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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For quarter ended Commission file number 1-8593
March 31, 1998
Alpharma Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2095212
(State of Incorporation) (I.R.S. Employer Identification No.)
One Executive Drive, Fort Lee, New Jersey 07024
(Address of principal executive offices) zip code
(201) 947-7774
(Registrant's Telephone Number Including Area Code)
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 requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of May 1, 1998:
Class A Common Stock, $.20 par value - 15,880,038 shares;
Class B Common Stock, $.20 par value -- 9,500,000 shares.
ALPHARMA INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of
March 31, 1998 and December 31, 1997 3
Consolidated Statement of Income for the
Three Months Ended March 31, 1998 and 1997 4
Consolidated Condensed Statement of Cash
Flows for the Three Months Ended March 31,
1998 and 1997 5
Notes to Consolidated Condensed Financial
Statements 6-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12-15
PART II. OTHER INFORMATION
Item 2. Changes in the Rights of the Company's
Securities Holders 16
Item 6. Reports on Form 8-K 16
Signatures 17
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands of dollars)
(Unaudited)
March 31, December 31,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 10,499 $ 10,997
Accounts receivable, net 113,429 127,637
Inventories 124,606 121,451
Other 12,942 13,592
Total current assets 261,476 273,677
Property, plant and equipment, net 195,943 199,560
Intangible assets 146,255 149,816
Other assets and deferred charges 12,776 8,813
Total assets $616,450 $631,866
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $6,616 $ 10,872
Short-term debt 8,600 39,066
Accounts payable and accrued liabilities 71,355 78,798
Accrued and deferred income taxes 5,529 5,190
Total current liabilities 92,100 133,926
Long-term debt:
Senior 59,499 223,975
Convertible Subordinated Notes 192,850 -
Deferred income taxes 25,926 26,360
Other non-current liabilities 8,227 9,132
Stockholders' equity:
Class A Common Stock 3,231 3,224
Class B Common Stock 1,900 1,900
Additional paid-in-capital 180,328 179,636
Accumulated other comprehensive
loss (13,959) (8,375)
Retained earnings 72,466 68,206
Treasury stock, at cost (6,118) (6,118)
Total stockholders' equity 237,848 238,473
Total liabilities and
stockholders' equity $616,450 $631,866
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
1998 1997
Total revenue $126,562 $121,424
Cost of sales 73,145 73,302
Gross profit 53,417 48,122
Selling, general and
administrative expenses 40,007 39,248
Operating income 13,410 8,874
Interest expense (4,490) (4,842)
Other, net (201) (297)
Income before provision for income taxes 8,719 3,735
Provision for income taxes 3,317 1,475
Net income $ 5,402 $ 2,260
Average common shares outstanding:
Basic 25,350 21,766
Diluted 25,713 21,781
Earnings per common share:
Basic $ .21 $ .10
Diluted $ .21 $ .10
Dividend per common share $ .045 $ .045
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Three Months Ended
March 31,
1998 1997
Operating Activities:
Net income $ 5,402 $ 2,260
Adjustments to reconcile net
income to net cash provided
by operating activities, principally
depreciation and amortization 7,969 7,744
Changes in assets and liabilities,
net of effects from business
acquisitions:
Decrease in accounts receivable 12,619 6,795
(Increase) in inventory (4,751) (131)
(Decrease) in accounts payable
and accrued expenses (6,260) (9,945)
Other , net (879) 1,345
Net cash provided by
operating activities 14,100 8,068
Investing Activities:
Capital expenditures (6,364) (4,606)
Net cash used in investing
activities (6,364) (4,606)
Financing Activities:
Dividends paid (1,142) (980)
Proceeds from sale of convertible
subordinated debentures 192,850 -
Proceeds from other long-term debt - 1,506
Reduction of senior long-term debt (166,829) (396)
Net repayments under lines of credit (30,028) (8,663)
Payments for debt issuance costs (3,750) -
Proceeds from issuance of common stock 699 201
Net cash used in financing activities (8,200) (8,332)
Exchange Rate Changes:
Effect of exchange rate changes
on cash (373) (734)
Income tax effect of exchange rate
changes on intercompany advances 339 537
Net cash flows from exchange
rate changes (34) (197)
Decrease in cash (498) (5,067)
Cash and cash equivalents at
beginning of year 10,997 15,944
Cash and cash equivalents at
end of period $ 10,499 $10,877
The accompanying notes are an integral part
of the consolidated condensed financial statements.
