FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
Commission File Number 1-09623
IVAX CORPORATION
FLORIDA 16-1003559
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33137
(Address of principal executive offices) (Zip Code)
(305) 575-6000
(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
filing requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
121,498,071 SHARES OF COMMON STOCK, $.10 PAR VALUE, OUTSTANDING
AS OF JULY 30, 1997.
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IVAX CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 2
Condensed Consolidated Statements of Operations
for the three months and six months ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 6 - Exhibits and Reports on Form 8-K 17
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
JUNE 30, DECEMBER 31,
1997 1996
------------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 88,396 $ 80,806
Accounts receivable, net 148,282 191,423
Inventories 177,100 204,194
Other current assets 57,436 101,117
Net assets of discontinued operations 93,024 398,329
------------- -------------
Total current assets 564,238 975,869
Property, plant and equipment, net 204,868 223,312
Cost in excess of net assets of acquired companies, net 25,571 25,998
Patents, trademarks, licenses and other intangibles, net 27,267 28,728
Other 71,500 73,155
------------- -------------
Total assets $ 893,444 $ 1,327,062
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 5,039 $ 5,027
Current portion of long-term debt 1,584 5,595
Accounts payable 51,529 58,075
Accrued income taxes payable 5,832 13,437
Accrued expenses and other current liabilities 79,918 79,479
------------- -------------
Total current liabilities 143,902 161,613
Long-term debt, net of current portion 104,574 442,819
Other long-term liabilities 10,961 12,934
Minority interest 14,333 14,568
Shareholders' equity:
Common stock, $.10 par value, authorized 250,000 shares,
issued and outstanding 121,496 shares (121,476 in 1996) 12,150 12,148
Capital in excess of par value 515,094 515,070
Retained earnings 105,507 160,960
Cumulative translation adjustment and other (13,077) 6,950
------------- -------------
Total shareholders' equity 619,674 695,128
------------- -------------
Total liabilities and shareholders' equity $ 893,444 $ 1,327,062
============= =============
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THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
2
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IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
PERIOD ENDED JUNE 30, THREE MONTHS SIX MONTHS
(In thousands, except per share data) 1997 1996 1997 1996
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
NET REVENUES $ 173,809 $ 151,627 $ 340,707 $ 367,437
COST OF SALES 120,267 115,744 229,986 229,762
----------- ----------- ----------- ------------
Gross Profit 53,542 35,883 110,721 137,675
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Selling 33,379 29,080 62,934 55,623
General and administrative 28,881 24,032 56,302 44,459
Research and development 13,982 13,021 25,913 24,478
Amortization of intangible assets 968 1,384 1,951 2,197
Asset write-downs 20,500 - 20,500 -
Merger expenses 247 - 2,343 184
----------- ----------- ----------- ------------
Total operating expenses 97,957 67,517 169,943 126,941
----------- ----------- ----------- ------------
Income (loss) from operations (44,415) (31,634) (59,222) 10,734
OTHER INCOME (EXPENSE):
Interest income 1,215 157 1,873 419
Interest expense (5,275) (3,179) (10,920) (5,734)
Other income, net (493) (317) 6,587 3,802
----------- ----------- ----------- ------------
(4,553) (3,339) (2,460) (1,513)
----------- ----------- ----------- ------------
Income (loss) from continuing operations before
income taxes and minority interest (48,968) (34,973) (61,682) 9,221
PROVISION (BENEFIT) FOR INCOME TAXES 2,447 (13,387) (647) (5,864)
----------- ------------- ----------- ------------
Income (loss) from continuing operations
before minority interest (51,415) (21,586) (61,035) 15,085
MINORITY INTEREST (1,409) (1,718) (2,881) (3,902)
----------- ----------- ----------- ------------
Income (loss) from continuing operations (52,824) (23,304) (63,916) 11,183
Income from discontinued operations 7,447 9,373 10,600 10,782
----------- ----------- ----------- ------------
Income (loss) before extraordinary items (45,377) (13,931) (53,316) 21,965
Extraordinary items - losses on
extinguishment of debt, net of taxes (2,137) (2,072) (2,137) (2,073)
----------- ----------- ----------- ------------
NET INCOME (LOSS) $ (47,514) $ (16,003) $ (55,453) $ 19,892
=========== =========== =========== ============
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (.43) $ (.19) $ (.53) $ .09
Discontinued operations .06 .08 .09 .09
Extraordinary items (.02) (.02) (.02) (.02)
----------- ----------- ----------- -----------
Net earnings (loss) $ (.39) $ (.13) $ (.46) $ .16
=========== =========== =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: 121,488 121,015 121,484 121,858
=========== =========== =========== ============
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
3
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IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1997 1996
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (55,453) $ 19,892
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non cash charges relating to asset write-downs 20,500 -
Depreciation and amortization 16,576 14,319
Benefit for deferred taxes (5,982) (20,716)
Provision for allowances for doubtful accounts 3,046 1,467
Losses (gains) on sale of long-term assets 525 (567)
Losses on extinguishment of debt 2,137 1,640
Minority interest 2,881 3,902
Income from discontinued operations (10,600) (10,782)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 33,690 (9,318)
Decrease (increase) in inventories 21,326 (55,254)
Decrease (increase) in other current assets 44,387 (15,986)
Decrease (increase) in other assets 890 (1,459)
(Decrease) increase in accounts payable, accrued
expenses and other current liabilities (22,149) 25,921
Decrease in other long-term liabilities (619) (2,483)
Other, net (840) (760)
Net cash provided by (used for) discontinued operations 25,089 (7,296)
------------- -------------
Net cash provided by (used for) operating activities 75,404 (57,480)
------------- -------------
Cash flows from investing activities:
Proceeds from divestiture 320,000 -
Capital expenditures, net of proceeds from sales (16,856) (24,064)
Acquisitions of patents, trademarks, licenses
and other intangibles, net of sales proceeds (739) (719)
Acquisitions of businesses and other, net of cash acquired (10,500) (12,006)
Net cash used for discontinued operations (13,340) (16,415)
------------- -------------
Net cash provided by (used for) investing activities 278,565 (53,204)
------------- -------------
Cash flows from financing activities:
Borrowings on long-term debt and loans payable 46,911 485,220
Payments on long-term debt and loans payable (386,882) (310,450)
Issuance of common stock 26 31,777
Cash dividends paid - (6,057)
Net cash used for discontinued operations (93) (87,329)
------------- -------------
Net cash (used for) provided by financing activities (340,038) 113,161
------------- -------------
Effect of exchange rate changes on cash (6,341) (389)
------------- -------------
Net increase in cash and cash equivalents 7,590 2,088
Cash and cash equivalents at the beginning of the year 80,806 14,720
------------- -------------
Cash and cash equivalents at the end of the period $ 88,396 $ 16,808
============= =============
Supplemental disclosures:
Interest paid $ 13,743 $ 14,696
============= ============
Income tax (refunds) payments $ (48,039) $ 9,775
============= ============
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
4
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IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
(1) GENERAL:
In management's opinion, the accompanying unaudited condensed
consolidated financial statements of IVAX Corporation and subsidiaries ("IVAX")
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of IVAX as of June 30, 1997,
and the results of its operations for the three and six months ended June 30,
1997 and 1996. The results of operations and cash flows for the six months ended
June 30, 1997 are not necessarily indicative of the results of operations or
cash flows which may be reported for the remainder of 1997.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such
rules and regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included
in IVAX's Annual Report on Form 10-K for the year ended December 31, 1996.
The accounting policies followed for interim financial reporting are
the same as those disclosed in Note 2 of the Notes to Consolidated Financial
Statements included in IVAX's Annual Report on Form 10-K for the year ended
December 31, 1996.
Certain amounts presented in the condensed consolidated financial
statements for prior period's have been reclassified to conform to the current
periods presentation and as required with respect to discontinued operations.
(2) EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share is computed by dividing net income (loss) by
the weighted-average number of common and dilutive common equivalent shares
outstanding for each period. Common stock equivalents include the dilutive
effect of all outstanding stock options and warrants using the treasury stock
method.
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS
PER SHARE, requires the disclosure of "basic" and "diluted" earnings per share
for periods ending after December 15, 1997. The computation under SFAS No. 128
differs from the computation of primary and fully diluted earnings per share
under Accounting Principles Board ("APB") Opinion No. 15 primarily in the manner
in which potential common stock (that is, securities such as options, warrants,
convertible securities, or contingent stock agreements) is treated. Basic
earnings per share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding for the period. In the
computation of diluted earnings per share, the weighted-average number of common
shares outstanding is adjusted for the effect of all dilutive potential common
stock.
Basic and diluted earnings per share computed in accordance with SFAS
No. 128 for the three and six months ended June 30, 1997 and 1996 do not differ
from the primary earnings per share
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reported in the accompanying condensed consolidated statements of operations.
Both diluted earnings per share computed in accordance with SFAS No. 128 and
fully diluted earnings per share computed under APB Opinion No. 15 are not
dilutive for periods presented.
