SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 1-09623
IVAX CORPORATION
INCORPORATED UNDER THE LAWS OF THE I.R.S. EMPLOYER IDENTIFICATION NUMBER
STATE OF FLORIDA 16-1003559
4400 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33137
305-575-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
Title of each class Name of each exchange
on which registered
COMMON STOCK, PAR VALUE $.10 AMERICAN STOCK EXCHANGE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [__]
As of March 20, 1998, there were 119,840,795 shares of Common Stock
outstanding.
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 20, 1998, was approximately $865.0 million.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I, II and IV: Portions of registrant's 1997 Annual Report to
Shareholders.
Part III: Portions of registrant's Proxy Statement for its 1998
Annual Meeting of Shareholders.
<PAGE>
IVAX CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 15
Item 3. Legal Proceedings................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders.............. 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 21
Item 6. Selected Financial Data.......................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 22
Item 8. Financial Statements and Supplementary Data...................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant............... 22
Item 11. Executive Compensation........................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and Management... 22
Item 13. Certain Relationships and Related Transactions................... 23
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.. 23
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
IVAX Corporation is a holding company with core subsidiaries engaged
primarily in the research, development, manufacture and marketing of generic and
branded pharmaceuticals. IVAX was incorporated in Florida in 1993, as successor
to a Delaware corporation formed in 1985, and its principal executive offices
are located at 4400 Biscayne Boulevard, Miami, Florida 33137; its telephone
number is (305) 575-6000. All references to "IVAX" in this Form 10-K mean IVAX
Corporation and its subsidiaries unless the context otherwise requires.
RESTRUCTURING PROGRAMS
Beginning in the third quarter of 1996 and continuing throughout 1997,
IVAX announced and initiated several restructuring programs in an effort to
enhance operating efficiencies and reduce costs. These objectives are to be
achieved through workforce reductions, facility consolidations and other cost
saving measures throughout the organization, with primary emphasis on IVAX's
United States generic pharmaceutical business. During this period, IVAX reduced
its workforce from approximately 8,100 to approximately 4,500 employees,
including reductions resulting from the sale of non-core businesses. Also
during this period, IVAX closed certain of its United States pharmaceutical
manufacturing facilities and consolidated its United States pharmaceutical
distribution facilities into a single leased distribution center in Kenton
County, Kentucky. IVAX also implemented strict controls on capital expenditures
and working capital spending. IVAX's restructuring program anticipates the
closure or sale of up to five additional manufacturing facilities by the end of
1998.
DISPOSITION OF NON-CORE BUSINESSES
During 1997, IVAX's Board of Directors determined to refocus IVAX's
business on branded and generic pharmaceuticals, and to divest its intravenous
products, personal care products and specialty chemicals businesses. As a result
of this determination, IVAX restated its financial statements to reflect these
businesses as discontinued operations, and, unless otherwise noted, all of the
financial information contained herein reflects this restatement. Effective May
30, 1997, IVAX sold McGaw, Inc. ("McGaw"), its intravenous products business.
During the third quarter of 1997, IVAX completed the sale of a significant
portion of the assets of its specialty chemicals business, and in February 1998,
IVAX completed the divestiture of this business. IVAX is pursuing the sale of
its personal care products business. These businesses accounted for
approximately 30%, 42% and 37% of IVAX's consolidated net revenues before the
restatements described above during the years ended December 31, 1997, 1996 and
1995, respectively (see "Discontinued Operations").
REFOCUS
In connection with the restructuring programs described above, IVAX
determined to refocus its business primarily in three areas: oncology products,
respiratory products and specialty generic pharmaceuticals. IVAX's refocused
strategy is to leverage its expertise and talent in each of these three areas.
In the oncology area, IVAX intends to continue its efforts to bring its
proprietary drug Paxene/Registered trademark/ to market and to license from
others oncology compounds that will complement Paxene/Registered trademark/. In
the respiratory
<PAGE>
area, IVAX intends to capitalize and expand on its expertise in mechanical
devices and in developing respiratory products with propellants that do not
contain chlorofluorocarbons ("CFCs"). In the generic drug area, IVAX is seeking
to improve its worldwide generic drug business by supplementing its generic
product portfolio through the development and introduction of specialty generic
products that, because of one or more unique characteristics, are likely to
encounter less intensive competition. Such products include those which are
difficult to formulate or manufacture, which involve regulatory challenges or
potential patent challenges, or for which limited raw material suppliers exist.
IVAX believes that, by emphasizing the development of such products, it can
mitigate the pricing pressure surrounding other generic drugs and thereby
realize higher margins from the sale of generic drugs.
PHARMACEUTICALS
IVAX's pharmaceutical business historically had grown through the
development and acquisition of brand name, generic and over-the-counter
pharmaceutical products, the license of technology and products from third
parties, and the acquisition of other businesses. IVAX markets several brand
name pharmaceutical products and a wide variety of generic and over-the-counter
pharmaceutical products primarily in the United States and the United Kingdom.
IVAX also maintains direct operations in Argentina, Canada, the Czech Republic,
Hong Kong, Ireland, Italy, Germany, Poland, Russia, the Slovak Republic, and
Uruguay, and markets its products through distributors or joint ventures in
other foreign markets, including China.
BRAND NAME PRODUCTS
In September 1997, IVAX sold the United States and Canadian marketing
rights to its proprietary drug Elmiron/Registered trademark/, an innovative drug
used for the treatment of interstitial cystitis; and the urological medications
Bicitra/Registered trademark/, Polycitra/Registered trademark/, Polycitra-K
Crystals/Registered trademark/, Polycitra-LC/Trademark/, Neutra-Phos/Registered
trademark/, and Neutra-Phos-K/Trademark/, to ALZA Corporation ("ALZA"). IVAX
retained the rights to these products outside of the United States and Canada.
IVAX received $75.0 million in up-front payments and may receive additional fees
based on the achievement of specified sales levels of Elmiron/Registered
trademark/ during the next five years, as well as payments from ALZA based on
sales of the products. No assurance can be given that IVAX will receive
additional product fees and payments from ALZA.
IVAX markets a number of brand name products treating a variety of
conditions, primarily through its Baker Norton division in the United Kingdom
and Ireland. These products are marketed by IVAX's direct sales force to
physicians, pharmacies, hospitals, managed health care organizations and
government agencies, and are sold primarily to wholesalers, distributors,
hospitals and physicians. In the aggregate, the Baker Norton division of IVAX's
United Kingdom business had 1997 net revenues of approximately $90.0 million, or
15% of IVAX's 1997 consolidated net revenues.
IVAX has substantial expertise in the development, manufacture and
marketing of respiratory drugs in metered dose inhaler ("MDI") formulations.
IVAX holds patents on a breath activated MDI which is designed to overcome the
difficulty many persons experience with conventional MDIs in attempting to
coordinate their inhalation with the emission of the medication. IVAX's device,
called Easi-Breathe/Trademark/, emits the medication automatically upon
inhalation, minimizing coordination problems and better ensuring that the
medication is delivered to the lungs. IVAX markets its Easi-Breathe/Trademark/
breath activated inhaler through its Baker Norton division. In December 1996,
2
<PAGE>
IVAX licensed the Easi-Breathe/Trademark/ device to Glaxo Wellcome PLC for use
with Glaxo Wellcome's range of inhaled compounds (including, among others,
beclomethasone and salbutamol) mixed with CFC or hydrofluoroalkane ("HFA")
propellants. The license generally grants Glaxo Wellcome the exclusive right to
use the Easi-Breathe/Trademark/ device for these compounds on a worldwide basis.
IVAX retained all rights to market all other compounds, branded or generic, in
its Easi-Breathe/Trademark/ inhaler. The license term remains effective at least
for the duration of the Easi-Breathe/Trademark/ patents, which expire in the
year 2011. IVAX will receive a combination of fixed payments and annual volume
and revenue related royalties under the license agreement. No assurance can be
given regarding the amount of volume and revenue related royalties that IVAX
will receive under the license agreement. Fixed payments under the license
agreement are expected to total approximately $78.0 million during the term of
the license, of which $26.5 million was received in 1996 and $8.2 was received
in 1997.
GENERIC PRODUCTS
Generic drugs are therapeutically equivalent to their brand name
counterparts, but are generally sold at lower prices as alternatives to the
brand name products. After giving effect to the restatement described above in
"General - Disposition of Non-Core Businesses," approximately 49%, 62% and 61%
of IVAX's consolidated net revenues for the years ended December 31, 1997, 1996
and 1995, respectively, were attributable to worldwide sales of generic
prescription and over-the-counter drugs and vitamin supplements.
During 1997, as part of its restructuring program, IVAX reduced the
number of products in its United States generic pharmaceutical product line. In
the United States, IVAX now manufactures and markets under the "Zenith Goldline"
and "Goldline" names approximately 46 generic prescription drugs in capsule or
tablet forms in an aggregate of approximately 99 dosage strengths. IVAX
distributes in the United States (but does not manufacture) approximately 422
additional generic prescription and over-the-counter drugs and vitamin
supplements, in various dosage forms, dosage strengths and package sizes. IVAX's
domestic generic drug distribution network encompasses most classes of the
pharmaceutical market, including wholesalers, retail drug chains, retail
pharmacies, hospital groups, nursing home providers and government agencies.
Approximately 52% of IVAX's 1997 United States generic pharmaceutical sales were
made to the top five customers of that business, none of which individually
represents more than 10% of IVAX's consolidated net revenues. The loss of any of
these customers would have an adverse effect on IVAX's business and results of
operations (see "Competition").
In the United Kingdom, IVAX is the largest manufacturer and distributor
of generic pharmaceuticals. IVAX manufactures and markets under the "Norton"
trade name approximately 118 generic prescription and over-the-counter drugs in
various dosage forms, dosage strengths and package sizes, constituting an
aggregate of approximately 236 products. Such products are marketed to
wholesalers, retail pharmacies, hospitals, physicians and government agencies.
In addition, IVAX manufactures and markets primarily in the United Kingdom
various "blow-fill-seal" pharmaceutical products, such as contact lens
solutions, unit dose eye drops, solutions for injection or irrigation, and unit
dose vials for nebulization to treat respiratory disorders. IVAX also contract
manufactures pharmaceutical products in the United Kingdom and Ireland for other
companies.
In 1994, IVAX acquired a 60% interest in Galena a.s. ("Galena"), one of
the oldest and more established pharmaceutical companies based in the Czech
Republic. Through open market purchases made in 1995 and 1996, IVAX increased
its ownership interest in Galena from 60% to 74%. Galena
3
<PAGE>
develops, manufactures and markets a variety of pharmaceutical and veterinary
products, as well as raw materials used in the manufacture of pharmaceuticals,
including cyclosporin and ergot alkaloids. Galena sells its products primarily
in Eastern European countries, including Russia. As part of the acquisition,
IVAX contributed to Galena rights to manufacture and market certain products and
products under development in certain countries. Galena had 1997 net revenues,
including intercompany sales, of $70.5 million.
In March 1996, IVAX acquired Elvetium S.A. (Argentina) and Alet
Laboratorios S.A.E.C.I. y E., both headquartered in Buenos Aires and engaged in
the business of manufacturing and marketing pharmaceuticals in Argentina, and
Elvetium S.A. (Uruguay), headquartered in Montevideo and engaged in the business
of manufacturing and marketing pharmaceuticals in Uruguay. These companies had
combined 1997 net revenues of $34.6 million.
IVAX is a 50% partner in two Chinese joint ventures, one with the
Peoples Republic of China named Beijing JiAi Pharmaceuticals Limited Liability
Company, which manufactures and markets inhalation products for respiratory
ailments, and the other with Kunming Pharmaceutical Factory named Kunming Baker
Norton Pharmaceutical Co., Ltd., which manufactures and markets a variety of
pharmaceutical products. These joint ventures had combined 1997 net revenues of
$14.2 million.
OTHER BUSINESSES
VETERINARY PRODUCTS
IVAX formulates, packages and distributes under the "DVM
Pharmaceuticals" trade name various veterinary products in the United States,
primarily dermatological products used for small companion animals. These
products are marketed through IVAX's direct sales force and a national network
of ethical veterinary distributors primarily to small animal practitioners.
IVAX's veterinary products business had net revenues of $17.0 million, $15.0
million and $17.3 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
In December 1997, IVAX announced that it executed a letter of intent
regarding a business combination between its veterinary business and Orion
Acquisition Corp. II, a publicly-held corporation which was capitalized in 1996
to serve as a vehicle to effect a business combination with an operating entity.
Under the terms of the letter of intent, IVAX would own approximately 80% of the
combined entity's outstanding common stock after giving effect to the
transaction. The transaction is subject to a number of conditions including
satisfactory completion of due diligence and negotiation and execution of a
definitive agreement. There can be no assurance, therefore, that this
transaction will be completed.
DIAGNOSTICS
IVAX's diagnostics group develops, manufactures and markets
diagnostic reagents and instrumentation. IVAX manufactures and markets a line of
enzyme immunoassays ("EIAs") which are used to detect the presence of infectious
and auto-immune diseases, and a line of auto-immune antigens, reagents and other
related products. IVAX also manufactures and markets EIA instrumentation that
allows the diagnostic group's EIA products to be run in an automated system
format. The diagnostic group's products are marketed to clinical reference
laboratories, hospital
4
<PAGE>
laboratories, research institutions and other commercial entities in the United
States through IVAX's direct sales force. IVAX also markets these products, as
well as diagnostic products manufactured by others, in Italy through a direct
sales force to public hospitals and private medical laboratories. Sales of
IVAX's diagnostic products are also made through independent distributors in
various other foreign markets. IVAX's diagnostics group had net revenues of $8.1
million, $14.0 million and $14.8 million for the years ended December 31, 1997,
1996 and 1995, respectively.
DISCONTINUED OPERATIONS
During 1997, IVAX's Board of Directors determined to divest its
intravenous products, personal care products and specialty chemicals businesses.
As a result, IVAX classified these businesses as discontinued operations. IVAX
has completed the sale of its intravenous products and specialty chemicals
businesses. IVAX continues to pursue the disposition of its personal care
products business and expects to complete the disposition in 1998. See Note 5,
Divestitures, and Note 7, Discontinued Operations, to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" incorporated by reference from the 1997 Annual Report
to Shareholders for additional information.
INTRAVENOUS PRODUCTS
IVAX's intravenous products business manufactured and marketed a broad
line of basic and specialty intravenous solutions, irrigation solutions,
intravenous administration sets, infusion pumps and other infusion supplies and
equipment, primarily to hospitals and alternate site health care locations in
the United States and, through independent distributors, in various foreign
markets. The intravenous products business had net revenues, including
intercompany sales, of $140.6 million for the five months ended May 30, 1997,
and $343.0 million and $340.0 million for the years ended December 31, 1996 and
1995, respectively.
Effective May 30, 1997, IVAX sold McGaw, its intravenous products
subsidiary, to B. Braun of America, Inc. ("B. Braun"), a subsidiary of B. Braun
Melsungen AG, for $320 million in cash (subject to certain post-closing
adjustments), additional payments of up to $80 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/Trademark/ drug delivery system. The Duplex/Trademark/ system, presently
in development by McGaw, is a multi-compartment intravenous drug delivery system
devised for drugs that have limited stability after mixing. IVAX used the
proceeds of the sale to pay off its revolving credit facility. There can be no
assurance that B. Braun and McGaw will achieve combined operating results
sufficient to result in payment of any or all of the $80 million contingent
payments described above, or that B. Braun and McGaw will receive approval to
market any drugs in the Duplex/Trademark/ system or that such product may be
successfully marketed, because of, among other things, competitive conditions in
the intravenous products industry and uncertainties associated with product
development and the regulatory approval process.
SPECIALTY CHEMICALS
IVAX's specialty chemicals group manufactured and marketed, primarily
in the United States and Canada, several hundred chemical products in three
distinct market segments: vacuum pump fluids, textile and denim products, and
cleaning products. IVAX's specialty chemicals group had net revenues, including
intercompany sales, of $41.6 million for the period in 1997 during which such
5
<PAGE>
businesses were owned by IVAX, and $67.9 million and $66.9 million for the years
ended December 31, 1996 and 1995, respectively.
During the third quarter of 1997, IVAX completed the sale of a
significant portion of the assets of its specialty chemicals business in three
separate transactions in which IVAX received an aggregate of approximately $41.1
million in cash. In February 1998, IVAX completed the divestiture of its
specialty chemicals business by selling its vacuum pump fluids business for
approximately $3.9 million (subject to certain post-closing adjustments). IVAX
retained certain real estate assets of the specialty chemicals business which it
is seeking to sell.
PERSONAL CARE PRODUCTS
IVAX's personal care products group develops, manufactures and markets
a variety of personal care products, primarily within the United States. IVAX
markets over 250 products in three principal areas: hair care products designed
primarily for African American consumers, cosmetic products designed primarily
for dark-skinned women, and corrective cosmetics. Hair care products for the
retail consumer market are sold principally through distributors servicing
national and regional drug, grocery and mass merchandising chains. Professional
products are sold mainly through distributors serving beauty salons and barber
shops. IVAX's cosmetic products are marketed through department stores, major
retailers, drug stores, mass merchandisers and food stores. IVAX's line of
corrective cosmetics is sold in major department stores and mass merchandising
outlets. A portion of IVAX's personal care products are manufactured to IVAX's
specifications by third parties. IVAX's personal care products group had net
revenues, including intercompany sales, of $73.9 million, $80.0 million and
$65.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1997, 1996 and 1995, IVAX spent $53.4
million, $51.7 million and $45.6 million, respectively, for company-sponsored
research and development activities. In 1997, 97% of such amount was dedicated
to pharmaceutical research and development. From time to time, IVAX may
supplement its research and development efforts by entering into research and
development agreements, joint ventures and other collaborative arrangements with
other companies to defray the cost of product development. IVAX intends to
pursue a balanced strategy of developing proprietary pharmaceutical products
with an emphasis on the oncology and respiratory fields, as well as generic
pharmaceutical products with an emphasis on specialty generics (see "General -
Refocus").
Statements in this Form 10-K concerning the timing of regulatory
filings and approvals are forward looking statements which are subject to risks
and uncertainties. The length of time necessary to complete clinical trials and
from submission of an application for market approval to a final decision by a
regulatory authority varies significantly. No assurance can be given that IVAX
will successfully complete the development of products under development, that
IVAX will be able to obtain regulatory approval for any such product, or that
any approved product may be produced in commercial quantities, at reasonable
costs, and be successfully marketed. Similarly, there can be no assurance that
IVAX's competitors will not develop and introduce products that will adversely
affect IVAX's business and results of operations.