ALPHARMA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands of dollars)
(Unaudited)
1. General
The accompanying consolidated condensed financial statements
include all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, considered
necessary for a fair presentation of the results for the periods
presented. These financial statements should be read in
conjunction with the consolidated financial statements of
Alpharma Inc. and Subsidiaries included in the Company's 1997
Annual Report on Form 10-K. The reported results for the three
month period ended March 31, 1998 are not necessarily indicative
of the results to be expected for the full year.
2. Inventories
Inventories consist of the following:
March 31, December 31,
1998 1997
Finished product $72,727 $ 68,525
Work-in-process 19,006 20,009
Raw materials 32,873 32,917
$124,606 $121,451
3. Long-Term Debt
In March 1998, the Company issued $125,000 of 5.75%
Convertible Subordinated Notes (the "Notes") due 2005. The Notes
may be converted into common stock at $28.594 at any time prior
to maturity, subject to adjustment under certain conditions. The
Company may redeem the Notes, in whole or in part, on or after
April 6, 2001, at a premium plus accrued interest.
Concurrently, A.L. Industrier A.S., the controlling
stockholder of the company, purchased at par for cash $67,850
principal amount of a Convertible Subordinated Note (the
"Industrier Note"). The Note has substantially identical
adjustment terms and interest rate.
The Notes are convertible into Class A common stock and the
Industrier Note is convertible into Class B common stock. If at
least 75% of the Class A notes are converted into common stock
ALPHARMA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands of dollars)
(Unaudited)
then the Industrier Note will be automatically converted into
Class B common stock. Following registration under the Securities
Act of 1933, the Notes are expected to be listed on the NYSE.
The net proceeds from the combined offering ($189,100 at
March 31, 1998) were used to retire outstanding senior long-term
debt.
Long-term debt consists of the following:
March 31, December 31,
1998 1997
Senior debt:
U.S. Dollar Denominated:
Revolving Credit Facility 6.8% -
7.2%:
Revolving credit $ - $161,575
A/S Eksportfinans 8,100 9,000
Industrial Development Revenue Bonds:
Baltimore County, Maryland
(7.25%) 5,155 5,155
(6.875%) 1,200 1,200
Lincoln County, NC 5,000 5,000
Other, U.S. 688 758
Denominated in Other Currencies:
Mortgage notes payable (NOK) 36,529 38,099
Bank and agency development 9,225 13,803
loans(NOK)
Other, foreign 218 257
Total senior debt 66,115 234,847
Subordinated:
5.75% Convertible Subordinated Notes
due 2005 125,000
5.75% Convertible Subordinated
Note due 2005 - Industrier Note 67,850 -
Total subordinated debt 192,850 -
Total long-term debt 258,965 234,847
Less, current maturities 6,616 10,872
$252,349 $223,975
ALPHARMA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands of dollars)
(Unaudited)
4. Earnings Per Share
Basic earnings per share is based upon the weighted average
number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options, warrants and
convertible debt when appropriate.
A reconciliation of weighted average shares outstanding for
basic to diluted weighted average shares outstanding is as
follows:
(Shares in thousands) Three Months Ended
March 31, March 31,
1998 1997
Average shares outstanding - basic 25,350 21,766
Stock options 172 15
Warrants 191 -
Convertible debt - -
Average shares outstanding - diluted 25,713 21,781
The amount of dilution attributable to the options and
warrants determined by the treasury stock method depends on the
average market price of the Company's common stock for each
period. Subordinated debt, convertible into 6,744,481 shares of
common stock at $28.59 per share, was outstanding at March 31,
1998 but was not included in the computation of diluted EPS
because the calculation of the assumed conversion was
antidilutive for the three months ended March 31, 1998. The
numerator for the calculation of both basic and diluted is net
income for the period.