(3) ASSET WRITE-DOWNS:
During the second quarter of 1997, management reevaluated the carrying
value of certain long-lived assets. The reevaluation was performed, primarily,
in conjunction with initiatives to further consolidate facilities of IVAX's
domestic generic pharmaceutical operations in an effort to improve its
efficiency. As a result of these initiatives, a $20,500 asset write-down was
recognized which primarily represents an initial estimate of the minimum level
of charges associated with expected losses on facility disposals. Management
anticipates that it will continue to consolidate facilities and restructure its
domestic generic pharmaceutical operations in an ongoing effort to improve
efficiencies and operations. Accordingly, additional asset write-downs and
restructuring costs may be recorded in future periods as consolidation and
restructuring initiatives develop further.
These asset write-downs were recorded in accordance with SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS AND FOR LONG LIVED ASSETS TO
BE DISPOSED OF, and are shown as asset write-downs in the accompanying condensed
consolidated statements of operations. Management determined the amount of the
write-downs based on various valuation techniques, including discounted cash
flow analysis, independent appraisals and third party offers.
(4) INCOME TAXES:
The provision (benefit) for income taxes is based on the consolidated
United States entities' and individual foreign companies' estimated tax rates
for the applicable year. IVAX utilizes the asset and liability method, and
deferred taxes are determined based on the estimated future tax effects of
differences between the financial accounting and tax bases of assets and
liabilities using the applicable tax laws. Deferred income tax provisions and
benefits are based on the changes in the deferred tax asset or tax liability
from period to period.
The provision (benefit) for income taxes from continuing operations
consists of the following:
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<CAPTION>
PERIOD ENDED JUNE 30, THREE MONTHS SIX MONTHS
1997 1996 1997 1996
------------- -------------- ------------- ---------
<S> <C> <C> <C> <C>
Current:
United States $ - $ 5,292 $ 174 $ 645
Foreign, including Puerto Rico
and U.S. Virgin Islands 1,479 1,931 5,161 14,207
Deferred 968 (20,610) (5,982) (20,716)
------------- -------------- ------------ --------------
Provision (benefit) for income taxes $ 2,447 $ (13,387) $ (647) $ (5,864)
============= ============== ============ ==============
</TABLE>
In the second quarter of 1997, IVAX recognized a $24,132 valuation
allowance against certain deferred tax assets generated from losses incurred in
the second quarter by its domestic operations. Management expects that it will
also recognize additional valuation allowances related to any future deferred
tax assets generated from its domestic operations until such time as sustainable
operating income is achieved.
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As of June 30, 1997, a net deferred tax asset aggregating $72,484
($55,749 and $16,735 domestic and foreign, respectively) is included in other
current assets and liabilities and other assets and other long-term liabilities
in the accompanying condensed consolidated balance sheet. Realization of the net
deferred tax asset is dependent upon generating sufficient future taxable income
which will include income from the sale of non-strategic assets. Although
realization is not assured, management believes, after consideration of existing
valuation allowances, it is more likely than not that the remaining net deferred
tax asset will be realized. Management's estimates of future taxable income are
subject to revision due to, among other things, regulatory and competitive
factors affecting the generic pharmaceutical industry. Such factors are further
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in IVAX's Annual Report on Form 10-K for the
year ended December 31, 1996.
(5) MERGERS:
On March 20, 1997, IVAX announced that Bergen Brunswig Corporation
("Bergen") unilaterally terminated the proposed merger between IVAX and Bergen.
On March 21, 1997, Bergen filed a lawsuit against IVAX in federal court
alleging, among other things, various breaches of the merger agreement. IVAX
does not believe that Bergen had a contractual right to terminate the merger
agreement, intends to defend the suit vigorously, and has filed a counterclaim
for breach of the merger agreement by Bergen. Included in the accompanying
condensed consolidated statement of operations for the six months ended June 30,
1997 are $2,343 of merger expenses related to the terminated merger.
(6) DIVESTITURE:
Effective May 30, 1997, IVAX sold McGaw, Inc. ("McGaw"), its
intravenous division, to B. Braun of America, Inc. ("B. Braun"), a subsidiary of
B. Braun Melsungen AG, for $320,000 in cash (subject to certain post-closing
adjustments), additional payments of up to $80,000 contingent upon the combined
operating results of McGaw and B. Braun's principal United States operating
subsidiary, and certain royalties based on sales of the Duplex(TM) drug delivery
system. The Duplex(TM) system, presently in development, is a multi-compartment
intravenous drug delivery system devised for drugs that have limited stability
after mixing. The gain on sale and results of operations of the intravenous
division were classified as part of discontinued operations for all periods
presented (See Note 7, Discontinued Operations).
(7) DISCONTINUED OPERATIONS:
During the second quarter of 1997, IVAX's board of directors determined
to divest its intravenous, personal care products and specialty chemicals
divisions. As a result, IVAX classified these businesses as discontinued
operations, and, accordingly, has included their results of operations in
income from discontinued operations in the accompanying condensed consolidated
statements of operations. Results of these operations were as follows:
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<CAPTION>
PERIOD ENDED JUNE 30, THREE MONTHS SIX MONTHS
1997 1996 1997 1996
------------- -------------- ------------- ---------
<S> <C> <C> <C> <C>
INTRAVENOUS DIVISION (THROUGH MAY 30, 1997)
Net Revenues (1) $ 58,041 $ 84,840 $ 140,634 $ 168,043
Income from operations before taxes (2) $ 1,062 $ 2,573 $ 3,770 $ 1,970
Income tax benefit (42) (6,783) (427) (8,554)
------------- -------------- ------------- --------------
Income from operations $ 1,104 $ 9,356 $ 4,197 $ 10,524
------------- -------------- ------------- --------------
PERSONAL CARE PRODUCTS
Net Revenues (1) $ 19,928 $ 19,627 $ 38,829 $ 39,058
Income/(loss) from operations before
taxes (2) $ (45) $ 2,191 $ 211 $ 4,093
Income tax provision 29 992 186 1,852
------------- -------------- ------------- --------------
Income/(loss) from operations $ (74) $ 1,199 $ 25 $ 2,241
------------- -------------- ------------- --------------
SPECIALTY CHEMICALS
Net Revenues (1) $ 18,070 $ 18,142 $ 35,050 $ 34,270
Income/(loss) from operations before
taxes (2) $ 577 $ (1,470) $ 640 $ (2,750)
Income tax provision/(benefit) 299 (288) 401 (767)
------------- -------------- ------------- --------------
Income/(loss) from operations $ 278 $ (1,182) $ 239 $ (1,983)
------------- -------------- ------------- --------------
Sub-total income from operations $ 1,308 $ 9,373 $ 4,461 $ 10,782
------------- -------------- ------------- --------------
DIVESTITURE (SEE NOTE 6)
Pre-tax gain on divestiture $ 31,215 $ - $ 31,215 $ -
Income tax provision on divestiture 25,076 - 25,076 -
------------- -------------- ------------- --------------
Net gain on divestiture $ 6,139 $ - $ 6,139 $ -
------------- -------------- ------------- --------------
Total income from discontinued operations $ 7,447 $ 9,373 $ 10,600 $ 10,782
============= ============== ============= ==============
</TABLE>
(1) Net revenues include intersegment sales of $671 and $353 for the three
months ended June 30, 1997 and 1996, respectively, and $1,493 and $880 for the
six months ended June 30, 1997 and 1996, respectively.
(2) Reflects an allocation of interest expense based on the ratio of net assets
of each of the discontinued businesses to IVAX's consolidated total capital. The
above operating results include interest expense allocations of $2,635 and
$1,344 for the three months ended June 30, 1997 and 1996, respectively, and
$5,072 and $2,425 for the six months ended June 30, 1997 and 1996, respectively.
The net assets of IVAX's remaining discontinued operations (excluding
intercompany assets) at June 30, 1997, as presented in the Condensed
Consolidated Balance Sheet, are as follows:
8
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<CAPTION>
PERSONAL CARE SPECIALTY
PRODUCTS CHEMICALS
DIVISION DIVISION TOTAL
------------- --------- -----------
<S> <C> <C> <C>
Current assets $ 44,655 $ 21,591 $ 66,246
Property, plant, and equipment, net 5,731 5,554 11,285
Other assets 22,779 12,926 35,705
---------------- ---------------- ----------------
Total assets 73,165 40,071 113,236
---------------- ---------------- ----------------
Current liabilities 8,736 7,446 16,182
Other liabilities 1,846 2,184 4,030
---------------- ---------------- ----------------
Total liabilities 10,582 9,630 20,212
---------------- ---------------- ----------------
Net assets of discontinued operations $ 62,583 $ 30,441 $ 93,024
================ ================ ================
</TABLE>
(8) DEBT:
During the second quarter of 1997, IVAX utilized a portion of the
proceeds from the sale of its intravenous division (See Note 6, Divestiture) to
pay the $270,147 outstanding balance of its revolving credit facility which was
scheduled to mature November 14, 1999. The facility was terminated in
conjunction with this payment, resulting in IVAX recording an extraordinary loss
of $2,137 primarily related to the write-off of deferred financing costs.