6
<PAGE>
PROPRIETARY PHARMACEUTICALS
IVAX is committed to the cost-effective development of proprietary
pharmaceuticals directed primarily towards indications having relatively large
patient populations or for which limited or inadequate treatments are available.
IVAX seeks to accelerate product development and introduction by in-licensing
compounds, especially after clinical testing has begun, and by developing new
dosage forms of existing products or new therapeutic indications for existing
products. IVAX intends to emphasize the development of drug products in the
oncology and respiratory fields, and has a variety of proprietary
pharmaceuticals in varying stages of development.
ELMIRON/Registered trademark/. IVAX received its first United States
approval to market a proprietary drug in September 1996, when the United States
Food and Drug Administration (the "FDA") cleared IVAX's New Drug Application
("NDA") for the marketing of its patented prescription medication
Elmiron/Registered trademark/ (pentosan polysulfate sodium). Elmiron/Registered
trademark/ is approved in the United States and Canada for the treatment of
interstitial cystitis, a chronic, progressive and debilitating urinary bladder
disease afflicting primarily women. In September 1997, IVAX sold the marketing
rights to Elmiron/Registered trademark/ and certain other products in the United
States and Canada to ALZA, but retained such rights outside the United States
and Canada. See "Pharmaceuticals - Brand Name Products" above for a more
complete description of this transaction. IVAX has identified a number of other
potential uses for Elmiron/Registered trademark/, and has conducted studies in
collaboration with the National Institute of Diabetes and Digestive and Kidney
Diseases (NIDDK) of the National Institutes of Health (NIH) regarding kidney
disease and atherosclerosis. Based on these studies, IVAX has concluded that
Elmiron/Registered trademark/ merits further investigation as a potential
treatment for kidney disease and atherosclerosis in humans. As part of the ALZA
transaction, IVAX and ALZA agreed to collaborate in the development of
Elmiron/Registered trademark/ to treat conditions other than interstitial
cystitis. ALZA has marketing rights to Elmiron/Registered trademark/ for all
indications in the United States and Canada.
PAXENE/Registered trademark/. Paxene/Registered trademark/, IVAX's
tradename for paclitaxel, is an unpatented compound which, in clinical trials
sponsored by the National Cancer Institute, exhibited promising results in the
treatment of ovarian and breast cancer and aids-related Kaposi's sarcoma ("KS").
Bristol-Myers Squibb Company ("Bristol-Myers") currently markets a product
containing paclitaxel under the brand name Taxol/Registered trademark/ for the
treatment of ovarian and breast cancers and KS.
IVAX submitted an NDA for Paxene/Registered trademark/ for the
treatment of KS in March 1997, and in December 1997, the FDA determined
Paxene/Registered trademark/ to be safe and effective for the treatment of KS,
but indicated that Paxene/Registered trademark/ could not be finally approved
for this indication until August 4, 2004. The delay in final approval is due to
a seven-year market exclusivity period granted to Taxol/Registered trademark/
under the Orphan Drug Act, which was approved for KS earlier in 1997. IVAX is
exploring alternate strategies to market Paxene/Registered trademark/ for KS in
advance of the expiration of Taxol/Registered trademark/'s exclusivity period.
Taxol/Registered trademark/'s market exclusivity does not apply to NDAs or
Abbreviated New Drug Applications ("ANDAs") for the use of paclitaxel to treat
indications other than KS and does not apply in any market other than the United
States. IVAX filed an ANDA for paclitaxel in December 1997 and filed an
application for regulatory approval of Paxene/Registered trademark/ to treat KS
in the European Union in 1997. IVAX has also conducted clinical studies of
Paxene/Registered trademark/ for other indications, and intends to file an NDA
for the use of Paxene/Registered trademark/ to treat one or more of such other
indications. Bristol-Myers has obtained numerous patents relating to paclitaxel,
including patents covering the production of paclitaxel, its administration to
patients and its formulation. Even if IVAX's NDA for Paxene/Registered
trademark/ or its ANDA for paclitaxel is approved, IVAX will not be able to
market paclitaxel if Bristol-Myers successfully enforces such patents against
IVAX. In addition, under the Waxman-Hatch Act, if Bristol-Myers sues IVAX within
7
<PAGE>
a certain period of time, IVAX's paclitaxel ANDA may not be approved by the FDA
until the earlier of August 2000 or the date when a court finally determines
that certain of Bristol-Myers' patents are either unenforceable or not infringed
by IVAX's product (see "Governmental Regulation").
ORAL PAXENE/Registered trademark/. Presently, paclitaxel is marketed
only in injectible form. IVAX is developing an oral formulation of
Paxene/Registered trademark/ that IVAX believes may provide significant
advantages over the injectible dosage form in terms of patient convenience and
reduced side-effects. IVAX is currently conducting human clinical trials to test
the safety and efficacy of oral Paxene/Registered trademark/, and in a single
dose proof-of-concept study, IVAX has determined that it is possible to achieve
therapeutic levels of paclitaxel via oral administration. It is, however,
premature to conclude that the drug is safe and effective when administered
orally.
INHALATION AEROSOL PRODUCTS. IVAX is continuing to develop the
Easi-Breathe/Trademark/ inhaler for use with compounds not subject to the Glaxo
Wellcome license (see "Pharmaceuticals - Brand Name Products"). During 1996,
IVAX commenced marketing the asthma drug Cromogen/Trademark/ (sodium
cromoglycate) in the Easi-Breathe/Trademark/ inhaler in the United Kingdom and
Ireland. In light of international agreements calling for the eventual phase out
of CFCs, IVAX is developing inhalation aerosol products which do not contain
CFCs. In 1997, IVAX received regulatory approval to market CFC-free
beclomethasone in Ireland (in its standard MDI and its Easi-Breathe/trademark/
inhaler) and France (in its standard MDI), the first such approval for any
company anywhere in the world. Glaxo Wellcome has the exclusive right to market
this product in the Easi-Breathe/trademark/ inhaler pursuant to the license
agreement discussed above. Also, IVAX has developed a multi-dose dry powder
inhaler ("MDPI") which uses no gas propellant at all and is believed to have
superior dosing accuracy than competing models. In 1996, IVAX commenced clinical
trials in the United Kingdom for budesonide in IVAX's MDPI. In developing
environmentally friendly, non-CFC containing formulations for MDIs, IVAX and
many of its competitors have obtained or licensed patents on formulations
containing alternative propellants. There are many existing patents covering the
use of hydrofluoroalkane with pharmaceuticals, and successful product
development by IVAX may require that IVAX incur substantial expense in seeking
to develop formulations that do not infringe competitors' patents, or that IVAX
license or invalidate such patents. IVAX successfully invalidated certain
relevant United Kingdom and European patents in the United Kingdom during 1997,
but there can be no assurance that it will be successful in defeating the
corresponding patents in the United States or other foreign jurisdictions.
GENERIC PHARMACEUTICALS
IVAX also develops generic pharmaceutical products. IVAX is seeking to
supplement its portfolio of generic products by emphasizing the development of
"specialty generics," defined as those products which, because of one or more
unique characteristics, are likely to encounter less intensive competition. Such
drugs include those which are difficult to formulate or manufacture, which
involve regulatory challenges or potential patent challenges, or for which
limited raw material suppliers exist. By emphasizing the development of
specialty generics, IVAX seeks to introduce generic products that its
competitors cannot easily develop and thereby obtain higher margins from sales
of its generic products. In addition, in evaluating which generic pharmaceutical
product development projects to undertake, IVAX considers whether the new
product, once developed, will complement other IVAX products in the same
therapeutic family, or will otherwise assist in making IVAX's product line more
complete. Developing specialty generic pharmaceutical products involves a
greater degree of risk than developing common generic pharmaceutical products
and will require substantial time and resources. No assurance can be given
8
<PAGE>
that IVAX will successfully build a consistent, profitable pipeline of specialty
generics or be able to obtain regulatory approval to market any such products.
During 1997, IVAX received final FDA approval of 8 ANDAs relating to 7
chemical compounds, and approval of 18 Abridged Product License Applications
("APLAs"), the United Kingdom equivalent of an ANDA, from the United Kingdom
Medicines Control Agency (the "MCA") relating to 11 chemical compounds. As of
March 20, 1998, IVAX had received final FDA approval in 1998 of one ANDA
relating to one chemical compound and had 10 ANDAs relating to 9 chemical
compounds pending at the FDA, and 2 APLAs relating to 2 chemical compounds
pending at the MCA. The products covered by IVAX's pending ANDAs do not
constitute specialty generics.
GOVERNMENTAL REGULATION
IVAX's pharmaceutical and diagnostic operations are subject to
extensive regulation by governmental authorities in the United States and other
countries with respect to the testing, approval, manufacture, labeling,
marketing and sale of pharmaceutical and diagnostic products. IVAX devotes
significant time, effort and expense addressing the extensive government
regulations applicable to its business, and in general, the trend is towards
more stringent regulation.
The FDA requires extensive testing of new pharmaceutical products to
demonstrate that such products are both safe and effective in treating the
indications for which approval is sought. Testing in humans may not be commenced
until after an Investigational New Drug exemption is granted by the FDA. An NDA
must be submitted to the FDA for new drugs that have not been previously
approved by the FDA and for new combinations of, and new indications and new
delivery methods for, previously approved drugs. Three phases of clinical trials
must be successfully completed before an NDA is approved: phase I clinical
trials, which involve the administration of the drug to a small number of
healthy subjects to determine safety, tolerance, absorption and metabolism
characteristics; phase II clinical trials, which involve the administration of
the drug to a limited number of patients for a specific disease to determine
dose response, efficacy and safety; and phase III clinical trials, which involve
the study of the drug to gain confirmatory evidence of efficacy and safety from
a wide base of investigators and patients. In the case of a drug that has been
previously approved by the FDA, an abbreviated approval process is available.
For such drugs an ANDA may be submitted to the FDA for approval. For an ANDA to
be approved, the drug must be shown to be bioequivalent to the previously
approved drug. The NDA and ANDA approval process generally takes a number of
years and involves the expenditure of substantial resources. There can be no
assurance that the time and resources devoted to seeking regulatory approval for
new products will result in product approvals or earnings.
The owner of an approved drug is required to list with the FDA all
patents which cover the approved drug and its approved uses. A company filing an
ANDA and seeking approval to market a product before expiration of all listed
patents must certify that such patents are invalid or will not be infringed by
the manufacture, use or sale of the applicant's product, and must notify the
patent owner and the owner of the approved drug of its filing. If the approved
drug owner sues the ANDA filer for patent infringement within 45 days after it
receives such notice, then the FDA will not finally approve the ANDA until the
earlier of 30 months from the date the approved drug owner receives such notice
or the date when a court finally determines that the applicable patents are
either invalid or would not be infringed by the applicant's product. As a
result, generic drug manufacturers, including IVAX,
9
<PAGE>
are often involved in lengthy, expensive patent litigation against brand name
drug companies that have considerably greater resources and that are typically
inclined to actively pursue patent litigation in an effort to protect their
franchises.
IVAX's diagnostic products are considered medical devices, which
require either a 510(k) premarket notification clearance ("510(k)") or an
approved Premarket Approval Application ("PMA") from the FDA prior to marketing.
A product qualifies for a 510(k) if it is substantially equivalent to another
medical device that was on the market prior to May 28, 1976 and does not now
have a PMA or has previously received 510(k) premarket notification clearance
and is lawfully on the market. The 510(k) approval process can take several
months and may involve the submission of data demonstrating its equivalency to
similar products in the market together with other supporting information. An
approved PMA application indicates that the FDA has determined that a device has
been proven to be safe and effective for its intended use. The PMA process
typically can last several years and requires the submission of significant
quantities of preclinical and clinical data as well as manufacturing and other
information.
On an ongoing basis, the FDA reviews the safety and efficacy of
marketed pharmaceutical products and products considered medical devices and
monitors labeling, advertising and other matters related to the promotion of
such products. The FDA also regulates the facilities and procedures used to
manufacture pharmaceutical and diagnostic products in the United States or for
sale in the United States. Such facilities must be registered with the FDA and
all products made in such facilities must be manufactured in accordance with
"good manufacturing practices" established by the FDA. Compliance with good
manufacturing practices guidelines requires the dedication of substantial
resources and requires significant costs. The FDA periodically inspects IVAX's
manufacturing facilities and procedures to assure compliance. The FDA may cause
a recall or withdraw product approvals if regulatory standards are not
maintained. FDA approval to manufacture a drug is site specific. In the event an
approved manufacturing facility for a particular drug becomes inoperable,
obtaining the required FDA approval to manufacture such drug at a different
manufacturing site could result in production delays, which could adversely
affect IVAX's business and results of operations.
In connection with its activities outside the United States, IVAX is
also subject to regulatory requirements governing the testing, approval,
manufacture, labeling, marketing and sale of pharmaceutical and diagnostic
products, which requirements vary from country to country. Whether or not FDA
approval has been obtained for a product, approval of the product by comparable
regulatory authorities of foreign countries must be obtained prior to marketing
the product in those countries. The approval process may be more or less
rigorous from country to country, and the time required for approval may be
longer or shorter than that required in the United States. No assurance can be
given that clinical studies conducted outside of any country will be accepted by
such country, and the approval of any pharmaceutical or diagnostic product in
one country does not assure that such product will be approved in another
country.
The federal and state governments in the United States, as well as many
foreign governments, including the United Kingdom, from time to time explore
ways to reduce medical care costs through health care reform. These efforts have
resulted in, among other things, government policies that encourage the use of
generic drugs rather than brand name drugs to reduce drug reimbursement costs.
Virtually every state in the United States has a generic substitution law which
permits the dispensing pharmacist to substitute a generic drug for the
prescribed brand name product. The debate to reform
10
<PAGE>
the United States' health care system is expected to be protracted and intense.
Due to uncertainties regarding the ultimate features of reform initiatives and
their enactment and implementation, IVAX cannot predict what impact any reform
proposal ultimately adopted may have on the pharmaceutical or diagnostic
industries or on the business or operating results of IVAX.
RAW MATERIALS
Raw materials essential to IVAX's business are generally readily
available from multiple sources. Certain raw materials and components used in
the manufacture of IVAX's products are, however, available from limited sources,
and in some cases, a single source. Any curtailment in the availability of such
raw materials could be accompanied by production or other delays, and, in the
case of products for which only one raw material supplier exists, could result
in a material loss of sales, with consequent adverse effects on IVAX's business
and results of operations. In addition, because raw material sources for
pharmaceutical products must generally be approved by regulatory authorities,
changes in raw material suppliers may result in production delays, higher raw
material costs and loss of sales and customers. IVAX obtains a significant
portion of its raw materials from foreign suppliers, and its arrangements with
such suppliers are subject to, among other things, FDA, customs and other
government clearances, duties and regulation by the countries of origin.
COMPETITION
The pharmaceutical industry is highly competitive and includes numerous
established pharmaceutical companies, many of which have considerably greater
financial, technical, clinical, marketing and other resources and experience
than IVAX. The markets in which IVAX competes are undergoing, and are expected
to continue to undergo, rapid and significant technological change, and IVAX
expects competition to intensify as technological advances are made. IVAX
intends to compete in this marketplace by developing or licensing pharmaceutical
products that are either patented or proprietary and which are primarily for
indications having relatively large patient populations or for which limited or
inadequate treatments are available, and, with respect to generic
pharmaceuticals, by developing therapeutic equivalents to previously patented
products which, because of one or more unique characteristics, are expected to
have less intensive competition. There can be no assurance, however, that
developments by others will not render IVAX's pharmaceutical products or
technologies obsolete or uncompetitive.
In addition to product development, other competitive factors in the
pharmaceutical industry include product quality and price, customer service, and
reputation. Price is a key competitive factor in the generic pharmaceutical
business. To effectively compete on the basis of price and remain profitable, a
generic drug manufacturer must manufacture its products in a cost-effective
manner. IVAX's manufacturing costs have had a negative impact on its operating
results, and the restructuring programs initiated in 1996 and 1997 were aimed,
in part, at reducing IVAX's manufacturing costs.
Revenues and gross profit derived from generic pharmaceutical products
tend to follow a pattern based on regulatory and competitive factors unique to
the generic pharmaceutical industry. As patents for brand name products and
related exclusivity periods mandated by regulatory authorities expire, the first
generic manufacturer to receive regulatory approval for generic equivalents of
such products is usually able to achieve relatively high market share, revenues
and gross profit. As other generic manufacturers receive regulatory approvals,
sales volumes, market
11
<PAGE>
share and prices typically decline. Accordingly, the level of revenues and gross
profit attributable to generic products developed and manufactured by IVAX is
dependent, in part, on IVAX's ability to maintain a pipeline of products in
development and to develop and rapidly introduce new products, the timing of
regulatory approval of such products, the number and timing of regulatory
approvals of competing products, and IVAX's ability to manufacture such products
efficiently. Because of the regulatory and competitive factors discussed above,
IVAX's revenues and results of operations historically have fluctuated from
period to period. IVAX expects this fluctuation to continue as long as a
significant part of its revenues are generated from sales of generic
pharmaceuticals.
In addition to competition from other generic drug manufacturers, IVAX
faces competition from brand name companies as they increasingly sell their
products into the generic market directly by establishing, acquiring or forming
licensing or business arrangements with generic pharmaceutical companies. No
regulatory approvals are required for a brand name manufacturer to sell directly
or through a third party to the generic market, nor do such manufacturers face
any other significant barriers to entry into such market. In addition, brand
name companies are increasingly pursuing strategies to prevent or delay the
introduction of generic competition. These strategies include, among other
things, seeking to establish regulatory obstacles to the demonstration of the
bioequivalence of generic drugs to their brand name counterparts, and
instituting legal actions based on process or other patents that allegedly are
infringed by the generic products.
During 1996 and 1997, certain national drug wholesalers instituted
programs designed to provide cost savings to independent retail pharmacies on
their purchases of certain generic pharmaceutical products. Pursuant to the
programs, retail pharmacies generally agreed to purchase their requirements of
generic pharmaceutical products from one wholesaler and permitted the wholesaler
to select the product suppliers. Each wholesaler encouraged generic drug
suppliers to participate in its program by offering to purchase the wholesaler's
requirements of particular products from a single supplier. The programs
encouraged generic drug suppliers to aggressively bid to be the exclusive
supplier of products under the programs. The existence of the programs also
resulted in reduced prices to non-wholesaler customers. As a result of the
institution of the programs, the generic drug industry experienced a significant
reduction in the prices charged by suppliers for many generic pharmaceutical
products during the second and third quarters of 1996. Price declines continued
throughout 1997, but at a slower rate than in 1996.