5. Supplemental Cash Flow Information:
Three Months Ended
March 31, March 31,
1998 1997
Cash paid for interest $6,747 $5,095
Cash paid for taxes $1,948 $214
ALPHARMA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands of dollars)
(Unaudited)
6. Reporting Comprehensive Income
As of January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the
Company's net income or stockholders' equity.
SFAS 130 requires foreign currency translation adjustments
and certain other items, which prior to adoption were reported
separately in stockholders' equity, to be included in other
comprehensive income (loss). Total comprehensive loss amounted
to approximately $ 182 and $ 3,659 for the three months ended
March 31, 1998 and 1997, respectively. The only components of
accumulated other comprehensive loss for the Company are foreign
currency transactions.
7. Contingent Liabilities and Litigation
The Company is one of multiple defendants in 50 lawsuits
alleging personal injuries resulting from the use of phentermine
distributed by the Company and subsequently prescribed for use in
combination with fenflurameine or dexfenfluramine manufactured
and sold by other defendants (Fen-Phen Lawsuits). None of the
plaintiffs has specified an amount of monetary damage. Because
the Company has not manufactured, but only distributed
phentermine, it has demanded defense and indemnification from the
manufacturers and the insurance carriers of manufacturers from
whom it has purchased the phentermine. Based on an evaluation of
the circumstances as now known, including but not solely limited
to, 1) the fact that the Company did not manufacture phentermine,
2) it has a diminimus share of the phentermine market and 3) the
presumption of some insurance coverage, the Company does not
expect that the ultimate resolution of the current Fen-Phen
lawsuits will have a material impact on the financial position or
results of operations of the Company.
The Company and its subsidiaries are, from time to time,
involved in other litigation arising out of the ordinary course
of business. It is the view of management, after consultation
with counsel, that the ultimate resolution of all other pending
suits should not have a material adverse effect on the
consolidation financial position or results of operations of the
Company.
8. Subsequent Event - Business Acquisition
In May 1998, the Company acquired Arthur H. Cox and Co.,
Ltd. and certain Cox marketing subsidiaries ("Cox") from Hoechst
AG for approximately $192 million in cash and the assumption of
bank debt which will be repaid subsequent to the closing. Cox's
main operations are located in the United Kingdom with
distribution operations located in Scandinavia, the Netherlands
and Belgium. Cox is a generic pharmaceutical manufacturer and
marketer of tablets, capsules, suppositories, liquids, ointments
and creams. Cox distributes its products to pharmacy retailers
and pharmaceutical wholesalers primarily in the United Kingdom.
The Company financed the $192 million cash payment and
related debt repayments from borrowings under its existing long-
term revolving credit facility and short-term lines of credit
which had been repaid in March with the proceeds of the
convertible subordinated notes offering(see Note 3). To
accomplish the acquisition the principal members of the bank
syndicate, which are parties to the Company's Revolving Credit
Facility, consented to a change until December 31, 1998 in the
method of calculation of the financial convenant which specifies
an equity to asset ratio of 30%. The change in calculation method
allows the adding back of equity reductions due to foreign
currency translation to equity.
This acquisition will be accounted for in accordance with
the purchase method. The fair value of the assets acquired and
liabilities assumed and the results of Cox's operations will be
included in the Company's consolidated financial statements
beginning on the acquisition date, May 8, 1998.
Cox's sales in its calendar years ended December 31, 1997
and 1996 converted into U.S. dollars at average exchange rates
for the respective years were approximately $88 million and $69
million, respectively.
Due to the timing of the closing, balance sheet and income
statement information for Cox as of March 31, 1998 is not
presently available. The Company estimates the purchase of Cox
will result in the following consolidated elements of financial
position compared to March 31, 1998.
Alpharma Inc.