(9) CONTINGENCIES:
With regard to the shareholder class action lawsuit filed against IVAX
in September 1994, the parties executed a definitive settlement agreement in
April 1997. Pursuant to the settlement agreement, the parties agreed to settle
the action in its entirety in exchange for the payment by the defendant and its
insurers of $7.5 million. IVAX's portion of the settlement obligation, which is
not significant, was appropriately accrued at December 31, 1996, based on a
memorandum of understanding with the defendants executed in January 1997. In
August 1997, the court approved the settlement agreement and entered a final
judgment and order of dismissal with prejudice, which provides for, among other
things, the dismissal of the lawsuit with prejudice and the complete release of
all defendants by all plaintiffs. Pursuant to the settlement agreement, the
settlement and final judgment will be deemed final and conclusive upon the
latter of (i) if no appeal or review of the final judgment is sought, on the day
following the expiration of the time to appeal or petition from the final
judgment; or (ii) if an appeal of the final judgment is sought, the day after
such final judgment is affirmed and is no longer subject to further judicial
review.
(10) COMPREHENSIVE INCOME:
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, is effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events in a period other than transactions with owners. Comprehensive
income is the total of net income and all other non-owner changes in equity.
Management believes that the adoption of SFAS No. 130 will not have a material
impact on IVAX's consolidated financial statements, and IVAX has elected to
disclose comprehensive income in the consolidated statement of shareholders'
equity.
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(11) SUBSEQUENT EVENTS:
During July and August 1997, IVAX completed the sale of a significant
portion of the assets of its specialty chemicals division in separate
transactions with three different buyers. As part of the sales, IVAX received an
aggregate of $41,800 in cash, subject to certain post closing adjustments. As a
result, the inland vacuum specialty lubricants business is the only remaining
business of IVAX's specialty chemicals division.
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ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements, the related Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in IVAX's Annual Report on Form
10-K for the year ended December 31, 1996 and the Condensed Consolidated
Financial Statements and the related Notes to Condensed Consolidated Financial
Statements included in Item 1 of this Quarterly Report on Form 10-Q. Except for
historical information contained herein, the matters discussed below are forward
looking statements made pursuant to the safe harbor provisions of the Securities
Litigation Reform Act of 1995. Such statements involve risks and uncertainties,
including but not limited to economic, competitive, governmental and
technological factors affecting IVAX's operations, markets, products and prices,
and other factors discussed elsewhere in this report and the documents filed by
IVAX with the Securities and Exchange Commission ("SEC").
Results for the three and six months ending June 30, 1996 have been
restated to reflect the classification of certain businesses as discontinued
operations. See "Results of Operations - Discontinued Operations" for a further
discussion. Additionally, the diagnostics division's results of operations,
previously reported as part of the "Other operations" segment, are not disclosed
as a separate segment because they are not significant.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
IVAX reported a loss from continuing operations of $63.9 million for
the six months ended June 30, 1997, compared to income from continuing
operations of $11.2 million for the six months ended June 30, 1996. The net loss
for the six months ended June 30, 1997 was $55.5 million, compared to net income
of $19.9 million for the same period of the prior year. Results for both periods
included a $2.1 million net extraordinary loss relating to the extinguishment of
debt.
Loss per common share from continuing operations was $.53 for the six
months ended June 30, 1997, compared to earnings of $.09 for the six months
ended June 30, 1996. Net loss per common share was $.46 for the first half of
1997, compared to net earnings of $.16 for the same period of the prior year.
The net extraordinary losses recorded in both periods relating to the early
extinguishment of debt resulted in a $.02 loss per common share.
Net revenues for the first half of 1997 totaled $340.7 million, a
decrease of $26.7 million, or 7%, compared to the same period of the prior year.
An increase of $29.7 million in net revenues of IVAX's international operations
was more than offset by a decrease of $56.4 million in net revenues of IVAX's
domestic operations.
Domestic net revenues totaled $148.8 million for the first six months
of 1997, compared to $205.2 million for the same period of 1996. The $56.4
million, or 27%, decrease in domestic net revenues was primarily attributable to
lower sales volumes and prices of certain generic products. This decline was
partially offset by net revenues generated by certain new generic and
proprietary products manufactured by IVAX and introduced into the market over
the past twelve months. The lower sales volume and decreased prices primarily
relate to IVAX's albuterol metered dose inhaler, approved for marketing and
launched during the fourth quarter of 1995 and first quarter of 1996. In
addition, and to
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a lesser extent, verapamil HCl ER tablets and cefadroxil also experienced
lower sales volume and decreased prices as a result of increased competition.
During the first six months of 1997 and 1996, the Company's domestic
generic pharmaceutical business provided reserves which reduced gross sales by
$69.5 million and $126.5 million, respectively (which includes reserves for
expected inventory credits and returns of $16.0 million and $78.4 million,
respectively). At June 30, 1997 and December 31, 1996, these reserves totaled
$51.8 million and $98.2 million, respectively (which includes reserves for
expected inventory credits and returns of $27.5 million and $65.9 million,
respectively).
IVAX's international operations generated net revenues of $191.9
million in the first six months of 1997, compared to $162.2 million for the same
period of the prior year. The $29.7 million, or 18%, increase in international
net revenues was primarily due to increased volume for both generic and branded
products and, to a lesser extent, the favorable impact of foreign currency
fluctuations.
Gross profit for the first half of 1997 decreased $27.0 million, or
20%, from the same period of the prior year. Gross profit was $110.7 million
(32.5% of net revenues) for the first half of 1997, compared to $137.7 million
(37.5% of net revenues) for the first half of 1996. The decline in gross profit
percentage is primarily due to price declines, unfavorable product mix for both
the domestic generic pharmaceutical business and international operations and,
to a lesser extent, increased inventory obsolescence reserves at IVAX's domestic
generic pharmaceutical business.
Selling expenses totaled $62.9 million (18.5% of net revenues) for the
first six months of 1997, compared to $55.6 million (15.1% of net revenues) for
the first six months of 1996. The increase was primarily attributable to
additional sales force and promotional costs related to Elmiron(R), IVAX's
innovative drug used to treat interstitial cystitis, approved for marketing in
the United States during September 1996, and additional sales costs related to
IVAX's international operations. This was partially offset by a decrease in
selling expenses of the domestic generic pharmaceutical operations as a result
of fewer product promotions and reductions in sales and marketing personnel.
General and administrative expenses totaled $56.3 million (16.5% of net
revenues) for the first six months of 1997, compared to $44.5 million (12.1% of
net revenues) for the first six months of 1996, an increase of $11.8 million.
The increase is primarily attributable to higher occupancy costs and
professional fees at IVAX's international operations. To a lesser extent,
corporate general and administrative expenses increased from the same period in
1996 primarily due to increases in health insurance, personnel and legal costs.
Research and development expenses for the first six months of 1997
increased $1.4 million, or 6%, compared to the first half of 1996, to a total of
$25.9 million (7.6% of net revenues). The future level of research and
development expenditures will depend on, among other things, the outcome of
clinical testing of products under development, delays or changes in government
required testing and approval procedures, technological and competitive
developments, and strategic marketing decisions.
During the second quarter of 1997, management reevaluated the carrying
value of certain long-lived assets. The reevaluation was performed, primarily,
in conjunction with initiatives to further consolidate facilities of IVAX's
domestic generic pharmaceutical operations in an effort to improve its
efficiency. As a result of these initiatives, a $20.5 million asset write-down
was recognized which primarily represents an initial estimate of the minimum
level of charges associated with expected losses on facility disposals.
Management anticipates that it will continue to consolidate facilities and
restructure its
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domestic generic pharmaceutical operations in an ongoing effort to improve
efficiencies and operations. Accordingly, additional asset write-downs and
restructuring costs may be recorded in future periods as consolidation and
restructuring initiatives develop further. Management determined the amount of
the write-downs based on various valuation techniques, including discounted cash
flow analysis, independent appraisals and third party offers.
Interest expense increased $5.2 million in the first six months of
1997, as compared to the first six months of the prior year, primarily due to
higher debt levels associated with borrowings to fund capital expenditures and
operations. Interest expense is expected to decline in the near term as compared
to recent prior periods due to the reduction of debt.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996
IVAX reported a loss from continuing operations of $52.8 million for
the three months ended June 30, 1997, compared to a loss of $23.3 million for
the same period in 1996. The net loss for the three months ended June 30, 1997
was $47.5 million, compared to a net loss of $16.0 million for the same period
in 1996. Results for both periods included a $2.1 million net extraordinary loss
from the extinguishment of debt.
Loss per common share from continuing operations was $.43 for the three
months ended June 30, 1997, compared to a loss of $.19 for the three months
ended June 30, 1996. Net loss per common share was $.39 for the three months
ended June 30, 1997, compared to a net loss of $.13 for the same period in the
prior year. The net extraordinary losses recorded in both periods relating to
the early extinguishment of debt resulted in a $.02 loss per common share.
Net revenues for the three months ended June 30, 1997, totaled $173.8
million, an increase of $22.2 million, or 15%, compared to the same period of
the prior year. Net revenues from IVAX's domestic and international operations
increased by $2.0 million and $20.2 million, respectively.
Domestic net revenues totaled $69.3 million for the three months ended
June 30, 1997, compared to $67.3 million for the same period of the prior year.