A significant amount of IVAX's United States generic pharmaceutical
sales are made to a relatively small number of drug wholesalers and retail
drug chains, which represent an essential part of the distribution chain of
pharmaceutical products in the United States. Both of these industries have
undergone, and are continuing to undergo, significant consolidation, which has
resulted in IVAX's customers gaining more purchasing leverage and consequently
increasing the pricing pressures facing IVAX's United States generic
pharmaceutical business. Further consolidation among IVAX's customers may result
in even greater pricing pressures and correspondingly reduce the gross margins
of this business, and may also cause such customers to reduce their purchases of
IVAX's products.
Other competitive factors affecting IVAX's business include the
prevalence and influence of managed care organizations and similar institutions
that are able to seek price discounts on pharmaceutical products. As the
influence of these entities continues to grow, IVAX may face increased pricing
pressure on the products it markets.
12
<PAGE>
PATENTS AND TRADEMARKS
IVAX seeks to obtain patent protection on its products and products
under development where possible. IVAX currently owns or is licensed under
various United States, United Kingdom and other foreign patents and patent
applications covering certain of its products, products under development,
product uses and manufacturing processes. Protection for individual products,
product uses or manufacturing processes extends for varying periods in
accordance with the date of grant and the legal life of the patents in the
various countries. The protection afforded, which may also vary from country to
country, depends on the type of patent and its scope of coverage. There is no
assurance that patents will be issued on pending applications or as to the scope
or degree of protection patents will afford IVAX, or that IVAX's patents will be
held valid by a court of competent jurisdiction. Although IVAX believes that its
patents and licenses are important to its business, no single patent or license
is currently material in relation to IVAX's business as a whole. Any litigation
regarding IVAX's patents could result in substantial cost to IVAX.
IVAX sells certain of its products under trademarks and seeks to obtain
protection for its trademarks by registering them in the United States, United
Kingdom and other countries where the products are marketed. At present, IVAX
does not consider its trademarks, individually or in the aggregate, to be
material in relation to its business as a whole. The trademarks of the personal
care products group, however, are well established and recognized within its
industry, and IVAX believes that in the aggregate such trademarks are of
material importance to the personal care products group.
IVAX's success also depends on trade secrets which, in some cases,
cannot be patented or as to which seeking patents may harm IVAX's competitive
position. While IVAX generally requires its employees, advisors and consultants
to execute confidentiality agreements prohibiting such persons from disclosing
IVAX's trade secrets or using them in a manner harmful to IVAX, there can be no
assurance that these agreements will provide adequate protection or that IVAX
can meaningfully protect its proprietary interest in unpatented trade secrets.
LICENSING
IVAX has obtained licenses to technology and compounds for development
into new pharmaceutical products from various inventors, universities and the
United States Government, and will continue to seek new licenses from such
parties and others, including pharmaceutical companies. Generally, these
licenses grant IVAX the right to complete development efforts initiated by
others and to market any resulting products. IVAX generally is required to pay a
royalty based on sales of the product. There can be no assurance that any
licenses desired by IVAX will be obtainable on commercially reasonable terms or
that any licensed patents or proprietary rights will be valid and enforceable.
IVAX also grants licenses to other pharmaceutical companies relating to
technologies or compounds under development and, in some cases, finished
products. Generally, these licenses grant the licensees the right to complete
development work of the technology or compound, or obtain regulatory approvals
of a product, and thereafter market the product in specified territories. These
licenses often involve the payment of an up-front fee and fees upon completion
of certain development milestones, and also provide for the payment of royalties
based on sales of the product. IVAX often retains the right to supply the
product to the licensees.
13
<PAGE>
SEASONALITY
While certain of IVAX's individual products may have a degree of
seasonality, there are no significant seasonal aspects to IVAX's business,
except that sales of pharmaceutical products indicated for colds and flu
symptoms are higher during the fourth quarter as customers supplement
inventories in anticipation of the cold and flu season.
ENVIRONMENT
IVAX believes that its operations comply in all material respects with
applicable laws and regulations concerning the environment. While it is
impossible to accurately predict the future costs associated with environmental
compliance and potential remediation activities, compliance with environmental
laws is not expected to require significant capital expenditures and has not
had, and is not presently expected to have, a material adverse affect on IVAX's
earnings or competitive position.
EMPLOYEES
As of February 28, 1998, IVAX had approximately 4,500 full time
employees, of which approximately 2,700 were engaged in research and
development, production and associated support, 900 were engaged in sales,
marketing and distribution, and 900 were engaged in finance and general
administration. The employees were divided approximately as follows: 1,270 in
domestic pharmaceuticals, 2,650 in international pharmaceuticals, 320 in
personal care products, 100 in diagnostics, 80 in veterinary and 80 in
corporate. The foregoing information includes approximately 940 employees of
Galena, which is owned 74% by IVAX. IVAX's recent financial results and
workforce reductions have negatively impacted employee morale and have created
employee recruitment and retention issues that could have a negative impact on
IVAX's business and operating results.
YEAR 2000 COMPLIANCE
IVAX has engaged a consultant to assist in evaluating its computer
systems and facilities for any potential Year 2000 compliance issues. IVAX has
determined that a portion of its operating systems and equipment require
modification or replacement to ensure that they will be capable of recognizing
and processing dates beyond December 31, 1999. IVAX believes, based on existing
information, that its Year 2000 compliance issues can be mitigated, and it has
developed a plan to implement the required system and equipment modifications
and replacements. IVAX is also coordinating with its customers, suppliers and
other persons with which it interacts electronically to coordinate its Year 2000
compliance program.
IVAX anticipates that it will spend up to $15.0 million over the next
two years in connection with its plan to implement the required system and
equipment modifications and replacements. Amounts spent on modifying existing
systems and equipment will be expensed as incurred, and the cost of any new
software and equipment purchased will be capitalized. IVAX expects to complete
the implementation of its system and equipment modifications or replacements by
mid-1999. The expected costs of the Year 2000 compliance program and the date on
which IVAX expects to complete the implementation of the plan are based on
management's best estimates and involve certain assumptions, and actual results
could differ materially from the estimates set forth herein. There can be no
assurance that IVAX's Year 2000 compliance program will be successful. In
addition, the
14
<PAGE>
implementation of new information systems and the modification or replacement of
equipment involves risks that the systems and equipment will not perform as
expected and that productivity may suffer until employees are properly trained.
No assurance can be given that any such implementation will not adversely affect
IVAX's operations.
RISK OF PRODUCT LIABILITY CLAIMS
Testing, manufacturing and marketing pharmaceutical products subjects
IVAX to the risk of product liability claims. IVAX is a defendant in a number of
product liability cases, none of which IVAX believes will have a material
adverse effect on IVAX's business, financial condition or results of operations.
IVAX believes that it maintains an adequate amount of product liability
insurance, but there can be no assurance that its insurance will cover all
existing and future claims or that IVAX will be able to maintain existing
coverage or obtain additional coverage at reasonable rates. There can be no
assurance that claims arising under any pending or future product liability
cases, whether or not covered by insurance, will not have a material adverse
effect on IVAX's business, financial condition or results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, the matters
discussed herein are forward looking statements made pursuant to the safe harbor
provisions of the Private 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"). These factors may cause IVAX's results to differ materially
from the statements made in this report or otherwise made by or on behalf of
IVAX.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Specific financial information with respect to IVAX's foreign and
domestic operations is provided in Note 13, Geographic Information, in the Notes
to Consolidated Financial Statements incorporated by reference to page 41 of
IVAX's 1997 Annual Report to Shareholders.
ITEM 2. PROPERTIES
IVAX owns or leases an aggregate of approximately 3.3 million square
feet of space in Argentina, Canada, Germany, Hong Kong, Ireland, Italy, Poland,
Russia, the Slovak Republic, the United Kingdom, the United States, and Uruguay,
which is used by the pharmaceutical business (82%), the personal care products
business (7%), and the diagnostics business (2%). The remaining portion (9%) was
used by the specialty chemicals business. In connection with the sale of the
specialty chemicals business, IVAX retained ownership of its manufacturing
facilities in Rock Hill, South Carolina and Marion, Ohio, and is pursuing the
sale of these facilities. IVAX believes its facilities are in satisfactory
condition, are suitable for their intended use and, in the aggregate, have
capacities in excess of those necessary to meet IVAX's present needs.
IVAX operates sixteen pharmaceutical manufacturing facilities, two of
which are located in each of Waterford, Ireland; Miami, Florida; and London,
England; and one of which is located in each of Kirkland, Canada; Buenos Aires,
Argentina; Northvale, New Jersey; St. Croix, Virgin
15
<PAGE>
Islands; Cidra, Puerto Rico; Syosset, New York; Falkenhagen, Germany; Harlow,
England; Runcorn, England; and Montevideo, Uruguay. IVAX's personal care
products manufacturing facility is located in Chicago, Illinois. IVAX's
diagnostics manufacturing facilities are located in Miami, Florida and
Springdale, Arkansas. IVAX owns its Chicago, Miami, Kirkland, Buenos Aires,
Cidra, Syosset, and Falkenhagen manufacturing facilities, and leases its
remaining manufacturing facilities.
In connection with restructuring programs instituted by IVAX in 1996
and 1997 to, among other things, reduce costs and improve efficiencies in its
United States generic pharmaceutical operations, IVAX is consolidating certain
of its facilities. IVAX closed its Shreveport, Louisiana pharmaceutical
manufacturing facility in the fourth quarter of 1996; consolidated its United
States pharmaceutical distribution facilities into a single leased distribution
center in Kenton County, Kentucky in 1997; closed its Ft. Lauderdale, Florida
office, packaging and warehouse facility and its Syosset, New York
pharmaceutical manufacturing facility in the first quarter of 1998; is pursuing
the sale of its Kirkland, Canada pharmaceutical manufacturing facility; expects
to close one of its London, England manufacturing facilities in 1998; and may
sell its Falkenhagen, Germany facility and one of its Miami, Florida
manufacturing facilities before the end of 1998. Production from those
facilities has been or will be transferred to other IVAX facilities.
IVAX maintains sales offices and distribution centers in Argentina,
China, Hong Kong, Italy, Poland, Russia, Uruguay, and various parts of the
United States and the United Kingdom, most of which are held pursuant to leases.
None of such leases are material to IVAX.
A portion of IVAX's pharmaceutical manufacturing capacity and its
research and development activities, as well as its corporate headquarters and
other critical business functions are located in areas subject to hurricane
casualty risk. Although IVAX has certain limited protection afforded by
insurance, IVAX's business, earnings and competitive position could be
materially adversely affected in the event of a major windstorm.
ITEM 3. LEGAL PROCEEDINGS
In late April 1995, Zenith Laboratories, Inc., a wholly-owned
subsidiary of IVAX ("Zenith"), received approvals from the FDA to manufacture
and market the antibiotic cefaclor in capsule and oral suspension formulations.
Cefaclor is the generic equivalent of Ceclor/Registered trademark/, a product of
Eli Lilly and Company ("Lilly"). On April 27, 1995, Lilly filed a lawsuit
against Zenith and others styled ELI LILLY AND COMPANY V. AMERICAN CYANAMID
COMPANY, BIOCRAFT LABORATORIES, INC., ZENITH LABORATORIES, INC. AND BIOCHIMICA
OPOS S.p.A. in the United States District Court for the Southern District of
Indiana, Indianapolis Division. In general, the lawsuit alleges that Biochimica
Opos S.p.A. ("Opos"), Zenith's cefaclor raw material supplier, manufactured
cefaclor raw material in a manner which infringed two process patents owned by
Lilly, and that Zenith and the other defendants knowingly and willfully
infringed and induced Opos to infringe the patents by importing the raw material
into the United States. The lawsuit seeks to enjoin Zenith and the other
defendants from infringing or inducing the infringement of the patents and from
making, using or selling any product incorporating the raw material provided by
Opos, and seeks an unspecified amount of monetary damages and the destruction of
all cefaclor raw material manufactured by Opos and imported into the United
States. In August 1995, the Court denied Lilly's motion for preliminary
injunction which sought to prevent Zenith from selling cefaclor until the merits
of Lilly's allegations could be determined at trial. On May 10, 1996, the United
States Court of Appeals for the Federal Circuit affirmed the district court's
denial of Lilly's motion for preliminary injunction. On February 28,
16
<PAGE>
1997, Lilly filed an amended complaint which alleges the infringement of an
additional patent, and also filed a motion to add to the lawsuit additional
defendants who are not affiliated with IVAX or Zenith. Zenith ceased selling
cefaclor in January 1997, when it announced a recall in the United States of
cefaclor as a result of the recall by Opos of the raw material used to
manufacture the product.
On April 18, 1997, Lilly filed a complaint in the United States
District Court for the District of New Jersey styled ELI LILLY AND COMPANY V.
ROUSSEL CORP., ET AL against various defendants, including Zenith. With respect
to Zenith, the complaint asserts claims for violation of the Lanham Act, unfair
competition under New Jersey state law, common law unfair competition and unjust
enrichment. Also named as defendants are Roussel Corporation, Roussel UCLAF
Holdings Corporation, Roussel UCLAF S.A., Hoechst Marion Roussel North America,
and Biochimica Opos S.p.A. (collectively, the "Roussel Defendants"), The Rugby
Group, Inc., and Rugby Laboratories, Inc. (collectively, "Rugby"), and American
Home Products Corporation and American Cyanamid Company (collectively, the
"American Home Defendants"). The claims asserted against the American Home
Defendants and Rugby are essentially the same as those asserted against Zenith.
Additional claims are asserted against the Roussel Defendants, including fraud,
negligent misrepresentation, common law conspiracy, tortious interference with
business relations, and violations of both the federal and state Racketeer
Influenced And Corrupt Organizations Acts. All of the asserted claims arise out
of what Lilly contends were fraudulent misrepresentations to Lilly and the FDA
by Opos regarding the methods utilized by Opos to manufacture bulk cefaclor and
the location of the manufacturing facility of such cefaclor. According to Lilly,
through these alleged misrepresentations, Opos fraudulently obtained approval
from FDA to market bulk cefaclor in the United States. The claims asserted
against Zenith are predicated on Zenith's sale in the United States of retail
dosage units of cefaclor manufactured using Opos' bulk cefaclor. Lilly alleges
that Zenith, in marketing and selling retail dosage units of cefaclor
manufactured from Opus' bulk cefaclor, used false and misleading descriptions
and representations regarding Zenith's cefaclor product. The relief sought by
Lilly against Zenith, jointly and severally with the American Home Defendants
and Rugby, is an accounting to Lilly for any and all profits derived by Zenith
from the sale of cefaclor and an award of damages to Lilly, in an unspecified
amount, allegedly sustained by Lilly as a result of Zenith's alleged acts of
misrepresentation and unfair competition. Lilly further seeks an award of treble
damages and litigation costs, including attorneys' fees and interest. Under its
unjust enrichment claim, Lilly seeks restitution in an unspecified amount
against Zenith, jointly and severally with the other defendants. Zenith filed a
motion to dismiss the action in August 1997, which motion remains pending.
In July 1994, an action styled ABS MB INVESTMENT LIMITED PARTNERSHIP
AND ABS MB LTD. VS. IVAX Corporation was filed against IVAX in the United States
District Court for the District of Maryland. Plaintiffs, shareholders of McGaw
at the time of its acquisition by IVAX, alleged that IVAX violated Sections 11
and 12(2) of the Securities Act of 1933, as amended (the "Securities Act"), as
well as certain state securities laws, and that it breached certain provisions
of the merger agreement and IVAX's bylaws, by issuing to plaintiffs shares of
IVAX common stock subject to the restrictions imposed by Rule 145 promulgated
under the Securities Act and Accounting Series Release 135. The plaintiffs claim
that, as a result of the restrictions imposed on the certificates issued to
them, they suffered damages from the loss of value of their shares, and seek
damages of $11.0 million, plus expenses and attorneys' fees. In June 1995, the
Court entered an order denying plaintiffs' motion for summary judgment with
respect to the claims alleging that IVAX breached certain provisions of the
merger agreement and IVAX's bylaws and granted IVAX's motion to dismiss such
counts. The
17
<PAGE>
Court denied IVAX's motion to dismiss the counts relating to alleged violation
of Sections 11 and 12(2) of the Securities Act and alleged violations of certain
state securities laws, as well as its motion to transfer venue. In October 1995,
the Court entered an order granting the plaintiffs' motion to amend their
complaint to assert new causes of action under the Uniform Commercial Code and
granting the plaintiffs' motion for reconsideration of the dismissal of the
counts alleging breach of IVAX's bylaws, and ordered that such counts be
reinstated. During April and May 1997, the parties filed cross motions for
summary judgment, which motions remain pending.
In November 1996, individuals purporting to be shareholders of IVAX
filed a class action complaint styled MALIN, ET AL. VS. IVAX CORPORATION AND
PHILLIP FROST, ET AL. against IVAX and certain of its current or former officers
or directors in the United States District Court for the Southern District of
Florida which consolidates, amends and supplements a number of similar
complaints filed earlier in 1996. The plaintiffs seek to act as representatives
of a class consisting of all purchasers of IVAX common stock between July 31,
1995 and June 27, 1996. The consolidated amended complaint alleges violations of
Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") and Rule 10b-5 promulgated by the Securities and Exchange
Commission, and also asserts a claim for negligent misrepresentation. The
complaint generally alleges that IVAX made untrue statements of material fact
and omitted to state material facts necessary to make statements made not
misleading in its public disclosure documents and in communications to the
public regarding its operations and financial results and that its financial
statements were not prepared in accordance with generally accepted accounting
principles. These allegations are centered around allegations that IVAX failed
to disclose that it offered its customers shelf stock adjustments and failed to
establish reserves for such adjustments. In general, the complaint seeks an
unspecified amount of compensatory damages, pre-judgment interest, litigation
costs and attorney's fees. In January 1997, the IVAX defendants filed a motion
to dismiss the action, which motion remains pending.