(Dollar in millions) Pre- Post
Acquisition Acquisition
Total assets $ 616.5 $ 840.0
Long-term debt $ 252.3 $ 432.0
Stockholders' equity $ 237.8 $ 237.8
Audited financial statements for Cox and formal pro-forma
statements will be presented as required in a Form 8-K filing to
be completed in the second quarter.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations - Three Months Ended March 31, 1998
Total revenue increased $5.1 million (4.2%) in the three
months ended March 31, 1998 compared to 1997. Operating income in
1998 was $13.4 million, an increase of $4.5 million, compared to
1997. Net income was $5.4 million ($.21 per share diluted)
compared to $2.3 million ($.10 per share diluted) in 1997.
Revenues increased in both the business segments in which
the company operates, Human Pharmaceuticals and Animal Health.
The increase in revenues was reduced by over $8.0 million due to
translation of sales in foreign currency into the U.S. dollar.
Within the Human Pharmaceutical Segment ("HPS"), Fine
Chemicals Division ("FCD") revenues increased primarily due to
increased volume including volume related to the polymyxin
business purchased in the fourth quarter of 1997. Revenues
increased in the U.S. Pharmaceutical Division ("USPD") as a
result of increased net prices, due to lower sales deductions,
relative to 1997. Volume of products introduced since 1996
increased and was offset by volume declines of certain other
products. In the International Pharmaceutical Division ("IPD"),
revenues decreased as a result of the effect of translation of
sales in Scandinavian currencies into the U.S. dollar being
partially offset by increased volume.
Within the Animal Health Segment ("AHS"), Animal Health
division ("AHD") revenues were higher due to sales of Deccox
products (acquired in September of 1997) and generally higher
prices in base products partially offset by lower volume in
certain products and the effect of translation of sales in
foreign currencies into the U.S. dollar. Revenues in the Aquatic
Animal Health division increased mainly due to the introduction
of a new product.
On a consolidated basis, gross profit increased $5.3 million
and the gross margin percent increased to 42.2 % in 1998 compared
to 39.6% in 1997.
The increase resulted from higher net sales prices
particularly in the USPD and AHD which directly increased
margins as well as increased volume in all divisions only
partially offset by decreases due mainly to translation effects
primarily in the IPD.
Operating expenses on a consolidated basis increased $.8
million. Operating expenses increased mainly due to higher
selling and marketing expenses for new and existing products with
such increase being partially offset by the effects of currency
translation.
Operating income increased $4.5 million as a result of
increased volume including products acquired in 1997 and to a
lesser extent higher net prices partially offset by an increase
in operating expenses.
Interest expense decreased $.4 million due to generally
lower debt balances in 1998 compared to 1997.
Other, net in 1998 was a $.2 million loss compared to $.3
million loss in 1997. Foreign exchange transaction losses in 1998
and 1997 were approximately $.2 million and $.4 million,
respectively. The losses in both periods were primarily the
result of the continued strengthening of the U.S. dollar.
Financial Condition
Working capital at March 31, 1998 was $169.4 million
compared to $139.8 million at December 31, 1997. The current
ratio was 2.84 to 1 at March 31, 1998 compared to 2.04 to 1 at
year end. Long-term debt to stockholders' equity was 1.06:1 at
March 31, 1998 compared to .94:1 at December 31, 1997.
All balance sheet captions decreased as of March 31, 1998
compared to December 1997 in U.S. Dollars as the functional
currencies of the Company's principal foreign subsidiaries, the
Norwegian Krone and Danish Krone, depreciated versus the U.S.
Dollar in the three months of 1998 by approximately 4% and 3%,
respectively. In addition, the Company's operations in Indonesia
were negatively affected due to the continued decline of the
Rupiah versus the U.S. Dollar. The decreases do impact to some
degree the above mentioned ratios. The approximate decrease due
to currency translation of selected captions was: accounts
receivable $1.6 million, inventories $1.6 million, accounts
payable and accrued expenses $1.2 million, and total
stockholders' equity $5.6 million. The $5.6 million decrease in
stockholder's equity represents accumulated other comprehensive
loss for the three months ended March 31, 1998 resulting from the
continued strengthening of the U.S. dollar.