The $2.0 million increase was primarily attributable to net revenues generated
by certain new generic and proprietary products manufactured by IVAX and
introduced into the market over the past twelve months, and, to a lesser extent,
by lower sales returns and allowances. This was partially offset by decreased
volume and prices for certain generic products. The decline in prices primarily
related to IVAX's albuterol metered dose inhaler, indapamide and verapamil,
while lower sales volume primarily related to cefadroxil and nitrofurantoin.
IVAX's international operations generated net revenues of $104.5
million for the three months ended June 30, 1997, compared to $84.3 million for
the same period of the prior year. The $20.2 million increase in international
net revenues was primarily due to increases in volume and, to a lesser extent,
higher licensing fee revenues from IVAX's United Kingdom operations and the
favorable impact of foreign currency fluctuations.
Gross profit for the three months ended June 30, 1997, increased $17.6
million, or 49%, compared to the same period in 1996. Gross profit was $53.5
million (30.8% of net revenues) for the 1997 period, compared to $35.9 million
(23.7% of net revenues) for the 1996 period. The improvement in gross profit
percentage was primarily the result of an increase in net revenues principally
driven by a decrease in sales returns and allowances at IVAX's domestic generic
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pharmaceutical business partially offset by unfavorable product mix and, to a
lesser extent, increased inventory obsolescence reserves at IVAX's domestic
generic pharmaceutical business.
Selling expenses totaled $33.4 million (19.2% of net revenues) for the
three months ended June 30, 1997, an increase of $4.3 million, from $29.1
million (19.2% of net revenues) for the same period of 1996. The increase was
primarily attributable to higher sales expenses associated with international
operations related to higher sales force and commission costs. In addition, the
domestic proprietary pharmaceutical operations incurred higher sales costs
associated with the launch of Elmiron\registermark\. These increases were
partially offset by reductions in the sales force and promotional expenses at
IVAX's domestic generic pharmaceutical operations.
General and administrative expenses totaled $28.9 million (16.6% of net
revenues) for the three months ended June 30, 1997, compared to $24.0 million
(15.8% of net revenues) for the same period of 1996, an increase of $4.9
million. The increase is primarily attributable to increased legal and
professional fees at corporate and IVAX's international operations as well as
higher bad debt provisions at IVAX's domestic generic pharmaceutical operations.
Research and development expenses for the three months ended June 30,
1997, increased 7.4% compared to the same period of the prior year to a total of
$14.0 million.
Refer to the "Results of Operations - Six months ended June 30, 1997
compared to the six months ended June 30, 1996" for a discussion of the $20.5
million asset write-down recognized during the three months ended June 30, 1997.
Interest income increased $1.1 million over the same period of the
prior year as a result of higher average cash balances in the current period as
compared to the prior year period and the associated interest income earned.
Interest expense increased $2.1 million over the same period of the prior year
primarily due to higher debt levels associated with borrowings to fund capital
expenditures and operations.
DISCONTINUED OPERATIONS
During the second quarter of 1997, IVAX's board of directors
determined to divest its intravenous, personal care products and specialty
chemicals divisions. As a result, IVAX classified these businesses as
discontinued operations. For the six months ended June 30, 1997 and 1996, income
from discontinued operations was $10.6 million and $10.8 million, respectively.
For the three months ended June 30, 1997 and 1996, income from discontinued
operations was $7.4 million and $9.4 million, respectively. The three months
ended June 30, 1997, includes a net gain on the divestiture of McGaw, Inc.
("McGaw"), IVAX's intravenous division, of $6.1 million.
CURRENCY FLUCTUATIONS
For the three and six months ended June 30, 1997, approximately 67% and
62%, respectively, of IVAX's net revenues were attributable to operations which
principally generated revenues in currencies other than the United States
dollar, compared to approximately 58% and 46% for the three and six months ended
June 30, 1996, respectively. Fluctuations in the value of foreign currencies
relative to the United States dollar impact the reported results of operations
for IVAX. If the United States dollar weakens relative to the foreign currency,
the earnings generated in the foreign currency will, in effect, increase when
converted into United States dollars and vice versa. As a result of
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exchange rate differences, net revenues increased by approximately $1.6
million and $4.1 million for the three and six months ended June 30, 1997,
respectively, as compared to the same periods of the prior year.
INCOME TAXES
IVAX recognized a $.6 million tax benefit for the six months ended June
30, 1997. The amount is net of a $24.1 million valuation allowance recognized in
the second quarter of 1997 against certain deferred tax assets generated from
losses incurred in the second quarter by its domestic operations. Management
expects that it will also recognize additional valuation allowances related to
any future deferred tax assets generated from its domestic operations until such
time as sustainable operating income is achieved.
As of June 30, 1997, IVAX had a net deferred tax asset aggregating
$72.5 million. Realization of the net deferred tax asset is dependent upon
generating sufficient future taxable income which will include income from the
sale of non-strategic assets. Although realization is not assured, management
believes, after consideration of existing valuation allowances, it is more
likely than not that the remaining net deferred tax asset will be realized.
Management's estimates of future taxable income are subject to revision due to,
among other things, regulatory and competitive factors affecting the generic
pharmaceutical industry. Such factors are further discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in IVAX's Annual Report on Form 10-K for the year ended December 31,
1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, IVAX's working capital, excluding net assets of
discontinued operations, was $327.3 million, compared to $415.9 million at
December 31, 1996. Cash and cash equivalents totaled $80.8 million at December
31, 1996, as compared to $88.4 million at June 30,1997 and $16.8 million at June
30, 1996.
Net cash of $75.4 million was provided by operating activities during
the first six months of 1997, compared to $57.5 million in cash used for
operating activities during the first six months of 1996. The increase in cash
provided by operating activities, as compared to the first six months of 1996,
was primarily the result of increased cash collections on accounts receivable
and better inventory management at IVAX's domestic generic pharmaceutical
operations. Additionally, IVAX received a $52.5 million refund of federal income
taxes paid in prior years.
Net cash of $278.6 million was provided by investing activities during
the first six months of 1997, as compared to $53.2 million in cash used for
investing activities during the same period of the prior year. The increase was
primarily attributable to the cash proceeds received for the sale of McGaw in
June 1997. Capital expenditures during the first six months of 1997 decreased
$7.2 million compared to the first six months of 1996 due to spending
constraints imposed by the revolving credit facility. During the first quarter
of 1997, IVAX purchased a pharmaceutical manufacturing facility in Kirkland,
Canada for $10.5 million.
Net cash of $340.0 million was used for financing activities during the
first six months of 1997, compared to $113.2 million provided by financing
activities in the same period of the prior year, primarily reflecting the pay
off of the revolving credit facility in June 1997.
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Management has initiated an enterprise-wide program to prepare IVAX's
computer systems and applications for the year 2000. IVAX expects to incur
internal staff costs as well as consulting and other expenses related to
infrastructure and facilities enhancements necessary to prepare its systems for
the year 2000. Testing and conversion of systems applications is estimated to
cost approximately $9.0 million over the next three years. A significant portion
of these costs are not likely to be incremental costs, but instead will
represent the upgrade to existing information technology resources and new
systems replacements which are currently underway.
During the second quarter of 1997, IVAX's board of directors determined
to divest its intravenous, personal care products and specialty chemicals
divisions. Effective May 30, 1997, IVAX sold McGaw, its intravenous division, to
B. Braun of America, Inc. ("B. Braun"), a subsidiary of B. Braun Melsungen AG,
for $320.0 million in cash (subject to certain post-closing adjustments),
additional payments of up to $80.0 million contingent upon the combined
operating results of McGaw and B. Braun's principal United States operating
subsidiary, and certain royalties based on sales of the Duplex(TM) drug delivery
system. The Duplex(TM) system, presently in development, is a multi-compartment
intravenous drug delivery system devised for drugs that have limited stability
after mixing. On June 24, 1997, IVAX utilized a portion of the McGaw sale
proceeds in the amount of $270.1 million to pay off the outstanding balance of
its revolving credit facility which was scheduled to mature November 14, 1999.
The facility was terminated in conjunction with the payment and IVAX recognized
a net extraordinary loss of $2.1 million on the early extinguishment of debt.
During July and August 1997, IVAX completed the sale of a significant
portion of the assets of its specialty chemicals division in separate
transactions with three different buyers. As part of the sales, IVAX received an
aggregate of $41.8 million in cash, subject to certain post closing adjustments.
As a result, the inland vacuum specialty lubricants business is the only
remaining business of IVAX's specialty chemicals division.
IVAX's principal sources of short term liquidity are existing cash and
internally generated funds which IVAX believes will be sufficient to meet its
operating needs and anticipated capital expenditures over the short term. For
the long term, IVAX intends to utilize capital from the disposition of certain
non-strategic assets, including those currently classified as discontinued
operations, but may need to seek alternative sources of financing to fund its
operations. IVAX has terminated its revolving credit facility and no assurance
can be given that alternative financing will be available, if at all, in a
timely manner, on favorable terms. If IVAX is unable to obtain satisfactory
alternative financing, IVAX may be required to delay or reduce its proposed
expenditures, including expenditures for research and development, or sell
assets in order to meet its future obligations.