On March 5, 1997, individuals purporting to be shareholders of IVAX
Corporation filed a class action complaint styled ALAN M. HARRIS AND YITZCHOK
WOLPIN V. IVAX CORPORATION, PHILLIP FROST AND MICHAEL W. FIPPS against IVAX, its
chairman and its former chief financial officer in the United States District
Court for the Southern District of Florida. Plaintiffs seek to act as
representatives of a class consisting of all persons who purchased IVAX common
stock or call options during the period from September 30, 1996 through November
11, 1996 and who were allegedly damaged thereby. The complaint alleges
violations of Section 10(b) of the 1934 Act and negligent misrepresentation. The
complaint alleges that defendants made untrue statements of material fact and
omitted to state material facts necessary to make statements made not misleading
in a September 30, 1996 press release regarding IVAX's forecasted earnings for
the third quarter of 1996. The complaint seeks unspecified compensatory damages,
pre-judgment interest, attorneys' fees and litigation costs.
On April 21, 1997, individuals purporting to be shareholders of IVAX
filed a class action complaint styled FAUSTO POMBAR V. IVAX CORPORATION, PHILLIP
FROST AND MICHAEL W. FIPPS against IVAX, its chairman and its former chief
financial officer in the United States District Court for the Southern District
of Florida. Plaintiffs seek to act as representatives of a class consisting of
all persons who purchased IVAX common stock or call options during the period
from August 2, 1996 through November 11, 1996, inclusive. The complaint alleges
claims for violation of Section 10(b) of the 1934 Act and Rule 10b-5 and for
negligent misrepresentation. The complaint alleges, among other things, that
during the class period defendants made untrue statements of material fact and
omitted to state material facts necessary to make statements made not misleading
in its statements to
18
<PAGE>
the public, including in a September 30, 1996 press release regarding IVAX's
forecasted earnings for the third quarter of 1996. The complaint seeks
unspecified compensatory damages, interest, attorneys' fees, costs of suit and
unspecified other and further relief from the court.
With respect to the HARRIS and POMBAR cases, 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 or call options during the period
from August 2, 1996 through November 11, 1996, inclusive. In July 1997, the IVAX
defendants filed a motion to dismiss the action, which motion remains pending.
In March of 1995, Baxter International Inc. and Baxter HealthCare Corp.
(collectively, "Baxter") filed an action against former IVAX subsidiary McGaw
styled BAXTER INTERNATIONAL INC. AND BAXTER HEALTHCARE CORP. V. MCGAW, INC., in
the United States District Court for the Northern District of Illinois. The
plaintiffs alleged that McGaw's SafeLine/Trademark/ Needle Free System infringes
three United States patents owned by Baxter. After a trial, the jury found in
favor of McGaw, determining that each of the claims of the asserted patents was
either invalid or was not infringed by McGaw. In addition, the judge found that
two of Baxter's patents are unenforceable because of inequitable conduct.
Judgment was entered in favor of McGaw in March 1996, and Baxter's appeal is
presently pending in the United States Court of Appeals for the Federal Circuit.
In connection with IVAX's sale of McGaw in June 1997, IVAX agreed to continue to
conduct the defense of this action at its expense and to hold the purchaser of
McGaw harmless against any judgment rendered or settlement entered into with
respect to this action. Any such judgment or settlement will have the effect of
limiting the amount of contingent payments IVAX may receive under the agreement
governing the sale of McGaw.
On February 19, 1993, Smith & Nephew, Inc., a Delaware corporation
("S&N"), filed an action against IVAX and Solopak, Inc., a Delaware corporation
and wholly-owned subsidiary of IVAX ("Subsidiary"), in the Cook County, Illinois
Circuit Court styled SMITH & NEPHEW, INC. VS. IVAX CORPORATION AND SOLOPAK, INC.
S&N alleged that IVAX breached an Asset Purchase Agreement (the "Agreement"),
dated February 28, 1992, among IVAX, the Subsidiary and S&N, pursuant to which,
among other things, S&N agreed to sell to Subsidiary substantially all of the
assets of Smith & Nephew Solopak, a division of S&N (the "Division"), for $19.0
million in cash, by failing to close when all conditions precedent to the
closing were satisfied. S&N further alleged that in November 1992, it sold the
Division to another party for $13.5 million. S&N is seeking damages of $5.5
million, the difference between the $19.0 million purchase price specified in
the Agreement and the eventual sale price, plus attorneys' fees and costs. S&N
has claimed additional unspecified damages resulting from IVAX's alleged
interference with S&N's employees during the due diligence process. IVAX has
counterclaimed against S&N for breach of the Agreement and is seeking as damages
the expenses incurred in connection with the failed acquisition plus attorneys'
fees and costs. The case is presently set for trial the week of July 20, 1998.
IVAX intends to vigorously defend each of the foregoing lawsuits, but
their respective outcomes cannot be predicted. Any of such lawsuits, if
determined adversely to IVAX, could have a material adverse effect on IVAX's
financial position and results of operations. IVAX's ultimate liability with
respect to any of the foregoing proceedings is not presently determinable.
19
<PAGE>
With respect to the case styled JAMES M. SWEENEY, ET AL. V. IVAX
CORPORATION AND PHILLIP FROST, M.D., previously reported in IVAX's Annual Report
on Form 10-K for the year ended December 31, 1996, on January 28, 1998, the
parties entered into a Settlement Agreement pursuant to which they settled the
lawsuit in its entirety in exchange for the payment by the defendants and their
insurers of $1.75 million. Pursuant to the Settlement Agreement, the lawsuit was
dismissed with prejudice on January 30, 1998.
With respect to the case styled VENTANA PARTNERSHIP III, L.P. AND
VENTANA EQUITY EXPANSION PARTNERSHIP IV, L.P. VS. IVAX CORPORATION, PHILLIP
FROST, M.D., ISAAC KAYE AND ANDREW ZINZI, previously reported in IVAX's Annual
Report on Form 10-K for the year ended December 31, 1996, on December 11, 1997,
the parties entered into a Settlement Agreement pursuant to which they settled
the lawsuit in its entirety in exchange for the payment by the defendants and
their insurers of $258,000. Pursuant to the Settlement Agreement, the lawsuit
was dismissed with prejudice on January 7, 1998.
IVAX is involved in various other legal proceedings arising in the
ordinary course of business, some of which involve substantial amounts. While it
is not feasible to predict or determine the outcome of these proceedings, in the
opinion of management, based on a review with legal counsel, any losses
resulting from such legal proceedings will not have a material adverse impact on
IVAX's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a list of the names, ages, positions held and
business experience during the past five years of the persons serving as
executive officers of IVAX as of March 20, 1998. Officers serve at the
discretion of the Board of Directors. There is no family relationship between
any of the executive officers, and there is no arrangement or understanding
between any executive officer and any other person pursuant to which the
executive officer was selected.
THOMAS E. BEIER. Mr. Beier, age 52, has served as Senior Vice President
- - Finance and Chief Financial Officer of IVAX since October 1997. From December
1996 to October 1997, he served as a Vice President - Finance for IVAX. Prior to
joining IVAX, he served as Executive Vice President and Chief Financial Officer
of Intercontinental Bank from 1989 until August 1996.
DAVID R. BETHUNE. Mr. Bethune, age 57, has served as President and
Chief Operating Officer of IVAX since July 1997. From 1995 until he joined IVAX,
he served as President and Chief Executive Officer of Aesgen, Inc. (generic
pharmaceuticals). From 1992 until 1995, Mr. Bethune was Group Vice President of
American Cyanamid with responsibility for that company's worldwide
pharmaceutical operations. From 1988 until 1992, he served as President of
Lederle Laboratories, a division of American Cyanamid. From 1983 until 1988, he
served as President of G.D. Searle & Co.'s North American Operations. He is a
director of Atrix Laboratories, Inc. (dental pharmaceuticals), Female Health Co.
(female products), and Southern Research Institute (not-for-profit medical
research).
20
<PAGE>
SAMUEL BRODER, M.D. Dr. Broder, age 53, has served as IVAX's Senior
Vice President-Research and Development and Chief Scientific Officer since March
1995. Prior to joining IVAX, he held various positions at the National Cancer
Institute since 1972, serving as its Director from 1989 until February 1995.
PHILLIP FROST, M.D. Dr. Frost, age 61, has served as Chairman of the
Board of Directors and Chief Executive Officer of IVAX since 1987. He served as
IVAX's President from July 1991 until January 1995. He was the Chairman of the
Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami
Beach, Florida from 1972 to 1990. Dr. Frost was Chairman of the Board of
Directors of Key Pharmaceuticals, Inc. from 1972 to 1986. He is Chairman of the
Board of Directors of Whitman Education Group, Inc. (proprietary education),
Vice Chairman of the Board of Directors of North American Vaccine, Inc. (vaccine
research and development), Vice Chairman of the Board of Directors of
Continucare Corporation (managed health care), and a director of Northrop
Grumman Corp. (aerospace). He is Vice Chairman of the Board of Trustees of the
University of Miami and a member of the Board of Governors of the American Stock
Exchange.
RAFICK G. HENEIN, PH.D. Dr. Henein, age 57, has served as a Senior Vice
President of IVAX and as the President and Chief Executive Officer of Zenith
Goldline Pharmaceuticals, Inc., IVAX's principal United States-based generic
pharmaceutical subsidiary, since July 1997. He held various positions in the
Novopharm Limited organization (pharmaceuticals) since 1988, rising to the
position of President and Chief Executive Officer of Novopharm International in
1996.
JANE HSIAO, PH.D. Dr. Hsiao, age 50, has served as a director of IVAX
and as IVAX's Vice Chairman-Technical Affairs since February 1995, and as
Chairman, Chief Executive Officer and President of DVM Pharmaceuticals, Inc.,
IVAX's veterinary products subsidiary, since March 1998. From 1992 until
February 1995, she served as IVAX's Chief Regulatory Officer and Assistant to
the Chairman, and as Vice President-Quality Assurance and Compliance of Baker
Norton Pharmaceuticals, Inc., IVAX's principal proprietary pharmaceutical
subsidiary. From 1987 to 1992, Dr. Hsiao was Vice President-Quality Assurance,
Quality Control and Regulatory Affairs of Baker Norton Pharmaceuticals, Inc.
ISAAC KAYE. Mr. Kaye, age 68, has served as Deputy Chief Executive
Officer and a director of IVAX since 1990, and as Chief Executive Officer of
Norton Healthcare Limited, IVAX's principal United Kingdom pharmaceutical
subsidiary, since 1990.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
IVAX's common stock is listed on the American Stock Exchange and is
traded under the symbol IVX. Additional information required by item 5 is
incorporated by reference to page 48 of the 1997 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by item 6 is incorporated by reference to page
1 of the 1997 Annual Report to Shareholders.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by item 7 is incorporated by reference to
pages 2 - 15 of the 1997 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by item 7A is incorporated by reference to
page 15 of the 1997 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by item 8 is incorporated by reference to
pages 17 - 45 of the 1997 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors required by item 10 is
incorporated by reference to IVAX's Proxy Statement for its 1998 Annual Meeting
of Shareholders. The information concerning executive officers required by item
10 is contained in the discussion entitled "Executive Officers of the
Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by item 11 is incorporated by reference to
IVAX's Proxy Statement for its 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by item 12 is incorporated by reference to
IVAX's Proxy Statement for its 1998 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by item 13 is incorporated by reference to
IVAX's Proxy Statement for its 1998 Annual Meeting of Shareholders.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements, related notes and
independent auditors' report, from the 1997 Annual Report to Shareholders, are
incorporated by reference into Item 8 of Part II of this report:
PAGE IN THE
1997 ANNUAL
REPORT TO
SHAREHOLDERS
------------
Report of Independent Certified Public Accountants 16
Consolidated Balance Sheets 17
Consolidated Statements of Operations 18
Consolidated Statements of Shareholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 23
(A)(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of IVAX is filed as a part
of this report:
Schedule II Valuation and Qualifying Accounts for the three years
ended December 31, 1997
All other schedules have been omitted because the required information
is not applicable or the information is included in the consolidated financial
statements or the notes thereto.
The independent auditors' report with respect to Schedule II is also
filed as part of this report.
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<S> <C> <C>
3.1 Articles of Incorporation. Incorporated by reference to IVAX's
Form 8-B dated July 28, 1993.
3.2 Amended and Restated Bylaws. Incorporated by reference to IVAX's
Form 10-Q for the quarter ended
September 30, 1997.
23
<PAGE>
4.1 Indenture dated November 26, 1991, between IVAX Incorporated by reference to IVAX's
Corporation and First Trust National Association, as Form 10-K for the year ended
Trustee, with respect to IVAX Corporation's 6 1/2% December 31, 1991.
Convertible Subordinated Notes due November 15, 2001.
4.2 Form of 6 1/2% Convertible Subordinated Notes due November Incorporated by reference to IVAX's
15, 2001 in Global Form. Form 10-K for the year ended
December 31, 1991.
4.3 Rights Agreement, dated December 29, 1997, between IVAX Incorporated by reference to IVAX's
Corporation and ChaseMellon Shareholder Services, L.L.C., Form 8-K dated December 19, 1997.
with respect to the IVAX Corporation Shareholder Rights
Plan.
10.1 IVAX Corporation 1985 Stock Option Plan, as amended.* Filed herewith.
10.2 IVAX Corporation 1994 Stock Option Plan, as amended.* Filed herewith.
10.3 Form of Indemnification Agreement for Directors. Incorporated by reference to IVAX's
Form 8-B dated July 28, 1993.
10.4 Form of Indemnification Agreement for Officers. Incorporated by reference to IVAX's
Form 8-B dated July 28, 1993.
10.5 Agreement Containing Consent Order, dated December 6, Incorporated by reference to IVAX's
1994, between IVAX Corporation and the United States Form 10-K for the year ended
Federal Trade Commission. December 31, 1994.
10.6 Employment Agreement, dated November 28, 1997, between Filed herewith.
IVAX Corporation and Phillip Frost, M.D. *
10.7 Employment Agreement, dated November 28, 1997, between Filed herewith.
IVAX Corporation and Isaac Kaye.*
24
<PAGE>
10.8 Employment Agreement, dated November 28, 1997, between Filed herewith.
IVAX Corporation and David R. Bethune.*
10.9 Employment Agreement, dated January 19, 1998, between Filed herewith.
IVAX Corporation and Jane Hsiao, Ph.D.*
10.10 Employment Agreement, dated July 28, 1997, between IVAX Incorporated by reference to IVAX's
Corporation and Rafick G. Henein, Ph.D.* Form 10-Q for the quarter ended June
30, 1997.
10.11 Form of Employment Agreement (Change in Control) between Filed herewith.
IVAX Corporation and certain of its executive officers.*
10.12 Stock Purchase Agreement, dated May 30, 1997, between Incorporated by reference to IVAX's
IVAX Corporation and B. Braun of America Inc.** Form 8-K dated June 24, 1997.
13.1 The 1997 Annual Report to Shareholders, which, except for Filed herewith.
those portions expressly incorporated herein by
reference, is furnished solely for the information of the
Commission and is not to be deemed "filed".
21.1 Subsidiaries of IVAX Corporation. Filed herewith.
23.1 Consent of Arthur Andersen LLP Filed herewith.
27 Financial Data Schedule Filed herewith.
<FN>
- ----------------------
* Compensation Plan or Agreement.
** Certain exhibits and schedules to this document have not been filed. The
Registrant agrees to furnish a copy of any omitted schedule or exhibit to the
Securities and Exchange Commission upon request.
</FN>
</TABLE>
(b) REPORTS ON FORM 8-K.
IVAX filed a Current Report on Form 8-K dated December 19, 1997
relating to the adoption of its Shareholder Rights Plan.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 31, 1998 By: /s/ PHILLIP FROST, M.D.
------------------------
Phillip Frost, M.D.
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
NAME CAPACITY DATE
- ---- -------- ----
/s/ PHILLIP FROST, M.D. Chairman of the Board and March 31, 1998
- ----------------------------- Chief Executive Officer
Phillip Frost, M.D. (Principal Executive Officer)
/s/ THOMAS E. BEIER Chief Financial Officer March 31, 1998
- ----------------------------- (Principal Financial Officer)
Thomas E. Beier
/s/ MICHAEL METZKES Vice President - Accounting March 31, 1998
- ----------------------------- (Principal Accounting Officer)
Michael Metzkes
/s/ MARK ANDREWS Director March 31, 1998
- -----------------------------
Mark Andrews
/s/ ERNST BIEKERT, PH.D. Director March 31, 1998
- -----------------------------
Ernst Biekert, Ph.D.
/s/ JACK FISHMAN, PH.D. Director March 31, 1998
- -----------------------------
Jack Fishman, Ph.D.
26
<PAGE>
/s/ NEIL FLANZRAICH Director March 31, 1998
- -----------------------------
Neil Flanzraich
/s/ JANE HSIAO, PH.D. Director and Vice Chairman- March 31, 1998
- ----------------------------- Technical Affairs
Jane Hsiao, Ph.D.
/s/ ISAAC KAYE Director and Deputy Chief March 31, 1998
- ----------------------------- Executive Officer
Isaac Kaye
27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF IVAX CORPORATION:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in IVAX Corporation's annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated March 20, 1998. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The Financial Statement
Schedule listed in Item 14 is presented for purposes of complying with the
Securities and Exchange Commission rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 20, 1998.
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
(In thousands)
BALANCE AT CHARGED TO
BEGINNING COST AND NET BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OTHER END OF YEAR
- -------------------------------- ------------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCES FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1997 $ 20,061 8,973 (8,702) (1,106) $ 19,226
============= ======= ========= ======== ========
Year ended December 31, 1996 $ 11,064 30,737 (20,343) (1,397)(A) $ 20,061
============= ======= ========= ======== ========
Year ended December 31, 1995 $ 8,286 4,579 (1,708) (93)(B) $ 11,064
============ ======= ========= ======== ========
<FN>
(A) Includes additions to the accounts receivable allowances as a result of the
acquisition of Elvetium.
(B) Includes additions to the accounts receivable allowances as a result of the
acquisition of Immunovision, Inc.
</FN>
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.1 IVAX Corporation 1985 Stock Option Plan, as amended.
10.2 IVAX Corporation 1994 Stock Option Plan, as amended.
10.6 Employment Agreement, dated November 28, 1997, between
IVAX Corporation and Phillip Frost, M.D.
10.7 Employment Agreement, dated November 28, 1997, between
IVAX Corporation and Isaac Kaye.