In order to provide flexibility to make acquisitions, in
March 1998, the Company completed an offering of Convertible
Subordinated Notes with net proceeds of approximately $189.1
million. The proceeds were initially used to pay down long term
debt under the Revolving Credit Facility and existing lines of
credit. In early May, the Company completed the acquisition of
Arthur H. Cox and Co., Ltd. and certain Cox European marketing
subsidiaries ("Cox"). Cox is a major generic pharmaceutical
company located in and with principal operations in the United
Kingdom. The purchase price which was paid in cash and repayment
of existing debt of Cox total approximately $200.0 million. The
purchase and repayment were financed with the existing Revolving
Credit Facility ($180.0 million) and existing short-term lines of
credit.
As a result of the acquisition, the Company's pro-forma post-
acquisition long-term debt to equity ratio at March 31, 1998 is
approximately 1.82:1 vs the actual ratio at March 31, 1998 of
1.06:1. To accomplish the acquisition the principal members of
the bank syndicate, which are parties to the Company's Revolving
Credit Facility, consented to a change until December 31, 1998 in
the method of calculation of the convenant which requires the
equity to asset ratio to be 30%. The change permitted the Company
to meet the required ratio.
The Company is considering additional complementary
acquisitions that can provide new products and market
opportunities as well as leverage existing assets. In order to
complete such acquisitions the Company will require additional
financing of a long-term nature which will require the consent of
its existing lenders or additional equity financing. There is no
assurance that any acquisition or the required acquisition
financing will be available on terms suitable to the Company.
Regarding potential equity financing, the Company's outstanding
warrants for the issuance of common stock expire on January 3,
1999, and the Company cannot predict whether such warrants will
be exercised. If all such warrants were exercised the Company
would issue 3,819,600 shares of Common Stock at an exercise price
of $20.69 and receive approximately $79.0 million.
___________
Statements made in this Form 10Q, are forward-looking statements
made pursuant to the safe harbor provisions of the Securities
Litigation Reform Act of 1995. Such statements involve certain
risks and uncertainties that could cause actual results to differ
materially from those in the forward looking statements.
Information on other significant potential risks and
uncertainties not discussed herein may be found in the Company's
filings with the Securities and Exchange Commission including its
Form 10K for the year ended December 31, 1997.
PART II. OTHER INFORMATION
Item 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITIES
HOLDERS
The Company in order to complete the acquisition of Arthur H. Cox
and Co., Ltd. in May 1998 requested and received consents from
the banks which are parties to the $180,000,000 Revolving Credit
Facility to change the method of calculation of the equity to
assets ratio until December 31, 1998. The change in calculation
method allowed the adding back of equity reductions due to
foreign currency translation to equity.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10a) Employment Agreement dated March 13, 1998 between the
Company and Gert Munthe.
(b) Reports on Form 8-K
On April 10, 1998, the Company filed a report on Form 8-K
dated March 30, 1998 reporting Items 5. and 9. "Other Events and
Sales of Equity Securities Pursuant to Regulation S."
The events reported were the issuance of Convertible
Subordinated Notes concurrently with the issuance of a
convertible subordinated note to its principal stockholder, A.L.
Industrier.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Alpharma Inc.
(Registrant)
Date: May 13, 1998 /s/ Jeffrey E. Smith
Jeffrey E. Smith
Vice President, Finance and
Chief Financial Officer
February 26, 1998
Mr. Gert Munthe
Alpharma A.S.
Harbitzalleen 3
Postboks 158 Skoyen
N-0212 Oslo 2 Norway
Dear Gert:
This letter agreement will delineate the material terms
of your employment by ALPHARMA Inc. ("AL") and its subsidiaries
(together, the "Worldwide Group") which will become effective on
May1, 1998 or such earlier date as you shall determine upon 30
days prior written notice to AL (the "Commencement Date"). Your
employment hereunder shall continue in effect through the date of
termination of your employment in accordance with this agreement
(the "Termination Date"), subject only to such changes as may
heretofore be approved by you and the Board of Directors of AL.
