shall act as an acknowledgement by Forest of its
obligations of indemnification with respect to any such matter in
accordance with the terms and conditions hereof. In any event,
the indemnified party shall have the right, at its own expense
and with counsel of its choice, to participate in the defense of
such asserted liability.
8. Term of Agreement.
-----------------
8.1 This Agreement shall remain in full force and
effect until the expiration of the last obligation of either
party to make any payment of Contract Price, the Option Price,
any payment required by Section 4.7 or royalty to the other party
hereto or to the Interest Holders. The expiration of this
Agreement shall not relieve either party of obligations accrued
prior to such date of expiration or of obligations which continue
by the terms hereof beyond such expiration.
9. Change in Control.
-----------------
9.1 For purposes of this Section 9, a "Change in
Control" shall mean (i) the acquisition, directly or indirectly,
of beneficial ownership of 50% or more of the voting power of
Forest or of all or substantially all of the business or assets
of Forest (whether by way of merger, sale of stock, sale of
assets or otherwise) by any person or entity (including a "group"
as defined in Section 13(d)(3) of the Securities Exchange Act of
1934) or (ii) individuals who at the beginning of any period of
two consecutive years (together with any other individuals whose
election was approved by a two-thirds vote of the Directors then
in office) shall cease to constitute a majority of the members of
the Board of Directors of Forest.
9.2 From and after the date of a Change in Control,
the Interest Holders shall have the option (the "Put Option"),
but not the obligation, to require Forest to purchase all, but
not less than all, of the Interests at the Option Price then in
effect determined in accordance with Section 4.2, and on the
terms and conditions, as if Forest had then exercised the
Purchase Option in accordance with Section 4.1, but subject to
the provisions of Section 9.3. The Interest Holders may exercise
the Put Option by providing (or causing Newco to provide) to
Forest, at any time before the later of 90 days following (i)
such Change of Control or (ii) the completion of the payment of
the Contract Price or termination of Newco's obligation to pay
the Contract Price in accordance with Section 2.5, written notice
of their election to exercise, which notice will specify a date
for closing of the purchase and sale of Interests no sooner than
10 nor later than 30 days from the date of the notice. At the
closing, Forest shall pay the Option Price in immediately
available funds against delivery to Forest of certificates and
all other instruments or documents which evidence the Interests,
free and clear of all liens, claims, encumbrances, royalty
obligations or any other restriction of any nature whatsoever.
The Interest Holders shall be deemed third-party beneficiaries of
this Agreement to the extent applicable to the Put Option.
9.3 (a) In the event of a closing of the Put Option
after April 1, 2000, the Option Price payable pursuant to Section
9.2 shall be the Option Price as set forth on Schedule 4.2 for
April 1, 2000, increased each day from and after April 1, 2000
until the date of closing of the sale of the Interests pursuant
to Section 9.2 at a rate calculated to produce a return of 29.3%
per annum, taking into account payments of royalties as received.
(b) In the event a Change in Control occurs on a
date prior to April 1, 2000 and at such date Newco remains
obligated to pay further installments of the Contract Price,
Forest agrees promptly to deposit the then applicable Option
Price determined in accordance with Section 4.2 in an escrow fund
(the "Escrow Fund") to be maintained by Chase Manhattan Bank, New
York, New York, or such other bank or financial institution as
may be mutually agreed, as escrow agents (the "Escrow Agent").
Forest agrees to increase the amount of the Escrow Fund so that
it will equal the Option Price as from time to time in effect in
accordance with Schedule 4.2 hereof. The Escrow Agent will be
instructed to deliver the Escrow Fund to the Interest Holders and
to terminate the escrow upon delivery to the Escrow Agent of
notice of exercise of the Put Option and to distribute the Escrow
Fund to Forest and to terminate the escrow upon receipt of a
certificate from an executive officer of Forest to the effect
that the period during which the Put Option may be exercised has
expired as provided in Section 9.2, unless the Escrow Agent has
received notice of exercise of the Put Option at or prior to such
time, in which case the Escrow Fund shall be delivered to the
Interest Holders. The Escrow Agent will be retained pursuant to
an escrow agreement containing customary terms and conditions,
including provisions for the indemnification of the escrow agent,
and the fees and expenses of the Escrow Agent shall be for the
account of Forest. Interest on the Escrow Fund shall remain the
property of Forest. In lieu of the establishment of the Escrow
Fund, Forest shall be entitled to establish a letter of credit in
favor of Newco, as agent on behalf of the Interest Holders, in
form and substance reasonably satisfactory to Newco and in
principal amount equal to the Option Price in effect from time to
time, which may be drawn upon by Newco, as agent on behalf of the
Interest Holders, against delivery of Newco's notice of exercise
of the Put Option.
10. Events of Default.
-----------------
10.1 The occurrence of any of the following events
shall constitute an "Event of Default" hereunder:
(a) the failure by either party to make any
payment to the other or to the Interest Holders due hereunder,
which failure has not been cured within 10 days of the furnishing
of written notice thereof by the non-defaulting party;
(b) the breach by either party of any other
covenant or obligation hereunder, which breach has not been cured
within 45 days of the furnishing of written notice thereof by the
non-defaulting party, or, if not susceptible of cure within such
period, the defaulting party has not taken substantial steps to
commence such cure within such 45-day period or has not continued
at all times thereafter to diligently pursue such cure, unless
such default becomes not susceptible of cure within any
reasonable period, whereupon such default shall constitute an
"Event of Default".
(c) the filing by either party of a petition
under any bankruptcy, insolvency or similar law for the
protection of creditors or the filing of any such petition
against such party, which petition has not been dismissed within
60 days.