10.8 Employment Agreement, dated November 28, 1997, between
IVAX Corporation and David R. Bethune.
10.9 Employment Agreement, dated January 19, 1998, between
IVAX Corporation and Jane Hsiao, Ph.D.
10.11 Form of Employment Agreement (Change in Control) between
IVAX Corporation and certain of its executive officers.
13.1 The 1997 Annual Report to Shareholders, which, except for
those portions expressly incorporated herein by
reference, is furnished solely for the information of the
Commission and is not to be deemed "filed".
21.1 Subsidiaries of IVAX Corporation.
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
EXHIBIT 10.1
IVAX CORPORATION 1985 STOCK OPTION PLAN
(revised 12/19/97)
1. PURPOSES. The purposes of this Stock Option Plan (the "Plan")
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees of
the Company or its Subsidiaries (as defined in Section 2 below) as well as other
individuals who perform services for the Company or its Subsidiaries, and to
promote the success of the Company's business. Options granted hereunder may be
either "incentive stock options", as defined in Section 422A of the Internal
Revenue Code of 1986, as amended, or "nonqualified stock options", at the
discretion of the Committee (as defined in Section 2 below) and as reflected in
the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(b) "COMMON STOCK" shall mean the Common Stock of the Company (see
Section 9 below).
(c) "COMPANY" shall mean IVAX Corporation, a Florida corporation
(formerly IVACO Industries, Inc., Inland Vacuum Industries, Inc., and IVAX
Corporation, each a Delaware corporation).
(d) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board of Directors
of the Company or the Committee.
(e) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(f) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
(g) "INCENTIVE STOCK OPTION" shall mean a stock option intended to
qualify as an incentive stock option within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended.
(h) "NONQUALIFIED STOCK OPTION" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(i) "OPTION" shall mean a stock option granted pursuant to the
Plan.
(j) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(k) "OPTIONEE" shall mean an Employee or other person who receives
an Option.
(l) "PARENT" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
<PAGE>
(m) "RULE 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act or any successor rule.
(n) "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(o) "SUBSIDIARY" shall mean a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 425(f) of the Internal Revenue
Code of 1986, as amended.
3. STOCK. Subject to the provisions of Section 12 of the Plan, the
maximum aggregate number of shares which may be Optioned and sold under the Plan
is Eleven Million Five Hundred Thousand (11,500,000) shares of authorized, but
unissued, or reserved $.10 par value Common Stock. If an Option should expire or
become unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for further grant under the Plan.
4. ADMINISTRATION.
(a) PROCEDURE. The Plan shall be administered by a Committee
appointed by the Company's Board of Directors. The Committee shall consist of
not less than two members of the Board of Directors, each of whom is a
"disinterested person" as defined in Rule 16b-3. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board of Directors. From
time to time the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause), and
appoint new members in substitution therefor, and fill vacancies however caused;
provided, however, that at no time shall a Committee of less than two (2)
members of the Board of Directors administer the plan, and provided, further,
that all members of the Committee must be "disinterested persons" as defined in
Rule 16b-3.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the
Plan, including, without limitation, Section 6 of the Plan, the Committee shall
have the authority, in its discretion: (i) to grant Incentive Stock Options, in
accordance with Section 422A of the Internal Revenue Code of 1986, as amended,
or to grant Nonqualified Stock Options; (ii) to determine, upon review of
relevant information and in accordance with Section 9(b) of the Plan, the fair
market value of the Common Stock; (iii) to determine the exercise price per
share of Options to be granted which exercise price shall be determined in
accordance with Section 9(a) of the Plan; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Committee; and (x) to make all other determinations
deemed necessary or advisable for the administration of the Plan. The Committee
may require the voluntary surrender of all or any portion of any Option granted
under the Plan as a condition precedent to a grant of a new Option to such
Optionee. Subject to the provisions of the Plan, such new Option shall be
exercisable at the price, during the period and on such other terms and
-2-
<PAGE>
conditions as are specified by the Committee at the time the new Option is
granted. Upon surrender, the Options surrendered shall be unexercisable and the
Shares previously subject to such Options shall be available for the grant of
other Options.
(c) EFFECT OF THE COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all Optionees and any other holders of any Options granted under the Plan.
5. ELIGIBILITY. Incentive Stock Options may be granted only to
Employees. Nonqualified Stock Options may be granted to Employees as well as
directors (in accordance with the provisions of Section 6 of the Plan),
independent contractors and agents, as determined by the Committee. Any person
who has been granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options.
No Incentive Stock Option may be granted to an Employee before
January 1, 1987 if, as the result of such grant, the aggregate fair market value
(determined as of the time each option was granted) of the Shares for which such
Optionee has been granted Incentive Stock Options during the calendar year under
all incentive stock option plans of the Company and any Parent and Subsidiary
would exceed One Hundred Thousand Dollars ($100,000) plus any unused limit
carryover from each of the three immediately preceding calendar years. For
purposes of this provision, "unused limit carryover" means one-half of the
excess, if any, of One Hundred Thousand Dollars ($100,000) over the aggregate
fair market value (determined as of the time the option was granted) of the
stock for which the Optionee was granted Incentive Stock Options under all
incentive stock option plans of the Company or any Parent or Subsidiary in the
calendar year.
In the case of Incentive Stock Options granted after December 31,
1986, no such Incentive Stock Option may be granted to an Employee if, as the
result of such grant, the aggregate fair market value (determined at the time
each option was granted) of the Shares with respect to which such Incentive
Stock Options are exercisable for the first time by such Employee during any
calendar year (under all such plans of the Company and any Parent and
Subsidiary) shall exceed One Hundred Thousand ($100,000).
The Plan shall not confer upon any Optionee any right with respect
to continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
6. AUTOMATIC GRANT OF OPTION TO NON-EMPLOYEE DIRECTORS. Each
person who is a non-Employee director of the Company on the day following the
1991 Annual Meeting of Stockholders of the Company shall automatically receive
on such date an Option to acquire 5,000 Shares of the Company's Common Stock.
Thereafter, each person who is a non-Employee director of the Company on the day
following any future annual meetings of stockholders of the Company shall
automatically receive on such date an Option to acquire 5,000 Shares of the
Company's Common Stock. The number of Shares subject to the Options to be
granted under this Section 6, shall be adjusted in the event of a stock split or
payment of a stock dividend in accordance with the provisions of Section 12 of
the Plan as if such Options were outstanding on the record date with respect to
such events, provided, however, that such adjustment shall not be applicable to
any stock split or stock dividend declared or recommended by the Board of
Directors of the Company at or prior to the 1991 Annual Meeting of
-3-
<PAGE>
Stockholders of the Company. The per Share exercise price for the Shares to be
issued pursuant to options granted under this Section 6 shall be as set forth in
Section 9(a)(ii) of the Plan. The foregoing formula may not be amended more than
once every six months other than to comport with changes in the Internal Revenue
Code of 1986, as amended, the Employee Retirement Income Security Act, or the
rules thereunder. Non-Employee directors shall have the right, if they so wish,
to decline receipt of any options to be granted under this Section 6 of the
Plan.
7. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of (i) its adoption by the Board of Directors, or (ii) its approval by
vote of the holders of a majority of the outstanding shares of the Company
entitled to vote on the adoption of the Plan. The Plan shall continue in effect
until June 30, 1995 unless sooner terminated under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
stock option agreement. However, in the case of an Incentive Stock Option
granted to an Employee who, immediately before the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter time as may be provided in such Optionee's stock option
agreement.
9. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Committee, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, immediately before the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
fair market value per Share on the date of grant.
(B) granted to an Employee, the per share exercise price shall
be no less than one hundred percent (100%) of the fair market value per Share on
the date of grant.
(ii) In the case of a Nonqualified Stock Option, the per Share
exercise price shall be no less than one hundred percent (100%) of the fair
market value per Share on the date of grant and, with respect to Options granted
to non-Employee directors as provided in Section 6 of the Plan, shall be equal
to one hundred percent (100%) of the fair market value per Share on the date of
the grant.
(b) The fair market value shall be determined by the Committee in
its discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock for the
date of grant, as reported in the Wall Street Journal (or, if not so reported,
as otherwise reported by the National Association of Securities Dealers
Automated Quotation [NASDAQ] System) or, in the event the
-4-
<PAGE>
Common Stock is listed on a stock exchange, the fair market value per Share
shall be the closing price on such exchange on the date of grant of the Option,
as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option shall consist of cash or check in an amount equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised. Payment may also be made, in the discretion of the Committee, by
delivery (including by facsimile) to the Company or its designated agent of an
executed irrevocable option exercise form together with irrevocable instructions
to a broker-dealer designated by the Company to sell (or margin) a sufficient
portion of the Shares and deliver the sale (or margin loan) proceeds directly to
the Company to pay for the exercise price. For purposes of this Section 9(c),
the exercise date of such Option shall be the date on which such documents have
been delivered to the Company or its designated agent.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Committee, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan. An Option may not be exercised for a fraction of a Share. An Option
shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with the terms of the Option by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full payment
may, as authorized by the Committee, consist of any consideration and method of
payment allowable under Section 9(c) of the Plan. Until the issuance, which in
no event will be delayed more than thirty (30) days from the date of the
exercise of the Option, (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in the Plan. Exercise of an Option in
any manner shall result in a decrease in the number of Shares which thereafter
may be available, both for purposes of the Plan and for sale under the Option,
by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE. If any Employee ceases
to be in Continuous Status as an Employee, other than (i) by reason of
retirement or (ii) as a result of a termination by the Company for deliberate,
willful or gross misconduct, any Option held by such Employee shall be
exercisable within twelve months after the date he ceases to be in Continuous
Status as an Employee (or such longer period as the Committee shall determine)
to the extent the Employee was entitled to exercise such Option as of the date
of his termination of employment.
(c) RETIREMENT OF OPTIONEE. If any Employee ceases to be in
Continuous Status as an Employee by reason of such Employee's retirement, any
Option held by such Employee shall be exercisable within thirty-six months after
the date he ceases to be in Continuous Status as an Employee to the extent that
he was entitled to exercise such Option as of the date of his retirement. For
purposes
-5-
<PAGE>
of the Plan, "retirement" means termination of services as an Employee at or
after age 65 other than as a result of deliberate, willful or gross misconduct.
(d) TERMINATION FOR MISCONDUCT. If any Employee ceases to be in
Continuous Status as an Employee as a result of a termination by the Company for
deliberate, willful or gross misconduct, any Option held by such Employee shall
terminate immediately and automatically on the date of his termination as an
Employee unless otherwise determined by the Committee.
(e) DEATH OF OPTIONEE. Subject to the provisions of the Plan, any
Option held by an Optionee at the time of his death may be subsequently
exercised by the legal representative of the Optionee's estate or by the person
or persons who acquired the right to exercise the Option by bequest or
inheritance but only to the extent the Optionee was entitled to exercise such
Option as of the date of his death. In the event of the death of an Optionee
during the final three months of the time period specified in Section 10(b) or
10(c), as applicable, the Option may be exercised, at any time within three 3
months following the date of his death, by the Optionee's estate or by a person
or persons who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise such
Option as of the date of his death.
(f) EXPIRATION OF OPTIONS. None of the events described above in
this Section 10 shall extend the period of exercisability of the Option beyond
the expiration date thereof. To the extent that an Optionee was not entitled to
exercise an Option on the date he ceased to be in Continuous Status as an
Employee or the date of the Optionee's death, or if he does not exercise such
Option (which he was entitled to exercise) within the time period specified in
this Section 10, the Option shall terminate and become null and void.
Notwithstanding the provisions of Section 10(b), 10(c) or 10(e) of the Plan, no
Options shall be exercisable after an Optionee ceases to be in Continuous Status
as an Employee in the event the Optionee shall have during the time period in
which his Options are exercisable, engaged in deliberate action which, as
determined by the Committee, causes substantial harm to the interests of the
Company or constitutes a breach of any obligation of the Optionee to the
Company. In such event, the Optionee shall forfeit all rights to any unexercised
Option as of the date of such deliberate action.
11. NON-TRANSFERABILITY OF OPTIONS. The option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employee Retirement Income Security Act, or
the rules thereunder, and, except with respect to a qualified domestic relations
order as aforesaid, may be exercised, during the life time of the Optionee, only
by the Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. In the
event that the Committee shall determine that any dividend or other distribution
(whether in the form of cash, Shares or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event, affects the Shares such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or enlargement
of the rights of Optionees under the Plan, then the Committee shall, in such
manner as it may deem equitable, adjust any or all of (i) the number and kind of
Shares which may thereafter be issued in connection with Options, (ii) the
number and kind of Shares issued or issuable in respect of outstanding Options,
(iii) the maximum number of Shares with
-6-
<PAGE>
respect to which Options may be granted to any Employee, and (iv) the vesting,
exercisability, exercise price, grant price, or purchase price relating to any
Option or, if deemed appropriate, make provision for a cash payment with respect
to any outstanding Option; provided, however, that (a) each such adjustment with
respect to an Incentive Stock Option shall comply with the rules of Section
424(a) of the Code (or any successor provision) and (b) in no event shall any
adjustment be made which would render any Incentive Stock Option granted
hereunder other than an "incentive stock option" as defined in Section 422 of
the Code; and provided further, however, that conversion of any convertible
securities of the Company shall not be deemed to dilute or enlarge the rights of
Optionees under the Plan. Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Committee or the Board of
Directors of the Company. The Committee or the Board of Directors of the Company
may, in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Committee or the Board of
Directors of the Company and give each Optionee the right to exercise his Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable.
13. TIME FOR GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Employee to whom an Option is so granted within a reasonable time after
the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Subject to the limitations set forth in Section 6 of the Plan,
the Committee may amend or terminate the Plan from time to time in such respects
as the Committee may deem advisable; provided that, the following revisions or
amendments shall require approval of the holders of a majority of the
outstanding shares of the Company entitled to vote: (i) any increase in the
number of Shares subject to the Plan, other than in connection with an
adjustment under Section 12 of the Plan; (ii) any change in the designation of
the class of persons eligible to be granted options; or (iii) any material
increase in the benefits accruing to participants under the Plan.
(b) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
approval under Section 14(a) of the Plan is made, such shareholder approval
shall be solicited as described in Section 18 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Committee, which agreement must be in writing and signed by the Optionee and
the Company.
-7-
<PAGE>
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
16. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. Inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board of Directors of the Company or the
Committee shall approve.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve months before or
after the date the Plan is adopted. If such shareholder approval is obtained at
a duly held shareholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. The approval of such shareholders of
the Company shall be; (1) solicited substantially in accordance with Section
14(a) of the Exchange Act and the rules and regulations promulgated thereunder,
or (2) solicited after the Company has furnished in writing to the holders
entitled to vote substantially the same information concerning the Plan as that
which would be required by the rules and regulations in effect under Section
14(a) of the Exchange Act at the time such information is furnished. If such
shareholder approval is obtained by written consent in the absence of a
Shareholders' Meeting, it must be obtained by the written consent of all
shareholders of the Company who would have been entitled to cast the minimum
number of votes which would be necessary to authorize such action at a meeting
at which all shareholders entitled to vote thereon were present and voting.
19. MISCELLANEOUS PROVISIONS. An Optionee shall have no rights as
a shareholder with respect to any Shares covered by his Option until the date of
the issuance of a stock certificate to him for such shares.
20. OTHER PROVISIONS. The Stock Option Agreement authorized under
the Plan shall contain such other provisions, including, without limitation,
restrictions upon the exercise of the Option, as the Board of Directors of the
Company or the Committee shall deem advisable. Any Incentive Stock Option
Agreement shall contain such limitations and restrictions upon the exercise of
the Incentive Stock
-8-
<PAGE>
Option as shall be necessary in order that such option will be an Incentive
Stock Option as defined in Section 422A of the Internal Revenue Code of 1986,
as amended.
21. INDEMNIFICATION OF COMMITTEE MEMBERS. In addition to such
other rights of indemnification as they may have as Directors, the members of
the Committee shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within 60 days after institution of any such action,
suit or proceeding a Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
22. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Common Stock pursuant to Options will be used for general
corporate purposes.
23. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
shall impose no obligation upon the Optionee to exercise such Option.
24. OTHER COMPENSATION PLANS. The adoption of the Plan shall not
affect any other stock option or incentive or other compensation plans in effect
for the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
25. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine gender.
26. HEADINGS, ETC. NO PART OF PLAN. Headings of Articles and
Sections hereof are inserted for convenience and reference; they constitute no
part of the Plan.
-9-
EXHIBIT 10.2
IVAX CORPORATION
1994 STOCK OPTION PLAN
(revised 12/19/97)
1. PURPOSES. The purposes of this 1994 Stock Option Plan (the "Plan") are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees of the Company
or its Subsidiaries as well as other individuals who perform services for the
Company or its Subsidiaries, and to promote the success of the Company's
business. Options granted hereunder may be either Incentive Stock Options or
Nonqualified Stock Options, at the discretion of the Committee and as reflected
in the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the committee appointed by the Board of Directors in
accordance with Section 4(a) of the Plan.
"COMMON STOCK" shall mean the common stock, $.10 par value per share, of the
Company.
"COMPANY" shall mean IVAX Corporation, a Florida corporation.
"CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any interruption
or termination of service as an Employee. Service as an Employee shall not be
considered interrupted for purposes of the Plan, in the case of sick leave,
military leave, or any other bona fide leave of absence approved by the
Committee.
"EMPLOYEE" shall mean any person, including officers and directors, employed
by the Company or any Parent or Subsidiary. The payment of a director's fee
by the Company shall not be sufficient to constitute "employment" by the
Company.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"INCENTIVE STOCK OPTION" shall mean a stock option intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the Code.
"NONQUALIFIED STOCK OPTION" shall mean a stock option not intended to qualify
as an "incentive stock option" within the meaning of Section 422 of the Code.
"OPTION" shall mean a stock option granted pursuant to the Plan.
"OPTIONED STOCK" shall mean the Common Stock subject to an Option.
"OPTIONEE" shall mean the recipient of an Option.
"PARENT" shall mean a "parent corporation" of the Company, whether now or
hereafter existing, as defined in Section 424(e) of the Code.
<PAGE>
"RULE 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Exchange Act or any successor rule.
"SHARE" shall mean a share of Common Stock, as adjusted in accordance with
Section 13 of the Plan.