As recommended by the Compensation Committee, the terms
of your employment are as follows:
1. Beginning on the Commencement Date, you will serve as
President and Chief Operating Officer ("COO") of AL and have
operational oversight responsibility with respect to each of
the divisions and companies in the Worldwide Group, subject
to review and direction by the Chief Executive Officer and
the general oversight of the Board of Directors of AL.
2. It is contemplated that you will be elected as President and
Chief Executive Officer ("CEO") of AL on or about the time
of the Annual Meeting of AL Stockholders expected to be held
in the second quarter of 1999. Following such election you
shall have all the powers and responsibilities of CEO of AL
with general managerial or oversight responsibility with
respect to each of the companies in the Worldwide Group,
subject to review and direction by the Board of Directors of
AL.
3. You agree, if elected, to serve as COO and/or CEO of
Alpharma AS and Alpharma U.S., Inc. ("AL-US") and as a
director of AL and AL Oslo and as a director or in such
other positions to which you are or may be elected by the
boards of directors of the various other companies of
Worldwide Group.
4. Your base annual salary shall be $400,000 while serving as
COO and $600,000 while serving as CEO, in each case subject
to upward adjustments as provided below. The base salary
shall be paid in $U.S. by AL in approximately equal semi-
monthly installments (or as otherwise paid to senior
executives). Your base salary includes compensation for
your services as an officer and/or director of any of the
companies in the Worldwide Group, and you will not receive
additional compensation for such services. Your base salary
will be reviewed annually by the Compensation Committee for
upward adjustment, subject to Board approval, as of January
1, 2000 and each subsequent year.
5. You will be considered for an annual cash bonus each year.
You are eligible for a bonus of up to 75% of your base
salary payable with respect to such year based on the
overall performance of the Worldwide Group and your
individual performance and contribution; provided that such
bonus shall be not less than $100,000 (subject to proration
if you are employed for less than the full calendar year)
with respect to 1998. The annual bonus recommendation will
be made by the Compensation Committee and will be subject to
approval by the Board of Directors. The annual bonus with
respect to each year shall be payable in cash prior to April
1 of the following year.
6. You will establish your residence in the Metropolitan New
York area within approximately three months of the
Commencement Date, it being understood that you may at your
election thereafter reestablish your residency in Norway at
any time following twelve months after your election as CEO.
Irrespective of the location of your residency, you will be
expected to be present for significant amounts of time as
required to perform your responsibilities at the company's
corporate offices in the United States and in Norway. In
order to facilitate your relocation of your residency to the
United States, the Company will (i) reimburse you for your
reasonable expenses incurred in making two trips to the
Metropolitan New York area with your spouse for the purpose
of locating an appropriate residence while in the United
States; (ii) pay the fees and reasonable expenses of a real
estate consultant to assist you and your spouse in learning
about communities, including schools and other facilities,
to which you may choose to relocate in the United States;
(iii) pay your reasonable moving expenses in relocating to
the United States and subsequent relocation to Norway and
(iv) provide an appropriate guarantee (or other mutually
satisfactory credit support) of your obligations under a
mortgage loan (or other borrowing) made to finance your
purchase of a residence in the United States and reasonable
financial assurances that provide you with protection
against loss incurred upon sale of such residence. In
addition, at the beginning of each calendar year in which
you intend (as reflected in a notice to the Company to such
effect) to be resident in the Metropolitan New York area for
the major portion of the year, you will receive a general
expense allowance payable during the first month of such
year of $50,000 (it being understood that such allowance may
be used for such expenses of living in the United States as
you deem appropriate and you shall not be required to
account for any such expenses). You will be entitled to the
expense allowance of $50,000 for 1998 even if you will be
resident in the Metropolitan New York area for less than six
moths in 1998. the allowance for 1998 shall be payable on
May 1, 1998.
7. You will be granted options to purchase Class A Common Stock
of AL at not less than the fair market value of such shares
on the date of grant ("Options") as follows: (i) 100,000
Options shall be granted after the Commencement Date but not
earlier than the date on which you have become resident in
the United States in 1998, and (ii) 50,000 options shall be
granted as of the first trading day of January in the
calendar year following the year in which you receive the
100,000 shares grant. These two Options are granted as a
long term compensation element for the years 1998 and 1999.