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PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
With respect to the case styled HARVEY M. JASPER RETIREMENT TRUST, ET
AL. V. IVAX CORPORATION AND PHILLIP FROST ET AL., previously reported in IVAX's
Annual Report on Form 10-K for the year ended December 31, 1996, on August 7,
1997, the court gave final approval to the settlement embodied in the April 28,
1997 Stipulation of Settlement, which was previously reported in IVAX's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997, and
entered a Final Judgment and Order Of Dismissal With Prejudice ("Final
Judgment"). The Final Judgment provides for, among other things, the dismissal
of the lawsuit with prejudice and the complete release of all defendants by all
plaintiffs. Pursuant to the parties' Stipulation of Settlement, the Final
Judgment is deemed to be final and conclusive upon the latter of (i) if no
appeal or review of the Final Judgment is sought, on the day following the
expiration of the time to appeal or petition from the Final Judgment; or (ii) if
an appeal of the Final Judgment is sought, the day after such Final Judgment is
affirmed and is no longer subject to further judicial review.
With respect to the cases styled ALAN M. HARRIS AND YITZCHOK WOLPIN V.
IVAX CORPORATION, PHILLIP FROST AND MICHAEL W. FIPPS, previously reported in
IVAX's Annual Report on Form 10-K for the year ended December 31, 1996, and
FAUSTO POMBAR V. IVAX CORPORATION, PHILLIP FROST AND MICHAEL W. FIPPS,
previously reported in IVAX's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997, on June 19, 1997, the court entered an order
dismissing the POMBAR action without prejudice and ordered the plaintiffs in
both actions to file an amended complaint incorporating the allegations in both
the HARRIS and POMBAR actions under a single case styled ALAN M. HARRIS,
YITZCHOK WOLPIN AND FAUSTO POMBAR V. IVAX CORPORATION, PHILLIP FROST AND MICHAEL
W. FIPPS. The amended complaint was filed on July 10, 1997, and plaintiffs
therein seek to act as representatives of a class consisting of all persons who
purchased IVAX common stock and/or call options during the period from August 2,
1996 through November 11, 1996, inclusive.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Employment Agreement dated July 28, 1997, between IVAX
Corporation and Dr. Rafick G. Henein
10.2 Employment Agreement dated as of July 28, 1997, between IVAX
Corporation and David R. Bethune
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
(b) REPORTS OF FORM 8-K
1. Form 8-K dated May 30, 1997 relating to the execution of an
agreement to divest McGaw.
2. Form 8-K dated June 24, 1997 relating to the divestiture of
McGaw, which included unaudited pro forma condensed
consolidated financial statements to reflect IVAX
Corporation after giving effect to the sale of McGaw.
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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.
IVAX CORPORATION
Date: August 14, 1997 By: /s/ MICHAEL W. FIPPS
--------------------
Michael W. Fipps
Senior Vice President-Finance
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
10.1 Employment Agreement dated July 28, 1997, between IVAX Corporation and Dr.
Rafick G. Henein
10.2 Employment Agreement dated as of July 28, 1997, between IVAX Corporation
and David R. Bethune
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT"), dated July 28, 1997 (the
"EFFECTIVE DATE"), is entered into between IVAX Corporation (the "COMPANY") and
Dr. Rafick G. Henein (the "EXECUTIVE").
RECITAL
The Board of Directors of the Company desires to employ the Executive
and to assure the Executive's continued employment by the Company on the terms
and conditions of this Agreement, and the Executive desires to be employed by
the Company on the terms and conditions of this Agreement.
AGREEMENT
In consideration of the Recital and of the mutual promises set forth in
this Agreement, the Company and the Executive agree as set forth below.
1. EMPLOYMENT.
(A) EMPLOYMENT AND TERM. The Company agrees to employ the Executive and
the Executive agrees to be employed by the Company, on the terms and conditions
of this Agreement, for a period commencing on the Effective Date and expiring on
the fifth anniversary of the Effective Date (the "INITIAL TERM"). The term of
this Agreement shall automatically be extended for a period of two years (a
"RENEWAL TERM"), on the fifth anniversary of the Effective Date and on each
subsequent anniversary of the Effective Date unless at least two years and 90
days prior to any such anniversary, the Executive shall have delivered to the
Company a written notice stating that the term of the Agreement will not be
extended. For purposes of this Agreement, the word "TERM" means the Initial Term
and all Renewal Terms.
(B) DUTIES. The Executive shall serve as the President and Chief
Executive Officer of Zenith Goldline Pharmaceuticals, Inc. ("ZENITH GOLDLINE")
and shall have powers and authority superior to any other officer or employee of
Zenith Goldline. In that capacity, he shall be responsible for the operation of
Zenith Goldline's activities globally, which shall include the coordination of
Zenith Goldline's activities with those of the Company's affiliates in various
parts of the world, and shall have duties commensurate with his position. The
Executive shall also serve as a Senior Vice President of the Company and in this
capacity shall have such powers and authority as may be given to him from time
to time by the Board of Directors of the Company or a committee thereof (the
"BOARD OF DIRECTORS"). The Executive shall report to and be subject to the
supervision and direction of the Chief Operating Officer, the Chief Executive
Officer, and the Board of Directors. The Executive shall devote his full
business time and energies to the business and affairs of the Company and shall
use his best efforts, skills and abilities to promote the interests of the
Company and to diligently and competently perform the duties of his position.
The Executive shall have the right to (i) serve on civic or charitable boards or
committees and, with the consent of the Board of Directors, serve on corporate
boards, (ii) deliver lectures, fulfill speaking engagements, or teach at
educational institutions, and (iii) manage personal investments; provided that
such activities do not unreasonably interfere with the Executive's duties to the
Company under this Agreement.
<PAGE>
(C) PLACE OF PERFORMANCE. The Executive will perform his duties from
Zenith Goldline's principal place of business, which is currently located in Ft.
Lauderdale, Florida, except for travel reasonably necessary in connection with
the Company's and Zenith Goldline's business. The Executive acknowledges that
the Company may cause Zenith Goldline's principal place of business to be moved
to Miami, Florida.
(D) WORKING FACILITIES. The Company shall provide the Executive with an
office, a secretary, a portable phone, a portable personal computer, a home
facsimile, and such other customary facilities and equipment as are necessary
for the performance of his duties, all of which Executive acknowledges are and
shall remain the property of the Company.
2. COMPENSATION.
(A) SIGNING BONUS. Within two business days after the Effective Date,
the Company shall pay to the Executive a cash signing bonus in the amount of
$200,000.
(B) INITIAL STOCK OPTION GRANT. The Company shall grant to the
Executive, in accordance with the terms of the Company's 1994 Stock Option Plan
(the "PLAN"), nonqualified options (the "INITIAL STOCK OPTIONS") to purchase
250,000 shares of the common stock of the Company (the "COMMON STOCK"). The
exercise price of the Initial Stock Options shall be equal to the closing price
of the Common Stock, as reported in THE WALL STREET JOURNAL, on the Effective
Date. The Initial Stock Options shall have a term of ten years. The Initial
Stock Options shall vest 25% on the Effective Date and 25% on each of the first
three anniversary dates of the Effective Date; provided that the Initial Stock
Options shall vest and become immediately exercisable upon a termination of
Executive's employment pursuant to Sections 4(a) or 4(b). The Company agrees to
take all action reasonably requested by the Executive to permit the Executive to
take advantage of the "cashless" exercise feature of Section 4(d) of the Plan to
exercise the Initial Stock Options. Immediately upon the exercise of the Initial
Stock Options in accordance with the Plan, the Executive shall be deemed to be
the owner of the Common Stock into which the Initial Stock Options were
exercisable. In case at any time or from time to time the holders of Common
Stock become entitled to receive, without payment therefor, other or additional
stock or other securities or property of the Company by way of a spin-off,
special dividend and/or liquidation distribution (other than a regular cash
dividend), the Board of Directors shall consider in good faith a fair and
equitable adjustment to the exercise price or other terms of the Initial Stock
Options. The Initial Stock Options will not be affected by any amendment to
Section 13(c) of the Plan.
(C) BASE SALARY. The Executive will be paid a base salary at the annual
rate of not less than $575,000 (the "BASE SALARY"). In addition, the Company
shall pay to the Executive annually the sum of $38,500 as additional cash
compensation. The Base Salary and the additional cash compensation shall be paid
in installments consistent with the Company's normal payroll policies. The
Company shall review the Base Salary six months after the Effective Date and
annually thereafter for merit increases, which shall be made subject to and at
the discretion of the Board of Directors. Once increased, the Base Salary shall
not thereafter be decreased.
(D) ANNUAL BONUS. The Executive shall be entitled to receive an annual
cash bonus in an amount up to 100% of the Base Salary based on the Executive's
performance during the applicable year. The amount of the bonus payable in any
year shall be determined by reference to the profitability of Zenith Goldline
and such other measures as the Company and the Executive may agree. The terms
and conditions relating to the payment and amount of the bonus shall be
negotiated in good faith by the Company and the Executive. The Executive
acknowledges that the Company requires that the bonus satisfy the requirements
for performance-based compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "CODE").