"SUBSIDIARY" shall mean a "subsidiary corporation" of the Company, whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK. Subject to the provisions of Section 13 of the Plan, the maximum
aggregate number of Shares which may be issued under the Plan is 7,000,000. If
an Option should expire or become unexercisable for any reason without having
been exercised in full, the unpurchased Shares which were subject thereto shall,
unless the Plan shall have been terminated, become available for further grant
under the Plan.
4. ADMINISTRATION.
(a) COMMITTEE. The Plan at all times shall be administered by a Committee
appointed by the Company's Board of Directors. The Committee shall consist of
not less than two members of the Board of Directors, each of whom is a
"disinterested person" as defined in Rule 16b-3 and an "outside director" as
defined for purposes of Section 162(m) of the Code.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion: (i) to grant Incentive
Stock Options or Nonqualified Stock Options; (ii) to determine the fair market
value of the Common Stock; (iii) to determine the exercise price per Share of
Options to be granted; (iv) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of Shares to be
represented by each Option; (v) to determine the vesting schedule of Options to
be granted; (vi) to prescribe, amend and rescind rules and regulations relating
to the Plan; (vii) to determine the terms and provisions of each Option granted
under the Plan (which need not be identical); (viii) to accelerate the exercise
date of any Option; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted by the Committee; (x) subject to the provisions of the Plan and subject
to such additional limitations and restrictions as the Committee may impose, to
delegate to specific members of management or to a committee of management
personnel the authority to determine: (A) the persons to whom, and the time and
times at which, Options shall be granted and the number of Shares to be
represented by each Option, (B) the vesting schedule of Options; (C) the term of
Options, and (D) other terms and conditions of any Options; provided that the
Committee shall not have the authority to delegate such matters with respect to
awards to be granted to any person subject to Section 16 of the Exchange Act or
any "covered employee" under Section 162(m) of the Code; and (xi) to interpret
the Plan and make all other determinations deemed necessary or advisable for the
administration of the Plan. The Committee may require the voluntary surrender of
all or any portion of any Option, or of any other stock option outstanding to
persons eligible to participate in the Plan, as a condition precedent to a grant
of a new Option to such Optionee or person. Subject to the provisions of the
Plan, such new Option shall be exercisable at the price, during the period and
on such other terms and conditions as are specified by the Committee at the time
the new Option is granted. Upon surrender, the Options surrendered shall be
-2-
<PAGE>
unexercisable and the Shares previously subject to such Options shall be
available for the grant of other Options.
(c) EFFECT OF THE COMMITTEE'S DECISION. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Optionees.
5. ELIGIBILITY. Incentive Stock Options may be granted only to Employees.
Nonqualified Stock Options may be granted to Employees, non-Employee directors
(in accordance with the provisions of Section 6 of the Plan), independent
contractors and agents. Any person who has been granted an Option may, if he is
otherwise eligible, be granted an additional Option or Options. Subject to the
provisions of Section 13 of the Plan, the maximum number of Shares with respect
to which Options may be granted under the Plan to any Employee in any calendar
year is 1% of the authorized and outstanding Shares of Common Stock on the date
of adoption of the Plan.
Except as otherwise provided under the Code, to the extent that the aggregate
fair market value of stock for which Incentive Stock Options (under all stock
option plans of the Company and of any Parent or Subsidiary) are exercisable for
the first time by an Employee during any calendar year exceeds $100,000, such
Options shall be treated as Nonqualified Stock Options. For purposes of this
limitation, (a) the fair market value of stock is determined as of the time the
Option is granted, (b) the limitation is applied by taking into account Options
in the order in which they were granted, and (c) Incentive Stock Options granted
before 1987 are not to be taken into account.
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
6. AUTOMATIC GRANT OF OPTION TO NON-EMPLOYEE DIRECTORS. Subject to Section 3 of
the Plan, each person who is a non-Employee director of the Company on the first
business day following any annual meeting of shareholders of the Company shall
automatically receive on such date an Option to acquire 5,000 Shares, as
adjusted in accordance with Section 13 of the Plan. The exercise price for the
Shares to be issued pursuant to Options granted under this Section 6 shall be as
set forth in Section 9(a)(ii) of the Plan. The Options granted pursuant to this
Section 6 shall have a term of ten years from the date of grant. The foregoing
formula may not be amended more than once every six months other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. Non-Employee directors shall have the
right, if they so wish, to decline receipt of any Options to be granted under
this Section 6.
7. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board
of Directors of the Company; provided that, if the Plan is not approved by the
shareholders of the Company in accordance with Section 18 of the Plan within
twelve months after the date of adoption by the Board of Directors, the Plan and
any Options granted thereunder shall terminate and become null and void. The
Plan shall continue in effect until June 30, 2004 unless sooner terminated in
accordance with Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be ten years from the date of
grant thereof or, except for Options granted pursuant to Section 6 of the Plan,
such shorter term as may be determined
-3-
<PAGE>
by the Committee. However, in the case of an Incentive Stock Option granted to
an Employee who, immediately before the Incentive Stock Option is granted, owns
stock representing more than 10% of the voting power of all classes of stock of
the Company or any Parent or Subsidiary, the term of the Incentive Stock Option
shall be five years from the date of grant thereof or such shorter time as may
be determined by the Committee.
9. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the Committee, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option: (A) granted to an Employee who,
immediately before the grant of such Incentive Stock Option, owns stock
representing more than 10% of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the fair market value per Share on the date of grant; and (B)
granted to any other Employee, the per share exercise price shall be no less
than the fair market value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option, the per Share exercise price
shall be no less than the fair market value per Share on the date of grant and,
with respect to Options granted to non-Employee directors as provided in Section
6 of the Plan, shall be equal to the fair market value per Share on the date of
the grant.
(b) Notwithstanding Section 9(a) of the Plan, in the event the Company
substitutes an Option for a stock option issued by another corporation in
connection with a corporate transaction, such as a merger, consolidation,
acquisition of property or stock, separation (including a spin-off or other
distribution of stock or property), reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or partial or complete liquidation involving the Company and such other
corporation, the exercise price of such substituted Option shall be as
determined by the Committee in its discretion (subject to the provisions of
Section 424(a) of the Code in the case of a stock option that was intended to
qualify as an "incentive stock option") to preserve, on a per share basis
immediately after such corporate transaction, the same ratio of fair market
value per option share to exercise price per share which existed immediately
prior to such corporate transaction under the option issued by such other
corporation.
(c) The fair market value per Share shall be determined by the Committee in
its discretion; provided, however, that if the Common Stock is listed on a stock
exchange, the fair market value per Share shall be the closing price on such
exchange on the date of grant of the Option, as reported in the Wall Street
Journal.
(d) The consideration to be paid for the Shares to be issued upon exercise of
an Option shall consist of cash or check in an amount equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised or such
other consideration as the Committee shall determine. Payment may also be made,
in the discretion of the Committee, by delivery (including by facsimile) to the
Company or its designated agent of an executed irrevocable option exercise form
together with irrevocable instructions to a broker-dealer designated by the
Company to sell (or margin) a sufficient portion of the Shares and
-4-
<PAGE>
deliver the sale (or margin loan) proceeds directly to the Company to pay for
the exercise price; provided that Optionees subject to Section 16 of the
Exchange Act shall not be entitled to make payment by such method until either
the holders of a majority of the outstanding shares of the Company entitled to
vote have approved an amendment to the Plan permitting payment by such method or
counsel to the Company has advised the Committee that such approval is not
required by Rule 16b-3. For purposes of this Section 9(d), the exercise date of
such Option shall be the date on which such documents have been delivered to the
Company or its designated agent.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE. Any Option granted hereunder shall be exercisable
at such times and under such conditions as determined by the Committee,
including performance criteria with respect to the Company and/or the Optionee,
and as shall be permissible under the terms of the Plan. An Option may not be
exercised for a fraction of a Share. An Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised has
been received by the Company. Full payment may, as authorized by the Committee,
consist of any consideration and method of payment allowable under Section 9(d)
of the Plan.
(b) RIGHTS AS A SHAREHOLDER. Until the issuance, which in no event (except as
provided in Section 16 of the Plan) will be delayed more than thirty days from
the date of the exercise of the Option, of the stock certificate evidencing such
Shares (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Plan. Exercise
of an Option in any manner shall result in a decrease in the number of Shares
which thereafter may be available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is exercised.
11. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF STATUS AS AN EMPLOYEE. If any Employee ceases to be in
Continuous Status as an Employee, other than (i) by reason of retirement or (ii)
as a result of a termination by the Company for deliberate, willful or gross
misconduct, any Option held by such Employee shall be exercisable within twelve
months after the date he ceases to be in Continuous Status as an Employee (or
such longer period as the Committee shall determine) to the extent the Employee
was entitled to exercise such Option as of the date of his termination of
employment.
(b) RETIREMENT OF OPTIONEE. If any Employee ceases to be in Continuous Status
as an Employee by reason of such Employee's retirement, any Option held by such
Employee shall be exercisable within thirty-six months after the date he ceases
to be in Continuous Status as an Employee to the extent that he was entitled to
exercise such Option as of the date of his retirement. For purposes of the Plan,
"retirement" means termination of services as an Employee at or after age 65
other than as a result of deliberate, willful or gross misconduct.
-5-
<PAGE>
(c) TERMINATION FOR MISCONDUCT. If any Employee ceases to be in Continuous
Status as an Employee as a result of a termination by the Company for
deliberate, willful or gross misconduct, any Option held by such Employee shall
terminate immediately and automatically on the date of his termination as an
Employee unless otherwise determined by the Committee.
(d) DEATH OF OPTIONEE. Subject to the provisions of the Plan, any Option held
by an Optionee at the time of his death may be subsequently exercised by the
legal representative of the Optionee's estate or by the person or persons who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent the Optionee was entitled to exercise such Option as of the date of
his death. In the event of the death of an Optionee during the final three
months of the time period specified in Section 11(a) or 11(b), as applicable,
the Option may be exercised, at any time within three 3 months following the
date of his death, by the Optionee's estate or by a person or persons who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the Optionee was entitled to exercise such Option as of the date of
his death.
(e) EXPIRATION OF OPTIONS. None of the events described above in this Section
11 shall extend the period of exercisability of the Option beyond the expiration
date thereof. To the extent that an Optionee was not entitled to exercise an
Option on the date he ceased to be in Continuous Status as an Employee or the
date of the Optionee's death, or if he does not exercise such Option (which he
was entitled to exercise) within the time period specified in this Section 11,
the Option shall terminate and become null and void. Notwithstanding the
provisions of Section 11(a), 11(b) or 11(d) of the Plan, no Options shall be
exercisable after an Optionee ceases to be in Continuous Status as an Employee
in the event the Optionee shall have during the time period in which his Options
are exercisable, engaged in deliberate action which, as determined by the
Committee, causes substantial harm to the interests of the Company or
constitutes a breach of any obligation of the Optionee to the Company. In such
event, the Optionee shall forfeit all rights to any unexercised Option as of the
date of such deliberate action.
12. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent and distribution or, in the case of a
Nonqualified Stock Option, pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder, and, except with respect to a
qualified domestic relations order as aforesaid, may be exercised, during the
lifetime of the Optionee, only by the Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CHANGE IN CONTROL; DISSOLUTION.
(a) In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Shares or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the rights of Optionees under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of Shares which may thereafter be issued in connection
with Options, (ii) the number and kind of Shares issued or issuable in respect
of outstanding Options, (iii) the maximum number of Shares with respect to which
Options may be granted to any Employee, (iv) the number of shares of
-6-
<PAGE>
Common Stock to be granted to non-Employee directors pursuant to Section 6 of
the Plan, and (v) the vesting, exercisability, exercise price, grant price, or
purchase price relating to any Option or, if deemed appropriate, make provision
for a cash payment with respect to any outstanding Option; provided, however,
that (a) each such adjustment with respect to an Incentive Stock Option shall
comply with the rules of Section 424(a) of the Code (or any successor provision)
and (b) in no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder other than an "incentive stock option"
as defined in Section 422 of the Code; and provided further, however, that
conversion of any convertible securities of the Company shall not be deemed to
dilute or enlarge the rights of Optionees under the Plan. Such adjustment shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) If: (1) any person (as defined for purposes of Section 13(d) and 14(d) of
the Exchange Act, but excluding the Company and any of its wholly-owned
subsidiaries) acquires direct or indirect ownership of 50% or more of the
combined voting power of the then outstanding securities of the Company as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise; or (2) the shareholders of the Company
approve (A) any consolidation or merger of the Company in which the Company is
not the surviving corporation (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of the surviving corporation immediately after the
merger), or (B) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of the assets
of the Company to an entity which is not a wholly-owned subsidiary of the
Company, then the exercisability of each Option outstanding under the Plan shall
be automatically accelerated so that each such Option shall, immediately prior
to the specified effective date of any of the foregoing transaction, become
fully exercisable with respect to the total number of Shares subject to such
Option and may be exercisable for all or any portion of such Shares. Upon the
consummation of any of such transaction, all outstanding Options under the Plan
shall, to the extent not previously exercised, either be assumed by the
successor corporation or parent thereof or be replaced with a comparable option
to purchase shares of the capital stock of the successor corporation or parent
thereof.
(c) In the event of the proposed dissolution or liquidation of the Company,
all outstanding Options will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Committee.
14. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall be the date
on which the Committee makes the determination granting such Option or such
later date as the Committee may specify. Notice of the determination shall be
given to each Employee to whom an Option is so granted within a reasonable time
after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Subject to the limitations set forth in Section 6 of the Plan, the
Committee may amend or terminate the Plan from time to time in such respects as
the Committee may deem advisable; provided that, the following revisions or
amendments shall require approval of the Company's shareholders in
-7-
<PAGE>
accordance with Section 18 of the Plan (i) any increase in the number of Shares
subject to the Plan, other than in connection with an adjustment under Section
13 of the Plan; (ii) any change in the designation of the class of persons
eligible to be granted Options; (iii) any material increase in the benefits
accruing to participants under the Plan; or (iv) any increase in the maximum
number of Shares with respect to which Options may be granted to any Employee.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination or
modification of the Plan shall in any manner affect any Option theretofore
granted without the consent of the Optionee, except that the Committee may amend
or modify the Plan in a manner that does affect Options theretofore granted upon
a finding by the Committee that such amendment or modification is in the best
interest of shareholders or Optionees.
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the advice of counsel for the Company with
respect to such compliance. As a condition to the exercise of an Option, the
Company may require the person exercising such Option to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by law.
17. OPTION AGREEMENTS. Options shall be evidenced by written option agreements
in such form as the Committee shall approve. Such agreements shall contain such
provisions, including, without limitation, restrictions upon the exercise of the
Option, as the Committee shall determine.
18. SHAREHOLDER APPROVAL. The effectiveness of the Plan shall be subject to
approval by the shareholders of the Company, in a separate vote, within twelve
months after the date the Plan is adopted. The approval of such shareholders of
the Company shall be solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder, and shall
be obtained, at a duly held shareholders' meeting, by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon.
19. INDEMNIFICATION OF COMMITTEE MEMBERS. In addition to such other rights of
indemnification as they may have as Directors, the members of the Committee
shall be indemnified by the Company against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved to the extent required by and in the manner provided
by the Articles of Incorporation and Bylaws of the Company), or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member did not act in good faith and in a manner
he reasonably believed to be in and not opposed to the best interests of the
Company; provided
-8-
<PAGE>
that within 60 days after institution of any such action, suit or proceeding
a Committee member shall in writing offer the Company the opportunity, at its
own expense, to handle and defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other stock option or incentive or other compensation plans in effect for the
Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
21. HEADINGS. Headings of Articles and Sections hereof are inserted for
convenience and reference; they constitute no part of the Plan.
22. WITHHOLDING. The Company and any Subsidiary may, to the extent permitted by
law, deduct from any payments or transfers of any kind due to an Optionee the
amount of any federal, state, local or foreign taxes required by any
governmental regulatory authority to be withheld or otherwise deducted with
respect to the Options or the Optioned Stock.
23. GOVERNING LAW. The Plan, the Options granted hereunder and all related
matters shall be governed by, and construed and enforced in accordance with, the
laws of the State of Florida.
24. COMPLIANCE WITH RULE 16b-3. It is the intent of the Company that this Plan
comply in all respects with Rule 16b-3 (or any successor rule) in connection
with any Option granted to a person who is subject to Section 16 of the Exchange
Act. Accordingly, any provision of this Plan or any Option agreement that does
not comply with the requirements of Rule 16b-3 (or any successor rule) as then
applicable to any such person shall be construed or deemed amended to the extent
necessary to conform to such requirements, except that such automatic amendment
shall not apply to any other participant in the Plan who is not (at the time of
such application) subject to Section 16 of the Exchange Act. Any action taken by
the Committee pursuant to the Plan that does not comply with the requirements of
Rule 16b-3 (or any successor rule) shall be null and void.
-9-
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT"), dated November 28, 1997
(the "EFFECTIVE DATE"), is entered into between IVAX Corporation (the "COMPANY")
and Phillip Frost, M.D. (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 (the "INITIAL TERM") commencing on the Effective
Date and expiring on the fifth anniversary of the Effective Date. 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 second anniversary of the fifth anniversary of the Effective Date
unless at least six months prior to any such anniversary, the Executive or the
Company shall have delivered to the other 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 Chief Executive Officer of
the Company and shall have powers and authority superior to any other officer or
employee of Company. The Executive shall solely report to and solely be subject
to the supervision and direction of the Board of Directors of the Company or a
committee thereof (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, charitable or
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
the Company's principal place of business, which is currently located in Miami,
Florida, except for travel reasonably necessary in connection with the Company's
business.
2. COMPENSATION.
(A) BASE SALARY. The Executive will be paid a base salary at the annual
rate of not less than $575,000 (the "BASE SALARY"). The Base Salary shall be
paid in installments consistent with the Company's normal payroll policies. The
Company shall review the Base Salary annually 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.
(B) BONUS. The Executive shall be entitled to participate in all bonus
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) 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.
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 and including air-fare for his
spouse if a legitimate business reason exists for her to accompany him) 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
2
<PAGE>
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.
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, 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 County, Florida, 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; or
(v) any failure by the Company to comply with and satisfy the
penultimate sentence of Section 7(c)(iii).
For purposes of this Section, any good faith determination of Good Reason made
by the Executive shall be conclusive.
3
<PAGE>
(C) TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated by the Company at any time 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)).
(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 his Base Salary through the
termination date.
(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)).