10.2 In the event of the occurrence of an Event of Default
by or in respect of either party (the "Defaulting Party"), the
other party hereto (the "Non-Defaulting Party") shall have the
right, but not the obligation, to terminate this Agreement. In
the event Forest is the Defaulting Party, termination of this
Agreement by Newco shall not be deemed to terminate the rights
and obligations of either party pursuant to Sections 3 and 4
hereof, and Newco or the Interest Holders, as the case may be,
shall be entitled to receive the Option Price, or any royalty
based upon the vesting schedule set forth in Schedule 2.5. The
foregoing shall be in addition to, and not in limitation of, all
other remedies at law (including, without limitation, damages
calculated in accordance with law) or in equity to which the
Non-Defaulting Party may be entitled as a result of such breach.
11. Relationship of the Parties.
---------------------------
11.1 The relationship of Forest and Newco shall be that
of independent contractors. This Agreement shall not be
construed to constitute Forest and Newco as partners or joint
venturers, or to establish any relationship in the nature of
agency. Neither party shall hold itself out as having the
authority to bind the other party hereto.
12. Events of FORCE MAJEURE.
-----------------------
12.1 Neither Forest nor Newco shall be held liable or
in default for failure of performance for any cause beyond its
reasonable control including, for example, Acts of God, declared
or undeclared war, fire, flood, interruption of transportation,
embargo, insurrections, accident, explosion, governmental laws,
orders, regulations, or restrictions, any strike, lockout or
other labor troubles or similar events commonly known as events
of force majeure.
13. Miscellaneous.
-------------
13.1 Subject to Sections 2.1 and 6.3, nothing set forth
herein shall be deemed to limit, restrict or preclude Forest and
its Affiliates from performing other research or development
projects or from developing, launching or marketing other
pharmaceutical products, whether for their own account or for the
account of third parties.
13.2 This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without
giving effect to its principles of conflicts of law.
13.3 Each of the parties shall, from time to time
during the term of this Agreement, upon request by the other,
execute and deliver all such further documents or instruments as
may be required in order to give effect to the purpose and intent
of this Agreement.
13.4 This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective assigns
and successors in interest; provided, however, that Forest shall
not assign or otherwise transfer its interest under this
Agreement to any other person, firm or corporation without the
prior written consent of Newco, except in connection with the
transfer of all or substantially all of the assets of Forest to
any other person, whether by means of a merger, asset or stock
sale or otherwise (provided that nothing in this Section 13.4
shall be deemed to limit the rights of Newco and the Interest
Holders under Sections 9.1, 9.2 and 9.3), and Newco shall not
assign any of its rights or obligations hereunder to any party
without Forest's prior written consent (which consent shall not
be unreasonably withheld); provided that (i) Newco may at any
time assign its rights and obligations hereunder to any Interest
Holder or any Affiliate thereof without the consent of Forest
(but subject to delivery of a counterpart of an Interest Holder
Agreement executed by such transferee) and (ii) Newco, following
the closing of the Purchase Option (or the expiration thereof, if
not exercised), or the Interest Holders may assign their
respective rights to receive royalties to any party at any time
without the consent of Forest.
13.5 Any notice, request or other communication
required or permitted by this Agreement to be given by either
party to the other shall be in writing and either mailed by
registered or certified mail, return receipt requested, by
express delivery service or by facsimile transmission, addressed
to such party, Attention: The President at its address indicated
above or to such other address as such party may previously have
designated by like written notice. Any notice to any Interest
Holder shall be deemed given upon furnishing such notice to such
Interest Holder c/o Newco. Notice shall be deemed to have been
given upon receipt. Facsimile transmission numbers for the
separate parties are as follows:
If to Forest: (212) 750-9152
If to Newco: ________________
13.6 This Agreement, the Warrant (and related
Registration Rights Agreement) and the Interest Holder Agreements
constitute the entire agreement between the parties and supersede
all prior written or oral agreements or understandings concerning
the subject matter thereof or in conflict with their terms.
13.7 Forest agrees to pay the reasonable outside legal
and consulting fees and out-of-pocket expenses of Newco incurred
in connection with this Agreement, the Warrant, and the
Registration Rights Agreement and any amendment or waiver thereof
and the transactions contemplated hereby and thereby.
13.8 No modification or waiver of any of the terms of
this Agreement shall be deemed valid unless it is in writing and
signed by the party to whom such modification is sought to be
enforced. The failure of either party to insist upon the strict
performance of any term of this Agreement or the waiver by either
party of any breach under this Agreement shall not prevent the
subsequent strict enforcement of such term and shall not be
deemed a waiver of any other or subsequent breach.
13.9 In the event any court declares illegal or
unenforceable, as written or applied, any provision of this
Agreement, the balance of such provision and this Agreement shall
continue in full force and effect as if such provision had been
deleted or inapplicable to the situations to which such provision
cannot be legally applied.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
FOREST LABORATORIES, INC.
-------------------------
By: /s/ Kenneth E. Goodman
----------------------
Kenneth E. Goodman
FRXC COMPANY, INC.
------------------
By: /s/ James M. Wilmott
--------------------
James M. Wilmott
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACOUNTANTS
Forest Laboratories, Inc.
New York, NY
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 Form S-3 filed with the Securities
and Exchange Commission on November 30, 1993 and August 8, 1994,
of our reports dated May 5, 1998, on the consolidated financial
statements and schedule of Forest Laboratories, Inc. Annual
Report on Form 10-K for the year ended March 3, 1998.
/s/ BDO SEIDMAN, LP
- ---------------------------------
BDO Seidman, LP