<PAGE>
(E) SUBSEQUENT STOCK OPTIONS. The Executive shall be entitled to
receive stock options and such other long term compensation as may be determined
by the Board of Directors from time to time in its discretion. In making any
determinations concerning the award of stock options to the Executive, the Board
of Directors will apply the same criteria as it applies in making awards to the
other key executives of the Company, and its determinations will not be affected
by the bonus arrangement described in Section 2(d).
3. BENEFITS. During the Term, the Executive shall be entitled to the
benefits described below.
(A) EXPENSE REIMBURSEMENT. Upon submission of appropriate supporting
documentation and in specific accordance with such guidelines as may be
established from time to time by the Company for senior executives, the
Executive shall be reimbursed by the Company for all reasonable business
expenses (including travel and entertainment) actually and necessarily incurred
by the Executive on behalf of the Company in connection with the performance of
his duties under this Agreement.
(B) INCENTIVE SAVINGS AND RETIREMENT PLANS. The Executive shall be
entitled to participate in all savings, incentive and retirement plans,
practices, policies and programs, if any, generally made available by the
Company to other key executives of the Company based in the United States. The
Company agrees to waive any waiting period under such plans so that the
Executive may be eligible for participation in such plans as of the Effective
Date; provided that such waiver is permitted by the applicable plan and does not
adversely affect the Company.
(C) WELFARE PLANS. The Executive shall be entitled to participate in
all welfare benefit plans, practices, policies and programs, if any, generally
made available by the Company to other key executives of the Company based in
the United States. The Company agrees to waive any waiting period under such
plans so that the Executive may be eligible for participation in such plans as
of the Effective Date.
(D) VACATION. The Executive shall be entitled to paid vacation in
accordance with the most favorable plans, practices, policies and programs, if
any, generally made available by the Company to other key executives of the
Company based in the United States; provided that the Executive shall be
entitled to at least four weeks paid vacation each year.
(E) PROFESSIONAL MEMBERSHIPS; SEMINARS. The Company shall pay for the
Executive the membership dues in professional organizations that are directly
related to the Executive's duties to the Company, including without limitation,
the Order of Pharmacists for the Province of Ontario, the Order of Pharmacists
of the Province of Quebec, and the Order of Pharmacists of Florida. The Company
agrees that the Executive shall be entitled to attend each year two seminars or
similar meetings relating to the business of the Company, and the Executive's
expenses related thereto shall be reimbursed by the Company in accordance with
Section 3(a).
<PAGE>
(F) CANADIAN RESIDENCE. The Company shall pay to the Executive $100,000
within two business days after the Effective Date to compensate the Executive
for the loss of value of his home in Canada, such amount to be used by the
Executive in his sole discretion.
(G) RELOCATION. In connection with the Executive's relocation to South
Florida:
(i) The Company shall provide the Executive for his use a
furnished condominium in Dade or Broward county (at the Executive's
election) for a period of twelve months commencing on the Effective
Date; provided that the Company shall not be required to pay more than
$1,500 per month pursuant to this clause (i).
(ii) The Company shall reimburse the Executive for all
reasonable moving expenses incurred by him to relocate his home from
Canada to Miami.
(iii) The Company shall reimburse the Executive for all
reasonable closing costs incurred by him in connection with the
purchase of a home in South Florida, including reasonable legal fees
and expenses.
(iv) To facilitate the financing of a home in South Florida,
the Company will agree to guaranty the Executive's obligations to a
bank or other financial institution providing traditional mortgage
lending to the Executive.
(v) Until the first anniversary of the Effective Date, the
Company shall reimburse the Executive for up to two round-trip air
fares between Toronto and Miami each month.
(H) SUPPORTING DOCUMENTS. The Executive shall provide the Company with
such supporting documents as the Company may reasonably request in connection
with the expenses described in Sections 3(e), and (g).
4. TERMINATION.
(A) TERMINATION WITHOUT CAUSE. Notwithstanding any other provision of
this Agreement, the Board of Directors shall have the right to terminate this
Agreement at any time upon written notice to the Executive; provided that the
Company shall pay to the Executive in a cash lump sum within 30 days after the
effective date of the termination (the "TERMINATION DATE") an amount equal to
(i) if the Termination Date is a date within three years after the Effective
Date, three times the Base Salary as of the Termination Date, or (ii) if the
Termination Date is a date after the third anniversary of the Effective Date,
two times the Base Salary as of the Termination Date. In addition, the Company
shall continue to provide benefits to the Executive pursuant to Section 3(c) for
the applicable period.
(B) TERMINATION FOR GOOD REASON. The Company shall be deemed to have
terminated this Agreement pursuant to Section 4(a) if the Executive terminates
this Agreement for Good Reason. For purposes of this Agreement, the term "GOOD
REASON" means:
(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 1(b), or any other action
by the Company which results in a diminution in such position,
<PAGE>
authority, duties or responsibilities, in each case if not remedied
within 30 days after receipt of written notice thereof from the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Sections 2 or 3 which is not remedied within 30 days
after receipt of written notice thereof from the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than in Dade or Broward county, except for
travel reasonably required in the performance of the Executive's
responsibilities;
(iv) any termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement;
(v) any failure by the Company to comply with and satisfy the
penultimate sentence of Section 9(c)(iii); or
(vi) any termination by the Executive for any reason during
the three-month period following the effective date of any Change in
Control (as defined in Section 5).
For purposes of this Section, any good faith determination of Good Reason made
by the Executive shall be conclusive.
(C) TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated by the Company for Cause. For
purposes of this Agreement, the word "CAUSE" means: (i) an act or acts of
personal dishonesty taken by the Executive and intended to result in the direct
or indirect personal enrichment of the Executive at the expense of the Company
(except that disputes regarding expense reimbursement shall not be subject to
this clause and shall instead be resolved in good faith by the Board of
Directors and the Executive), (ii) subject to the following sentences, violation
by the Executive of his material obligations or representations under this
Agreement which are demonstrably willful and deliberate and which are not
remedied within 30 days after written notice to the Executive, or (iii) the
conviction of the Executive of any criminal act which is a felony. Upon a
determination by the Company that cause exists under clause (ii) of the
preceding sentence, the Company shall cause a special meeting of the Board of
Directors to be called and held at a time mutually convenient to the Board of
Directors and the Executive, but in no event later than 10 business days after
the Executive's receipt of the notice contemplated in clause (ii). The Executive
shall have the right to appear at such special meeting with legal counsel of his
choosing to refute any determination of Cause specified in such notice, and any
termination of this Agreement by reason of such Cause determination shall not be
effective until the Executive is afforded such opportunity to appear before the
Board of Directors. Any notice of termination for Cause pursuant to clause (i)
or (iii) of the second sentence of this Section shall be made in writing to the
Executive, which notice shall set forth in detail all acts or omissions upon
which the Company is relying for such termination. Upon any termination pursuant
to this Section, the Executive shall be entitled to be paid his Base Salary to
the date of termination and the Company shall have no further liability under
this Agreement to the Executive (other than for reimbursement of business
expenses incurred prior to the termination date, in accordance with Section
3(a)).
<PAGE>
(D) DEATH. This Agreement shall automatically terminate upon the death
of the Executive. If this Agreement is terminated pursuant to this Section, the
Company shall pay to the Executive's estate (i) Base Salary through the
termination date, and (ii) an amount in cash equal to six months of the Base
Salary as of the date of termination.
(E) DISABILITY. The Company, by written notice to the Executive, shall
at all times have the right to terminate this Agreement if the Executive shall,
as the result of mental or physical incapacity, illness or disability, fail to
perform his duties and responsibilities provided for herein for a period of more
than 180 consecutive days. Upon any termination pursuant to this Section 4(e),
the Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability hereunder (other
than for reimbursement of business expenses incurred prior to the termination
date, in accordance with Section 3(a)).
5. CHANGE IN CONTROL. For purposes of this Agreement, a "CHANGE IN
CONTROL" means any one of the following events:
(a) The acquisition (other than by or from the Company), at any time
after the date hereof, by any person, entity or "group", within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"EXCHANGE ACT"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of either the then
outstanding shares of Common Stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) All or any of the individuals who, as of the Effective Date,
constitute the full Board of Directors (the "INCUMBENT BOARD") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the Effective Date 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 (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board; or
(c) Approval by the shareholders of the Company of (i) a
reorganization, merger or consolidation with respect to which persons who were
the shareholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated company's then outstanding voting
securities, (ii) a liquidation or dissolution of the Company, or (iii) the sale
of all or substantially all of the assets of the Company, unless the approved
reorganization, merger, consolidation, liquidation, dissolution or sale is
subsequently abandoned.
Notwithstanding anything contained in this Section 5 to the contrary, any
transaction in which Zenith Goldline becomes a separate company the shares of
which are publicly traded on a stock exchange or on the National Association of
Securities Dealers' Automated Quotation system (by way of a spin-off, split-off,
public offering, merger, consolidation or otherwise) shall not be deemed a
change in control under this Agreement; provided that, concurrent with such
<PAGE>
transaction, this Agreement is assumed by Zenith Goldline and the Executive is
appointed the Chief Executive Officer of Zenith Goldline.
6. RESTRICTIVE COVENANTS.
(A) NONDISCLOSURE. On the Effective Date, the Executive will execute
the Company's standard form of Confidentiality Agreement, a copy of which is
attached hereto as Exhibit A.