4
<PAGE>
5. RESTRICTIVE COVENANTS.
(A) NONDISCLOSURE. The Executive acknowledges that he has executed the
Company's standard form of Confidentiality Agreement and that such agreement is
in full force and effect.
(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 5(a) or 5(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.
6. CONFLICTS WITH EXISTING AGREEMENTS; COMPANY POLICIES.
(A) 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.
(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, including without limitation the
Company's Code of Conduct, as in effect from time to time.
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
5
<PAGE>
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. Phillip Frost
125 East San Marino Drive
Miami Beach, Florida 33139
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.
6
<PAGE>
(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 Section 4 shall be the Executive's
exclusive remedy for any termination of this Agreement pursuant to such section.
(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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
IVAX CORPORATION
/S/ DAVID R. BETHUNE
--------------------------------------
David R. Bethune
President and Chief Operating Officer
EXECUTIVE:
/S/ PHILLIP FROST, M.D.
-----------------------
Phillip Frost, M.D.
7
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT"), dated November 28, 1997
(the "EFFECTIVE DATE"), is entered into among IVAX Corporation ("IVAX"), Norton
Healthcare Limited (the "COMPANY") and Isaac Kaye (the "EXECUTIVE").
RECITAL
The Boards of Directors of IVAX and the Company desire that the Company
employ the Executive and 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 (the "INITIAL TERM") commencing on the Effective
Date and expiring on the fifth anniversary of the Effective Date. 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 second anniversary of the fifth anniversary of the Effective Date
unless at least six months prior to any such anniversary, the Executive or the
Company shall have delivered to the other 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 Chairman of Norton
Healthcare Limited. 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 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.
(C) PLACE OF PERFORMANCE. The Executive will perform his duties from
the Company's principal place of business, which is currently located in Harlow,
England, except for travel reasonably necessary in connection with the Company's
business.
<PAGE>
2. COMPENSATION.
(A) BASE SALARY. The Executive will be paid a base salary at the annual
rate of not less than $575,000 minus the cost to the Company of providing the
benefits described in Section 3(e) below (such difference, the "BASE SALARY").
The Base Salary shall be paid in installments consistent with the Company's
normal payroll policies. The Company shall review the Base Salary annually 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.
(B) BONUS. The Executive shall be entitled to participate in all bonus
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) 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 of IVAX from time to time in its discretion. In making any
determinations concerning the award of stock options to the Executive, the Board
of Directors of IVAX will apply the same criteria as it applies in making awards
to the key executives of IVAX.
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 and including air-fare for his
spouse if a legitimate business reason exists for her to accompany him) 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 England.
(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
England.
(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 England; provided that the Executive shall be entitled to at
least four weeks paid vacation each year.
2
<PAGE>
(E) AUTOMOBILE. The Company shall provide to the Executive for his use
an automobile of the same class as presently provided to him by the Company and
shall pay all expenses associated with the Executive's use of the automobile,
including insurance, maintenance, fuel and garaging, and shall also pay the
costs of a chauffeur for the automobile. Upon termination of this Agreement, the
Executive shall return the automobile to the Company.
4. TERMINATION.
(A) TERMINATION WITHOUT CAUSE. Notwithstanding any other provision of
this Agreement, the Board of Directors of IVAX and of the Company 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, 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 or about London, England, 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; or
3
<PAGE>
(v) any failure by the Company to comply with and satisfy the
penultimate sentence of Section 7(c)(iii).
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 or IVAX at any time
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 of IVAX 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 or IVAX that cause exists under
clause (ii) of the preceding sentence, the IVAX shall cause a special meeting of
the Board of Directors of IVAX to be called and held at a time mutually
convenient to the Board of Directors of IVAX 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
of IVAX. 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)).
(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 his Base Salary through the
termination date.
(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
4
<PAGE>
liability hereunder (other than for reimbursement of business expenses incurred
prior to the termination date, in accordance with Section 3(a)).
5. RESTRICTIVE COVENANTS.
(A) NONDISCLOSURE. The Executive acknowledges that he has executed the
Company's standard form of Confidentiality Agreement and that such agreement is
in full force and effect.
(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 5(a) or 5(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.
6. CONFLICTS WITH EXISTING AGREEMENTS; COMPANY POLICIES.
(A) 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.
(B) The Executive acknowledges that he will be subject to and required
to abide by the policies and procedures of IVAX and the Company applicable to
senior executives as in effect from time to time, including without limitation
IVAX's Code of Conduct, as in effect from time to time.
5
<PAGE>
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 IVAX: IVAX Corporation
4400 Biscayne Boulevard
Miami, Florida 33137
United States of America
Attention: General Counsel
If to the Company Norton Healthcare Limited
Gemini House, Flex Meadow
Harlow, Essex CM19 5TJ
England
If to the Executive: Isaac Kaye
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
6
<PAGE>
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 payment 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 section.
(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) CURRENCY. The Base Salary and other amounts to be paid to the
Executive pursuant to this Agreement shall be paid in British Pounds Sterling.
To determine the amount in British Pounds Sterling of any payment designated in
United States Dollar under this Agreement, the exchange rate quoted in THE WALL
STREET JOURNAL on the date immediately preceding the date that the payment is
required to be made shall be used. If convenient, the parties may agree on a
fixed exchange rate to be used during any calendar year or shorter period,
provided that at the end of the year or such shorter period appropriate
adjustments are made to reflect the actual exchange rates at the time that
payments were made.
(I) 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
7
<PAGE>
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.
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 of the Board and
Chief Executive Officer
NORTON HEALTHCARE LIMITED
/S/ JON CLOSE
-------------------------
Jon Close
Managing Director
EXECUTIVE:
/S/ ISAAC KAYE
-------------------------
Isaac Kaye
8
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT"), dated November 28, 1997
(the "EFFECTIVE DATE"), is entered into between IVAX Corporation (the "COMPANY")
and David R. Bethune (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 (the "INITIAL TERM") commencing on the Effective
Date and expiring on the fifth anniversary of the Effective Date. 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 second anniversary of the fifth anniversary of the Effective Date
unless at least six months prior to any such anniversary, the Executive or the
Company shall have delivered to the other 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 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. The Executive shall have the
right to (i) serve on civic, charitable or 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
the Company's principal place of business, which is currently located in Miami,
Florida, except for travel reasonably necessary in connection with the Company's
business.
2. COMPENSATION.
(A) 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. The
Company shall review the Base Salary annually 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.
(B) BONUS. The Executive shall be entitled to participate in all bonus
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) 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.
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 and including air-fare for his
spouse if a legitimate business reason exists for her to accompany him) 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
2
<PAGE>
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.
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, 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 County, Florida, 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; or
(v) any failure by the Company to comply with and satisfy the
penultimate sentence of Section 7(c)(iii).
For purposes of this Section, any good faith determination of Good Reason made
by the Executive shall be conclusive.
3
<PAGE>
(C) TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated by the Company at any time 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)).
(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 his Base Salary through the
termination date.
(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)).
4
<PAGE>
5. RESTRICTIVE COVENANTS.
(A) NONDISCLOSURE. The Executive acknowledges that he has executed the
Company's standard form of Confidentiality Agreement and that such agreement is
in full force and effect.
(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 5(a) or 5(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.
6. CONFLICTS WITH EXISTING AGREEMENTS; COMPANY POLICIES.
(A) 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.
(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, including without limitation the
Company's Code of Conduct, as in effect from time to time.
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
5
<PAGE>
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
1061 S.W. 156 Avenue
Pembroke Pines, Florida 33027
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.
6
<PAGE>
(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 Section 4 shall be the Executive's
exclusive remedy for any termination of this Agreement pursuant to such section.
(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. This Agreement shall supersede the
Employment Agreement, dated July 28, 1997, between the Company and the Employee;
except that that the Company shall remain obligated to the Executive under
Section 3(e) of the July 28, 1997 Employment Agreement.
7
<PAGE>
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 of the Board and
Chief Executive Officer
EXECUTIVE:
/S/ DAVID R. BETHUNE
-------------------------
David R. Bethune
8
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT"), dated January 19, 1998
(the "EFFECTIVE DATE"), is entered into between IVAX Corporation (the "COMPANY")
and Jane Hsiao, Ph.D. (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 (the "INITIAL TERM") commencing on the Effective
Date and expiring on the fifth anniversary of the Effective Date. 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 second anniversary of the fifth anniversary of the Effective Date
unless at least six months prior to any such anniversary, the Executive or the
Company shall have delivered to the other 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 Chief Technical Officer of the
Company and shall have such powers and authority as may be given to her 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 Board of Directors and such officers of the
Company as the Board of Directors may designate. The Executive shall devote her
full business time and energies to the business and affairs of the Company and
shall use her best efforts, skills and abilities to promote the interests of the
Company and to diligently and competently perform the duties of her position.
The Executive shall have the right to (i) serve on civic, charitable or
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 her duties from
the Company's principal place of business, which is currently located in Miami,
Florida, except for travel reasonably necessary in connection with the Company's
business.
2. COMPENSATION.
(A) BASE SALARY. The Executive will be paid a base salary at the annual
rate of not less than $300,000 (the "BASE SALARY"). The Base Salary shall be
paid in installments consistent with the Company's normal payroll policies. The
Company shall review the Base Salary annually 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.
(B) BONUS. The Executive shall be entitled to participate in all bonus
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) 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.
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 and including air-fare for her
spouse if a legitimate business reason exists for her to accompany her) actually
and necessarily incurred by the Executive on behalf of the Company in connection
with the performance of her 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.
2
<PAGE>
(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.
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, 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 County, Florida, 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; or
(v) any failure by the Company to comply with and satisfy the
penultimate sentence of Section 7(c)(iii).
3
<PAGE>
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 at any time 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 her 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 her
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 her 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)).
(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 her Base Salary through the
termination date.
(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 her 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 her 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)).
4
<PAGE>
5. RESTRICTIVE COVENANTS.
(A) NONDISCLOSURE. The Executive acknowledges that she has executed the
Company's standard form of Confidentiality Agreement and that such agreement is
in full force and effect.
(B) NONSOLICITATION OF EMPLOYEES. While employed by the Company and for
a period of two years thereafter, Executive shall not directly or indirectly,
for herself 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 5(a) or 5(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 her 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.
6. CONFLICTS WITH EXISTING AGREEMENTS; COMPANY POLICIES.
(A) The Executive represents and warrants that she 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 her
duties under this Agreement, including but not limited to contracts related to
previous employment containing confidentiality or noncompete covenants.
(B) The Executive acknowledges that she 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, including without limitation the
Company's Code of Conduct, as in effect from time to time.
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
5
<PAGE>
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: Jane Hsiao, Ph.D.
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.
6
<PAGE>
(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 her 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 Section 4 shall be the Executive's
exclusive remedy for any termination of this Agreement pursuant to such section.
(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, her 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. This Agreement shall supersede the
Employment Agreement, dated July 28, 1997, between the Company and the Employee;
except that that the Company shall remain obligated to the Executive under
Section 3(e) of the July 28, 1997 Employment Agreement.
7
<PAGE>
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 of the Board and
Chief Executive Officer
EXECUTIVE:
/s/ JANE HSIAO, PH.D.
---------------------------
Jane Hsiao, Ph.D.
8
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
(CHANGE IN CONTROL)
This Employment Agreement, dated as of _____, 199_, is entered into
between IVAX Corporation, a Florida corporation (the "COMPANY"), and ________
(the "EXECUTIVE").
The Board of Directors of the Company (the "BOARD"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control and to
provide the Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits expectations of the
Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
In consideration of the foregoing and the mutual promises contained
below, the parties agree as set forth below.
1. CERTAIN DEFINITIONS.
(a) "EFFECTIVE DATE" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of Control occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the company is terminated
prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect the
Change of Control or (ii) otherwise arose in connection with or in anticipation
of the Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
(b) "CHANGE OF CONTROL PERIOD" shall mean the period commencing on the
date hereof and ending on the third anniversary of such date; provided, however,
that commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "RENEWAL DATE") the Change of Control Period
shall be automatically
<PAGE>
extended so as to terminate three years from such Renewal Date, unless at least
60 days prior to the Renewal Date the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "CHANGE OF
CONTROL" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT")) (a "PERSON") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of
either (i) the then outstanding shares of common stock of the Company (the
"OUTSTANDING COMPANY COMMON STOCK") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "OUTSTANDING COMPANY VOTING SECURITIES");
provided, however, that the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant to
a reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of subsection (c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"INCUMBENT BOARD") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-1l of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such reorganization,
merger or consolidation, (i) more than 70% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
-2-
<PAGE>
reorganization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 40% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition, (A)
more than 70% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 40% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the
-3-
<PAGE>
period commencing on the Effective Date and ending on the third anniversary of
such date (the "EMPLOYMENT PERIOD").
4. TERMS OF EMPLOYMENT.
(A) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office which is the
headquarters of the Company and is less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(B) COMPENSATION.
(I) BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary ("ANNUAL BASE SALARY"), which shall be paid
in equal installments on a monthly or more frequent basis, at least equal to
twelve times the highest monthly base salary paid or payable to the Executive by
the Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not
-4-
<PAGE>
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "AFFILIATED COMPANIES" shall include any company
controlled by, controlling or under common control with the Company.
(II) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "ANNUAL BONUS") in cash at least equal to the
average annualized (for any fiscal year consisting of less than twelve full
months or with respect to which the Executive has been employed by the Company
for less than twelve full months) bonus paid or payable, including by reason of
any deferral, to the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal year in which
the Effective Date occurs (the "RECENT AVERAGE BONUS"). Each such Annual Bonus
shall be paid no later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(III) SPECIAL BONUS. In addition to Annual Base Salary and
Annual Bonus, if the Executive remains employed with the Company and its
affiliated companies through the six month anniversary of the Effective Date,
the Company shall pay to the Executive a special bonus (the "SPECIAL BONUS") in
recognition of the Executive's services during the crucial six-month transition
period following the Change of Control in cash equal to the sum of (A) the
Executive's Annual Base Salary and (B) the greater of (1) the Annual Bonus paid
or payable, including by reason of any deferral, to the Executive (and
annualized for any fiscal year consisting of less than twelve full months or for
which the Executive has been employed for less than twelve full months) for the
most recently completed fiscal year during the Employment Period, if any, and
(2) the Recent Average Bonus (such greater amount shall be hereinafter referred
to as the "HIGHEST ANNUAL BONUS"). The Special Bonus shall be paid no later than
30 days following the six-month anniversary of the Effective Date.
(IV) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practice, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 90-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
-5-
<PAGE>
(V) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(VI) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable employment
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(VII) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(VIII) OFFICE AND SUPPORT STAFF. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as provided generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(IX) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 90-day period immediately
preceding the Effective
-6-
<PAGE>
Date or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(X) PEER EXECUTIVES. For purposes of this Agreement,
references to "peer executives of the Company and its affiliated companies"
shall refer only to Executives based in the United States.
5. TERMINATION OF EMPLOYMENT.
(A) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the "DISABILITY
EFFECTIVE DATE"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "DISABILITY" shall mean the absence of
the Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to be
withheld unreasonably).
(B) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean (i) a material breach by the Executive of the Executive's obligations under
Section 4(a) (other than as a result of incapacity due to physical or mental
illness) which is demonstrably willful and deliberate on the Executive's part,
which is committed in bad faith or without reasonable belief that such breach is
in the best interests of the Company and which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach or (ii) the conviction of the Executive of a felony involving moral
turpitude.
(C) GOOD REASON; WINDOW PERIOD. The Executive's employment may be
terminated (i) during the Employment Period by the Executive for Good Reason or
(ii) during the Window Period by the Executive without any reason. For purposes
of this Agreement, the "WINDOW PERIOD" shall mean the 30-day period immediately
following the six month anniversary of the Effective Date. For purposes of this
Agreement, "GOOD REASON" shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting
-7-
<PAGE>
requirements), authority, duties or responsibilities as contemplated by Section
4(a) or any other action by the Company which results in a diminution in such
position (including any action which results in a dimunition of status, offices,
titles and reporting levels or requirements), authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B);
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 11(c), provided that such successor has received at least ten days prior
written notice from the Company or the Executive of the requirements of Section
11(c).
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(D) NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by the Executive without any reason during the Window Period or for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 12(b). For purposes of this Agreement, a "NOTICE OF
TERMINATION" means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date (which date
shall be not more than 15 days after the giving of such notice). The failure by
the Executive or the Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
(E) DATE OF TERMINATION. "DATE OF TERMINATION" means (i) if the
Executive's employment is terminated by the company for Cause, or by the
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of
-8-
<PAGE>
Termination or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(A) GOOD REASON OR DURING THE WINDOW PERIOD: OTHER THAN FOR CAUSE.
DEATH OR DISABILITY. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or Disability or the
Executive shall terminate employment either for Good Reason or without any
reason during the Window Period:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the Highest Annual Bonus and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, (3) the Special Bonus, if due
to the Executive pursuant to Section 4(b)(iii), to the extent not theretofore
paid and (4) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts described
in clauses (1), (2), (3) and (4) shall be hereinafter referred to as the
"ACCRUED OBLIGATIONS"); and
B. the amount (such amount shall be hereinafter
referred to as the "SEVERANCE AMOUNT") equal to the product of (1) two and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; provided, however, that if the Special Bonus has not been paid to the
Executive, such amount shall be increased by the amount of the Special Bonus;
and, provided further, that such amount shall be reduced by the present value
(determined as provided in Section 280G(d)(4) of the Internal Revenue Code of
1986, as amended (the "CODE")) of any other amount of severance relating to
salary or bonus continuation to be received by the Executive upon termination of
employment of the Executive under any agreement, severance plan, policy or
arrangement of the Company; and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b)(v) if the
Executive's employment had
-9-
<PAGE>
not been terminated in accordance with the most favorable plans, practices,
programs or policies of the Company and its affiliated companies as in effect
and applicable generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be hereinafter referred to as
"WELFARE BENEFIT CONTINUATION"). For purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such period;
and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided or which
the Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally thereafter with respect to other peer
executives of the Company and its affiliated companies and their families (such
other amounts and benefits shall be hereinafter referred to as the "OTHER
BENEFITS").
(B) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (which shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination of an amount equal to the greater of (A) the
sum of the Severance Amount, and (B) the present value (determined as provided
in Section 260G(d)(4) of the Code) of any cash amount to be received by the
Executive or the Executive's family as a death benefit pursuant to the terms of
any plan, policy or arrangement of the Company and its affiliated companies, but
not including any proceeds of life insurance covering the Executive to the
extent paid for directly or on a contributory basis by the Executive (which
shall be paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "DEATH BENEFITS").