You will be entitled to other long term compensations, as
the Compensation committee may decide, for the year 2000 and
thereafter. The Options shall have the terms, vesting
provisions and other conditions as set forth in our Appendix
A to this Letter Agreement or as otherwise provided in the
Company's stock option plan. Without limiting the
foregoing, the Options shall provide that, to the extent
exercisable on the date of termination of your employment,
they shall remain exercisable for a two years period after
any such termination which is without good cause of your
employment.
8. During the term of your employment, you will be entitled to
an annual automobile allowance of $15,000, plus
reimbursement for insurance and maintenance and will be
entitled to participate in all employee benefit programs
that are from time to time available to senior executives of
AL on the same basis as other senior executives of AL
including:
a. Life insurance;
b. Disability insurance program;
c. 401K Plan;
d. Health and medical insurance;
e. Retirement Plan.
f. Stock Purchase Plan
g. Deferred Compensation Plan
h. Paid Vacation and Holidays, and
i. Tax and Financial Services Planning.
With respect to retirement benefits, you will be entitled to
the normal amount of benefits available to an employee of AL
with the compensation and years of service which are
applicable to you provided that (i) you shall be entitled to
a supplemental retirement benefit calculated in a mutually
acceptable manner which provides you with an amount equal to
the amount that would be payable to you under AL's qualified
plan if no limitations were imposed by the Internal Revenue
Code compared with the amount actually payable to you under
the plan giving effect to such limitations; and (ii) you
shall have the option to retire at age 55, (irrespective of
the provisions of the plan) with an annual benefit that has
been actuarially reduced (using the actuarial tables and
methods utilized in administering the Company's pension plan
for Unites States employees) to reflect such early
retirement.
9. If you in accordance with Section 6 above choose to re-
establish your residency in Norway after being elected as
CEO, it will be essential that you divide your work between
the United States and Oslo and most probably with a major
part of your work in the United States. Your salary and
benefits as described in Section 8 a-i should be split
accordingly and shall be agreed with the Compensation
Committee.
10. Your employment under this Agreement shall continue until
terminated by AL or you as hereinafter provided. Your
employment hereunder may be terminated by you on ninety days
written notice to AL or by AL on thirty days written notice
to you; provided that if your employment is terminated by AL
without good cause, then you shall be entitled to continue
to receive your then current base salary payable during each
of the twenty-four months following such termination. If
you are not elected to the offices as provided in paragraphs
1 and 2, or following your initial election as CEO you do
not continue to be elected as CEO, in any such instance for
other than good cause, then such failure to be so elected
shall be deemed to be a termination of employment by AL and
you shall be entitled to the salary continuation as provided
in the second sentence of this paragraph. Similarly, if at
any time while you are serving as COO or CEO, the
responsibilities and authority of such office is materially
changed in a manner which you in good faith reasonably
consider materially adverse, you may terminate your
employment hereunder within 60 days of such change and be
entitled to receive the salary continuation as provided in
the second section of this paragraph. "Good cause" shall
mean the willful failure (or inability as a result of
disability) to carry out your responsibilities continuing
for thirty days after notice from the Board of Directors of
AL or committing any unlawful or improper act which
materially and adversely affects AL.
11. You agree that during the term of your employment by AL and
for a period of one year thereafter you will not engage in
any activity as an officer, director, employee, consultant,
investor or otherwise on behalf of any business or other
entity which is engaged in competition with any business in
which AL is engaged during the term of your employment
anywhere in the geographical area in which AL conducts such
business. You further agree to execute the non-competition
and confidentiality agreements customarily executed by other
senior executives in AL.
If the foregoing accurately reflects the terms of your
employment by AL and the Worldwide Group, please sign both copies
of this letter where indicated and return one original signed
document to my attention.
Sincerely,
Peter G. Tombros
Chairman of the Compensation
Committee
Chairman of the Stock Option
Committee
I agree to employment with AL
on the terms described above.
/s/ Gert Munthe Date: March 13, 1998
Gert Munthe
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