(B) NONSOLICITATION OF EMPLOYEES. While employed by the Company and for
a period of two years thereafter, Executive shall not directly or indirectly,
for himself or for any other person, firm, corporation, partnership, association
or other entity, attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company, unless such employee or
former employee has not been employed by the Company for a period in excess of
one year.
(C) INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6(a) or 6(b) will cause irreparable harm and damage to the Company, the
monetary amount of which may be virtually impossible to ascertain. As a result,
the Executive recognizes and hereby acknowledges that the Company shall be
entitled to an injunction from any court of competent jurisdiction enjoining and
restraining any violation of any or all of the covenants contained in such
Section by the Executive or any of his affiliates, associates, partners or
agents, either directly or indirectly, and that such right to injunction shall
be cumulative and in addition to whatever other remedies the Company may
possess.
7. CONFLICTS WITH EXISTING AGREEMENTS; COMPANY POLICIES.
(a) The Executive represents and warrants that attached hereto as
Exhibit B is a true and complete copy of all contracts (or, if oral, an accurate
written description thereof) to which he is a party, or bound by, which in the
future may have a possibility of adversely affecting the business of the Company
or the performance by the Executive of his duties under this Agreement,
including but not limited to contracts related to previous employment containing
confidentiality or noncompete covenants. The Company acknowledges that it has
reviewed Exhibit B.
(b) The Executive acknowledges that he will be subject to and required
to abide by the policies and procedures of the Company applicable to senior
executives as in effect from time to time, and that he will be required to
execute and abide by the Company's Code of Conduct, as in effect from time to
time.
8. VISAS. The Company will sponsor the Executive for a non-immigrant
visa to permit the Executive to live and work in the United States. Following
the receipt of such visa, the Company agrees to sponsor the Executive for an
immigrant visa ("green card"). The Company will pay all legal and other expenses
related to obtaining the non-immigrant visa and immigrant visa. The Executive
agrees to take all actions necessary and appropriate to obtain the non-immigrant
visa and immigrant visa and shall fully cooperate with the Company in good faith
to obtain such visas. In the event that a visa is not granted to the Executive,
and all applicable appeals have been exhausted, this Agreement shall be deemed
to have been terminated pursuant to Section 4(a) and the Executive will be
entitled to receive the payments and the benefits provided in that Section;
provided that if the Executive's representation in the last sentence of this
<PAGE>
Section is not true, then, notwithstanding the provisions of Section 4(a), the
Company shall only be required to pay to the Executive in a cash lump sum an
amount equal to his then Base Salary and to continue to provide benefits to the
Executive pursuant to Section 3(c) for a period of one year; and provided
further, that, if the Company requests that the Executive serve as the chief
executive officer of its Canadian-based generic pharmaceutical business, then
the Executive shall assume such position and this Agreement shall not terminate.
The Executive represents to the Company that he is aware of no facts or
circumstances applicable to him that would prevent the issuance of the visas
described in this Section.
9. MISCELLANEOUS.
(A) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to the conflict
of law principles thereof.
(B) NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company: IVAX Corporation
4400 Biscayne Boulevard
Miami, Florida 33137
Attention: General Counsel
If to the Executive: Dr. Rafick G. Henein
or to such other addresses as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
(C) SUCCESSORS.
(i) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution.
(ii) This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(iii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. 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 or, if the last sentence of
Section 5 is applicable, Zenith Goldline, to expressly assume 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 which assumes and agrees to perform this Agreement by
operation of law or otherwise.
<PAGE>
(iv) If this Agreement is assumed by Zenith Goldline pursuant
to the penultimate sentence of clause (iii), the Company shall have no
further obligation to the Executive.
(D) SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
(E) WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
(F) DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement, except that the payment required to be made by
the Company to the Executive pursuant to Sections 4 and 8 shall be the
Executive's exclusive remedy for any termination of this Agreement pursuant to
such sections.
(G) NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
(other than the parties hereto and, in the case of Executive, his heirs,
personal representative(s) and/or legal representative) any rights or remedies
under or by reason of this Agreement.
(H) MISCELLANEOUS. 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. To the extent
that the Executive is successful in any legal proceeding against the Company
involving this Agreement, the Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which the Executive may reasonably
incur in connection with such proceeding.
(I) MEDIATION. The Company and the Executive agree so submit any
controversy or claim arising out of or relating to this Agreement to mediation
with a mutually agreeable mediator in Dade County, Florida, prior to instituting
any legal proceeding.
10. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.
<PAGE>
(a) Anything in this Agreement to the contrary notwithstanding, 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
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. Anything to the contrary notwithstanding, if the
Reduced Amount is zero and it is determined further that any Payment which is
not an Agreement Payment would nevertheless be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of Payments which are not Agreement Payments shall also
be reduced (but not below zero) to an amount expressed in present value which
maximizes the aggregate present value of Payments without causing any Payment to
be nondeductible by the Company because of Section 280G of the Code. For
purposes of this Section, present value shall be determined in accordance with
Section 280G(d)(4) of the Code. Any amount which is not paid in the taxable year
in which it was originally scheduled to be paid as a result of the postponement
thereof pursuant hereto shall be payable in the next succeeding taxable year in
which such payment will not result in the disallowance of a deduction pursuant
to either Section 162(m) or 280G of the Code; provided, however, that all
postponed payments shall be placed in a Rabbi trust or similar vehicle for the
benefit of the Executive in such a way that the amounts so transferred are not
taxable to such person or deductible by the Company until payment from such
vehicle to the Executive is made. In the event a payment has been made to the
Executive, but then disallowed as a deduction by the Internal Revenue Service
and return of the payment is required into the trust, said payment to the
Executive shall be treated as a loan and said payment to the trust shall be
treated as repayment of said loan. The Company shall not pledge, hypothecate or
otherwise encumber any amounts held in the trust or other similar vehicle for
the benefit of the Executive hereunder.
(b) All determinations required to be made under this Section shall be
made by the Company's independent public accountants (the "ACCOUNTING FIRM"),
which shall provide (i) detailed supporting calculations both to the Company and
the Executive within 20 business days of the termination of Executive's
employment or such earlier time as is requested by the Company, and (ii) an
opinion to the Executive that he has substantial authority not to report any
excise tax on his Federal income tax return with respect to any Payments. 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 Payments
shall be eliminated or reduced consistent with the requirements of this Section,
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 Payments shall be eliminated
or reduced consistent with the requirements of this Section 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. All fees and
expenses of the Accounting Firm incurred in connection with the determinations
contemplated by this Section shall be borne by the Company.
<PAGE>
(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 Payments will have been made by the Company which
should not have been made ("OVERPAYMENT") or that additional Payments which will
not have 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, based upon the assertion of a deficiency by the
Internal Revenue Service against the Executive which the Accounting Firm
believes has a high probability of success, determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Company to or for the
benefit of the Executive shall be treated for all purposes as a loan AB INITIO
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 such loan shall be deemed to have been made
and no amount shall be payable by the Employee to the Company if and to the
extent such deemed loan and payment would not either reduce the amount on which
the Executive is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, 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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
IVAX CORPORATION
/s/ PHILLIP FROST
------------------
Phillip Frost, M.D.,
Chairman and Chief
Executive Officer
EXECUTIVE:
/s/ RAFICK G. HENEIN
---------------------
Dr. Rafick G. Henein
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT"), dated July 28, 1997 (the
"EFFECTIVE DATE"), is entered into between IVAX Corporation (the "COMPANY") and
David R. Bethune (the "EXECUTIVE").
RECITAL
The Company desires to employ the Executive on the terms and conditions
of this Agreement, and the Executive desires to be employed by the Company on
the terms and conditions of this Agreement.
AGREEMENT
In consideration of the Recital and of the mutual promises set forth in
this Agreement, the Company and the Executive agree as set forth below.
1. EMPLOYMENT.
(A) EMPLOYMENT AND TERM. The Company agrees to employ the Executive and
the Executive agrees to be employed by the Company, on the terms and conditions
of this Agreement. For purposes of this Agreement, the word "TERM" means the
period during which this Agreement is in effect.
(B) DUTIES. The Executive shall serve as President and Chief Operating
Officer of the Company and shall have such powers and authority as may be given
to him from time to time by the Board of Directors of the Company or a committee
thereof (the "BOARD OF DIRECTORS"). The Executive shall report to and be subject
to the supervision and direction of the Chief Executive Officer and the Board of
Directors. The Executive shall devote his full business time and energies to the
business and affairs of the Company and shall use his best efforts, skills and
abilities to promote the interests of the Company and to diligently and
competently perform the duties of his position.
2. COMPENSATION.
(A) STOCK OPTION GRANT. The Company shall grant to the Executive, in
accordance with the terms of the Company's 1994 Stock Option Plan (the "PLAN"),
nonqualified options (the "STOCK OPTIONS") to purchase 350,000 shares of the
common stock of the Company (the "COMMON STOCK"). The exercise price of the
Stock Options shall be equal to the closing price of the Common Stock, as
reported in THE WALL STREET JOURNAL, on the Effective Date. The Stock Options
shall have a term of ten years. The Stock Options shall vest in equal
installments on each of the first three anniversary dates of the Effective Date.
(B) BASE SALARY. The Executive will be paid a base salary at the annual
rate of not less than $400,000 (the "BASE SALARY"). The Base Salary shall be
paid in installments consistent with the Company's normal payroll policies.
3. BENEFITS. During the Term, the Executive shall be entitled to
the benefits described below.
<PAGE>
(A) EXPENSE REIMBURSEMENT. Upon submission of appropriate supporting
documentation and in specific accordance with such guidelines as may be
established from time to time by the Company for senior executives, the
Executive shall be reimbursed by the Company for all reasonable business
expenses actually and necessarily incurred by the Executive on behalf of the
Company in connection with the performance of his duties under this Agreement.
(B) INCENTIVE SAVINGS AND RETIREMENT PLANS. The Executive shall be
entitled to participate in all savings, incentive and retirement plans,
practices, policies and programs, if any, generally made available by the
Company to other key executives of the Company based in the United States.
(C) WELFARE PLANS. The Executive shall be entitled to participate in
all welfare benefit plans, practices, policies and programs, if any, generally
made available by the Company to other key executives of the Company based in
the United States.
(D) VACATION. The Executive shall be entitled to paid vacation in
accordance with the most favorable plans, practices, policies and programs, if
any, generally made available by the Company to other key executives of the
Company based in the United States.
(E) RELOCATION. In connection with the Executive's relocation to South
Florida, the Company shall reimburse the Executive for (i) all reasonable moving
expenses incurred by him to relocate his home from Arizona to Miami; (ii) all
reasonable closing costs incurred by him in connection with the sale of his
Arizona home, including realtor commissions, up to a maximum of $60,000; and
(iii) all reasonable temporary living expenses in Miami, Florida for a period of
up to three months following the Effective Date. The Executive shall provide the
Company with such supporting documents as the Company may reasonably request in
connection with the expenses described in this Section.
4. TERMINATION.
(A) TERMINATION WITHOUT CAUSE. Notwithstanding any other provision of
this Agreement, the Company shall have the right to terminate this Agreement at
any time upon written notice to the Executive; provided that the Company shall
continue to pay to the Executive his Base Salary following the effective date of
the termination (the "TERMINATION DATE") for a period equal to: (i) if the
Termination Date is a date within two years after the Effective Date, twelve
months; and (ii) if the Termination Date is a date after the second anniversary
of the Effective Date, eighteen months.
(B) TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated by the Company for Cause. For
purposes of this Agreement, the word "CAUSE" means: (i) an act or acts of
personal dishonesty taken by the Executive and intended to result in the direct
or indirect personal enrichment of the Executive at the expense of the Company,
(ii) subject to the following sentences, violation by the Executive of his
material obligations or representations under this Agreement which are
demonstrably willful and deliberate and which are not remedied within 30 days
after written notice to the Executive, or (iii) the conviction of the Executive
of any criminal act which is a felony. Upon any termination pursuant to this
Section, the Executive shall be entitled to be paid his Base Salary to the date
<PAGE>
of termination and the Company shall have no further liability under this
Agreement to the Executive (other than for reimbursement of business expenses
incurred prior to the termination date, in accordance with Section 3(a)).
(C) DEATH. This Agreement shall automatically terminate upon the death
of the Executive. If this Agreement is terminated pursuant to this Section, the
Company shall pay to the Executive's estate his Base Salary through the
termination date.
(D) DISABILITY. The Company, by written notice to the Executive, shall
at all times have the right to terminate this Agreement if the Executive shall,
as the result of mental or physical incapacity, illness or disability, fail to
perform his duties and responsibilities provided for herein for a period of more
than 180 consecutive days. Upon any termination pursuant to this Section 4(d),
the Executive shall be entitled to be paid his Base Salary to the date of
termination and the Company shall have no further liability hereunder (other
than for reimbursement of business expenses incurred prior to the termination
date, in accordance with Section 3(a)).
5. CONFIDENTIALITY AGREEMENT; COMPANY POLICIES. On the Effective Date,
the Executive will execute the Company's standard form of Confidentiality
Agreement. The Executive acknowledges that he will be subject to and required to
abide by the policies and procedures of the Company applicable to senior
executives as in effect from time to time, and that he will be required to
execute and abide by the Company's Code of Conduct, as in effect from time to
time.
6. CONFLICTS WITH EXISTING AGREEMENTS. The Executive represents and
warrants that he is not a party to or bound by any contract which in the future
may have a possibility of adversely affecting the business of the Company or the
performance by the Executive of his duties under this Agreement, including but
not limited to contracts related to previous employment containing
confidentiality or noncompete covenants.
7. MISCELLANEOUS.
(A) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, without
regard to the conflict of law principles thereof.
(B) NOTICES. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have
been given when delivered by hand or when deposited in the United
States mail, by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Company: IVAX Corporation
4400 Biscayne Boulevard
Miami, Florida 33137
Attention: General Counsel
If to the Executive: David R. Bethune
37800 N. 93rd Street
Scottsdale, Arizona 85262
<PAGE>
or to such other addresses as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
(C) SUCCESSORS. (i) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution; (ii)
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives; (iii) This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns. 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 expressly assume 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 which assumes and agrees to perform this
Agreement by operation of law or otherwise.
(D) SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
(E) WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
(F) DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement, except that the payments required to be made by
the Company to the Executive pursuant to Section 4 shall be the Executive's
exclusive remedy for any termination of this Agreement pursuant to such
sections.
(G) NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
(other than the parties hereto and, in the case of Executive, his heirs,
personal representative(s) and/or legal representative) any rights or remedies
under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
IVAX CORPORATION
/s/ PHILLIP FROST, M.D.
------------------------
Phillip Frost, M.D.,
Chairman and Chief
Executive Officer
EXECUTIVE:
/s/ DAVID R. BETHUNE
-----------------------
David R. Bethune
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(In thousands, except per share data)
PERIOD ENDED JUNE 30, THREE MONTHS SIX MONTHS
1997 1996 1997 1996
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary items $ (45,377) $ (13,931) $ (53,316) $ 21,965
Extraordinary items, net of tax (2,137) (2,072) (2,137) (2,073)
------------ ------------ ------------ ------------
Net income (loss) for primary computation $ (47,514) $ (16,003) $ (55,453) $ 19,892
============ ============ ============ ============
Average number of common and dilutive
common equivalent shares-primary 121,488 121,015 121,484 121,858
============ ============ ============ ============
Earnings (loss) before extraordinary items $ (.37) $ (.11) $ (.44) $ .18
============ =========== =========== ============
Net earnings (loss) $ (.39) $ (.13) $ (.46) $ .16
============ =========== =========== ============
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary items $ (45,377) $ (13,931) $ (53,316) $ 21,965
Extraordinary items, net of tax (2,137) (2,072) (2,137) (2,073)
------------ ----------- ------------ -----------
Net income (loss) for fully diluted computation $ (47,514) $ (16,003) $ (55,453) $ 19,892
============ =========== ============ ============
Average number of common and dilutive
common equivalent shares-fully diluted 121,488 121,015 121,484 121,882
============ ============ ============ ============
Earnings (loss) before extraordinary items $ (.37) $ (.11) $ (.44) $ .18
============ =========== =========== ============
Net earnings (loss) $ (.39) $ (.13) $ (.46) $ .16
============ =========== =========== ============
AVERAGE NUMBER OF COMMON SHARES AND
DILUTIVE COMMON SHARES EQUIVALENTS
Primary shares:
Average number of common shares outstanding 121,488 121,015 121,484 120,423
Incremental shares for options and warrants - - - 1,435
------------- ------------ ------------ ------------
121,488 121,015 121,484 121,858
============= ============ ============ ============
Fully diluted shares:
Average number of common shares outstanding 121,488 121,015 121,484 120,423
Incremental shares for options and warrants - - - 1,459
------------- ------------ ------------ ------------
121,488 121,015 121,484 121,882
============= ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM
IVAX CORPORATION'S FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 88,396
<SECURITIES> 0
<RECEIVABLES> 148,282 <F1>
<ALLOWANCES> 0
<INVENTORY> 177,100
<CURRENT-ASSETS> 564,238
<PP&E> 204,868 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 893,444
<CURRENT-LIABILITIES> 143,902
<BONDS> 104,574
0
0
<COMMON> 12,150
<OTHER-SE> 607,524
<TOTAL-LIABILITY-AND-EQUITY> 893,444
<SALES> 340,707
<TOTAL-REVENUES> 340,707
<CGS> 229,986
<TOTAL-COSTS> 229,986
<OTHER-EXPENSES> 169,943
<LOSS-PROVISION> 3,046
<INTEREST-EXPENSE> 10,920
<INCOME-PRETAX> (61,682)
<INCOME-TAX> (647)
<INCOME-CONTINUING> (63,916)
<DISCONTINUED> 10,600
<EXTRAORDINARY> (2,137)
<CHANGES> 0
<NET-INCOME> (55,453)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> 0 <F3>
<FN>
<F1> AMOUNT SHOWN IS NET OF ALLOWANCES.
<F2> AMOUNT SHOWN IS NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
<F3> AMOUNT IS ANTI-DILUTIVE.
</FN>
</TABLE>