-10-
<PAGE>
(C) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of Accrued Obligations (which shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Disability Benefits (as defined below)) and (ii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the greater of (A) the sum of the Severance Amount, and (B) the
present value (determined as provided in Section 280G(d)(4) of the Code) of any
cash amount to be received by the Executive as a disability benefit pursuant to
the terms of any plan, policy or arrangement of the Company and its affiliated
companies, but not including any proceeds of disability insurance covering the
Executive to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the benefits
included in this clause (B) shall be hereinafter referred to as the "DISABILITY
BENEFITS").
(D) CAUSE; OTHER THAN FOR GOOD REASON OR DURING THE WINDOW PERIOD. If
the Executive's employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive Annual Base Salary
through the Date of Termination plus the amount of any compensation previously
deferred by the Executive, in each case to the extent theretofore unpaid. If the
Executive terminates employment during the Employment Period, excluding a
termination either for Good Reason or without any reason during the Window
Period, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
-11-
<PAGE>
8. FULL SETTLEMENT: RESOLUTION OF DISPUTES.
(a) The payment by the Company to the Executive of the amounts required
by this Agreement shall serve as a full settlement of any and all claims which
the Executive may have against the Company arising out of or in connection with
the termination of the Executive's employment by the Company.
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(ii), such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any dispute or contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any dispute or
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(c) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
6(a) as though such termination were by the Company without Cause or by the
Executive with Good Reason; provided, however, that the Company shall not be
required to pay any disputed amounts pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such court not to be
entitled.
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(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, but
determined without regard to
-12-
<PAGE>
any additional payments required under this Section 9) (a "PAYMENT") would be
subject to the excise tax imposed by section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "EXCISE TAX"), then the Executive shall be
entitled to receive an additional payment (a "GROSS-UP PAYMENT") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP (the "ACCOUNTING FIRM") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written opinion
that failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing
-13-
<PAGE>
of such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall: (i) give the Company
any information reasonably requested by the Company relating to such claim, (ii)
take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company, (iii) cooperate with the Company in good
faith in order effectively to contest such claim, and (iv) permit the Company to
participate in any proceedings relating to such claim; provided, however, that
the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 9(c), the Company
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the
-14-
<PAGE>
Company pursuant to Section 9(c), a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force
-15-
<PAGE>
or effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company: IVAX Corporation
4400 Biscayne Blvd.
Miami, Florida 33137
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, may be terminated by either the Executive or
the Company at any time. Moreover, if prior to the Effective Date, the
Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement. From and after the Effective Date,
this Agreement shall supersede any prior agreement between the parties with
respect to the subject matter hereof.
-16-
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
IVAX Corporation
____________________________________________
By:
Title:
____________________________________________
Executive
-17-
<PAGE>
Schedule 10.11
The Company has entered into identical employment agreements (change in
control), a form of which is attached as Exhibit 10.11, with the following
executive officers:
Thomas E. Beier (Senior Vice President - Finance and Chief Financial Officer)
David R. Bethune (President and Chief Operating Officer)
Samuel Broder, M.D. (Senior Vice President - Research and Development and Chief
Scientific Officer)
Phillip Frost, M.D. (Chairman of the Board and Chief Executive Officer)
Jane Hsiao, Ph.D. (Vice Chairman - Technical Affairs)
Isaac Kaye (Deputy Chief Executive Officer and Chief Executive Officer of Norton
Healthcare Limited)
In addition, the Company has entered into identical agreements with four other
officers, except that, for two of such agreements, the employment period
following a change of control is two years and the severance benefit multiple is
equal to 2.
-18-
EXHIBIT 13.1
-------------------
IVAX CORPORATION
1997 ANNUAL REPORT
-------------------
<PAGE>
TO OUR SHAREHOLDERS AND EMPLOYEES:
If 1996 is to be remembered as a year of challenge for IVAX, let 1997 be
remembered as a year of constructive change. In 1997, we developed and
implemented a comprehensive plan that changed the face of our company and
positioned it for a significant improvement in 1998 and beyond. The plan has two
parts and, in some respects, it is ongoing. Part one was to improve our
operations through divestitures, restructuring and cost reduction initiatives;
part two was to refocus our energies and resources on businesses in which we
have special strengths and substantial scientific expertise.
DIVESTITURES
Our plan included the divestiture of certain businesses; as a result, we are now
a smaller, more focused company. In the 1997 second quarter, we sold McGaw, our
intravenous products business. In early 1998, we completed the process we began
in 1997 of selling our specialty chemicals businesses. We have also expressed
our intention to sell our personal care products business and expect to complete
that disposition in 1998. In December 1997, we announced our intention to
spin-off our veterinary business, DVM Pharmaceuticals, by combining it with a
publicly-traded shell corporation. Under the terms of that agreement, IVAX will
own about 80% of the combined company's outstanding common stock while the
remainder will be held by public investors. This arrangement allows the DVM
management to pursue its independent goals and objectives while benefiting from
the synergies available as a member of the IVAX family of companies.
RESTRUCTURING
We also restructured and improved our manufacturing, sales, administrative and
distribution functions. We closed our Shreveport, Louisiana and Syosset, New
York manufacturing facilities and our administrative and packaging facility in
Fort Lauderdale, Florida, consolidating the functions performed there into other
existing facilities. We consolidated our distribution operations into a more
efficient, centrally located facility and expect to close or sell several other
underutilized facilities. These actions are expected to lower our costs to
manufacture and distribute products.
Also during 1997, we streamlined our U.S. generic drug product portfolio by
weeding out lower margin products; this process is ongoing.
MANAGEMENT
Additional talent in the form of experienced pharmaceutical industry managers
has been added at the corporate level, at Zenith Goldline, our domestic generic
drug subsidiary, and at Galena, our 74% owned subsidiary in the Czech Republic.
We also hired key sales and marketing professionals at Zenith Goldline in an
effort to improve customer relations and service.
COST REDUCTION
During 1997, we implemented stringent cost reduction measures and reduced
staffing levels at all of our operating units, including our corporate
headquarters. Zenith Goldline now has approximately one-half of the personnel it
employed a year ago. At our corporate headquarters in Miami, we eliminated 30%
of the positions that existed at the beginning of 1997. Other subsidiaries have
significantly reduced staff as well.
<PAGE>
As a result of divestitures, facility consolidations and workforce reductions,
IVAX lowered worldwide staff from approximately 8,100 at the end of 1996 to
approximately 4,500 at the end of 1997.
FOCUS
Improving our operations and reducing our cost structure was only part of our
plan. We intend to develop our business by focusing primarily on certain key
areas: oncology and respiratory diseases and specialty generics products. Our
strategy is to leverage our expertise and talent in each of these areas. In
oncology, we intend to build a franchise around our paclitaxel product,
Paxene/Registered trademark/. Although we have been delayed in our attempt to
launch Paxene in the United States, we are nonetheless continuing our efforts to
bring this product to market as soon as possible. We have filed proprietary drug
applications with regulatory authorities in Europe and a generic drug
application with the United States Food and Drug Administration. In addition,
our research and development group has made exciting progress on an orally
effective form of Paxene which currently is in human trials. We have also
implemented an aggressive screening program to in-license other oncology
compounds.
In the respiratory area, our goal is to expand our participation in the growing
asthma market by leveraging our drug delivery device expertise. We receive
significant royalties from our worldwide license agreement with Glaxo Wellcome
for the use of our proprietary Easi-Breathe/Trademark/ breath-activated inhaler
with certain Glaxo asthma compounds. Through our United Kingdom subsidiary,
Norton Healthcare, we received marketing clearance in France and Ireland for the
world's first CFC-free metered-dose inhaler for the asthma medication,
BECLOMETHASONE DIPROPIONATE. We are also developing a number of respiratory
products using CFC-free propellants and a multi-dose dry powder metered-dose
inhaler. Finally, we are developing a new molecule, still at the pre-clinical
stage, which shows promise as a totally new approach to treating asthma.
Our strategy to improve our worldwide generic drug business is to realize higher
margins through the development and marketing of specialty generic drugs. While
we will continue to offer other important generic drugs that fulfill our
customers' needs, we will emphasize the development of products with significant
barriers to entry because they are difficult to formulate or manufacture, they
involve regulatory challenges or potential patent challenges, or for which raw
material supplies are problematic. Developing and marketing these products
should mitigate the pricing pressures faced by common generic products.
CONCLUSION
Together, we hold shares in a very different company from the IVAX of 1997, a
year of constructive change. Our company is now smaller, more efficiently
organized and more disciplined. I firmly believe that these changes, some of
which are ongoing, have laid the groundwork for our turnaround in 1998.
Sincerely,
Phillip Frost, M.D.
Chairman & Chief Executive Officer
<PAGE>
TABLE OF CONTENTS
Selected Financial Data 1
Management's Discussion and Analysis of Financial Condition
and Results of Operations 2
Report of Independent Certified Public Accountants 16
1997 Consolidated Financial Statements 17
Directors and Officers 47
Common Stock and Investor Information 48
IVAX Corporation, headquartered in Miami, Florida, is a holding company with
subsidiaries engaged primarily in the research, development, manufacture and
marketing of generic and branded pharmaceuticals.
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
(in thousands, except per share data) (1) (2)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net revenues $ 602,110 $ 662,587 $ 788,988 $ 661,098 $ 606,945
Income (loss) from continuing
operations (3) (219,534) (134,989) 94,319 57,941 100,102
Income (loss) from discontinued
operations (4) (8,701) (23,690) 20,482 31,931 7,880
Net income (loss) (233,254) (160,752) 114,835 89,049 99,354
Basic earnings (loss) per common
share:
Continuing operations (3) (1.81) (1.12) .81 .51 .91
Discontinued operations (4) (.07) (.19) .18 .28 .07
Net earnings (loss) (1.92) (1.33) .99 .78 .90
Diluted earnings (loss) per
common share:
Continuing operations (3) (1.81) (1.12) .79 .46 .81
Discontinued operations (4) (.07) (.19) .17 .26 .06
Net earnings (loss) (1.92) (1.33) .96 .71 .81
Weighted average number of
common shares outstanding:
Basic 121,496 120,949 116,065 113,565 110,364
Diluted 121,496 120,949 119,539 124,675 123,058
Cash dividends per common share $ - $ .05 $ .08 $ .06 $ .04
BALANCE SHEET DATA
Working capital (5) $ 238,918 $ 415,927 $ 354,733 $ 265,656 $ 261,602
Total assets 790,736 1,333,648 1,184,828 946,313 770,150
Total long-term debt, net of
current portion 94,193 442,819 210,759 162,305 130,708
Shareholders' equity 435,039 695,128 789,172 634,456 527,772
Book value per common share (6) 3.58 5.72 6.69 5.56 4.65
<FN>
(1) Figures have been restated to reflect the acquisition of Zenith
Laboratories, Inc. in 1994 which was accounted for under the pooling of
interests method of accounting. The March 1, 1996 acquisition of Elvetium
S.A. (Argentina), Alet Laboratories S.A.E.C.I. y E. and Elvetium S.A.
(Uruguay), (collectively "Elvetium"), and the September 30, 1995
acquisition of Pharmatop Limited, which were accounted for under the
pooling of interests method of accounting, were recorded as of January 1,
1996 and 1995, respectively. Historical figures have not been restated to
give retroactive effect to the Elvetium and Pharmatop Limited acquisitions
due to the immateriality of the related amounts. Figures include the
results of the following businesses acquired by purchase since their
respective acquisition dates: ImmunoVision, Inc. on July 17, 1995; and 60%
of the shares of Galena a.s., on July 25, 1994 (subsequently increased
through open market purchases to 74%).
(2) Figures have been restated to reflect the classification of IVAX's
intravenous products, personal care products and specialty chemicals
businesses as discontinued operations.
(3) Includes restructuring costs of $14,274 and $5,324 and asset write-downs
of $23,814 and $63,749 in 1997 and 1996, respectively.
(4) Includes asset write-downs of $48,442 in 1996 and net gain on the sales of
the intravenous products and specialty chemicals businesses of $12,623 in
1997.
(5) Excludes net assets of discontinued operations.
(6) Assumes conversion of Zenith Laboratories, Inc.'s cumulative convertible
preferred stock in 1994 and 1993.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the 1997 Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements included on pages 17 to 46 of this Annual
Report. 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. These factors may cause IVAX's results to differ materially from the
forward looking statements made in this report or otherwise made by or on
behalf of IVAX.
Results for the three years ending December 31, 1997 have been restated
to reflect the classification of certain businesses as discontinued operations.
See "Discontinued Operations" for a further discussion. Additionally, the
diagnostics business' 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
OVERVIEW
IVAX's operations are conducted through subsidiaries involved primarily
in generic and branded pharmaceuticals. Presently, a significant portion of
IVAX's revenues and gross profits are generated from sales of generic
prescription and over-the-counter pharmaceutical products. IVAX's future success
is largely dependent upon its ability to develop, obtain approval for,
efficiently manufacture, and market, in the short term, commercially viable
generic pharmaceutical products, and in the long term, commercially viable
generic and branded pharmaceutical products.
In the short term, IVAX's revenues and profits may vary significantly
from period to period, as well as in comparison to corresponding prior periods,
as a result of regulatory and competitive factors unique to the generic
pharmaceutical industry. Such factors include the timing of new generic drug
approvals received by IVAX, the number and timing of generic drug approvals for
competing products, the timing of IVAX's initial shipments of newly approved
generic drugs, strategies adopted by brand name companies to maintain market
share, and IVAX's cost of manufacturing. The first company to receive regulatory
approval for and to introduce a generic drug is usually able to capture
significant market share from the branded drug and to achieve relatively high
market share, revenues and gross profits from sales of the drug. As other
generic versions of the same drug enter the market, however, sales volumes,
market share, prices, revenues and gross profits decline, sometimes
significantly. In addition, the initial shipments by the first company to
introduce a generic drug are often significant as customers fill their initial
inventory requirements.
Because of these competitive factors, IVAX has determined to emphasize
the development of generic pharmaceutical products that are expected to
encounter less intensive competition, such as drugs which are difficult to
formulate or manufacture, which involve regulatory challenges or potential
patent challenges, or for which limited raw material suppliers exist. IVAX
2
<PAGE>
believes that, by developing and marketing these specialty generics, it can
mitigate the pricing pressures facing other generic drugs. Developing specialty
generics involves a greater degree of risk than developing common generic
pharmaceutical products, and will require substantial time and resources. No
assurance can be given that IVAX will successfully build a consistent,
profitable pipeline of specialty generics or be able to obtain regulatory
approval to market any such products.
In addition to competition from other generic drug manufacturers, IVAX
faces competition from brand name companies as they increasingly sell their
products into the generic market directly by establishing, acquiring or forming
licensing or business arrangements with generic pharmaceutical companies. No
regulatory approvals are required for a brand name manufacturer to sell directly
or through a third party to the generic market, nor do such manufacturers face
any other significant barriers to entry into such market. In addition, brand
name companies are increasingly pursuing strategies to prevent or delay the
introduction of generic competition. These strategies include, among other
things, seeking to establish regulatory obstacles to the demonstration of the
bio-equivalence of generic drugs to their brand name counterparts and
instituting legal actions based on process or other patents that allegedly are
infringed by the generic products.
IVAX's pharmaceutical revenues may also be affected by the level of
reserves for estimated returns and inventory credits established by IVAX. The
custom in the pharmaceutical industry is generally to grant customers the right
to return purchased goods. In the generic pharmaceutical industry, this custom
has resulted in a practice of suppliers issuing inventory credits (also known as
shelf-stock adjustments) to customers based on the customers' existing inventory
following decreases in the price of the supplier's generic pharmaceutical
products. The determination to grant a credit to a customer following a price
decrease is generally at the discretion of IVAX, and generally not pursuant to
contractual arrangements with customers. These credits allow customers with
established inventories to compete with those buying product at the current
market price, and allow IVAX to maintain shelf space, market share and customer
loyalty.
Reserves for estimated returns and inventory credits are established by
IVAX concurrently with the recognition of revenue. The amount of reserves are
established in accordance with generally accepted accounting principles based
upon consideration of a variety of factors, including actual return and
inventory credit experience for products during the past several years by
product type, the number and timing of regulatory approvals for the product by
competitors of IVAX, both historical and projected, the market for the product,
estimated customer inventory levels by product and projected economic
conditions. Actual product returns and inventory credits incurred are, however,
dependent upon future events, including price competition and the level of
customer inventories at the time of any price declines. IVAX continually
monitors the factors that influence the pricing of its products and customer
inventory levels and makes adjustments to these reserves when management
believes that actual product returns and inventory credits may differ from
established reserves.
IVAX's pharmaceutical revenues and profits may also be affected by
other factors. Certain raw materials and components used in the manufacture of
IVAX's products are available from limited sources, and in some cases, a single
source. Any curtailment in the availability of such raw materials could be
accompanied by production or other delays, and, in the case of products for
which only one raw material supplier exists, could result in a material loss of
sales, with consequent adverse effects on IVAX's business and results of
operations. In addition, because raw material sources for pharmaceutical
products must generally be approved by regulatory authorities, changes in raw
material suppliers could result in delays in production, higher raw material
costs and loss of sales and customers.
3
<PAGE>
During 1996 and 1997, certain national drug wholesalers instituted
programs designed to provide cost savings to independent retail pharmacies on
their purchases of certain generic pharmaceutical products. Pursuant to the
programs, independent retail pharmacies generally agreed to purchase their
requirements of generic pharmaceutical products from one wholesaler and
permitted the wholesaler to select the product suppliers. Each wholesaler
encouraged generic drug suppliers to participate in its program by offering to
purchase the wholesaler's requirements of particular products from a single
supplier. The programs encouraged generic drug suppliers to aggressively bid to
be the exclusive supplier of products under the programs. The existence of the
programs also resulted in reduced prices to non-wholesaler customers. As a
result of the institution of the programs, the generic drug industry experienced
a significant reduction in the prices charged by suppliers for many generic
pharmaceutical products during the second and third quarters of 1996. Price
declines continued throughout 1997 but at a slower rate than in 1996. Also
during 1996, IVAX experienced increased competition for certain of its more
important United States generic pharmaceutical products as a result of product
approvals obtained by competitors. The price declines for certain generic
pharmaceutical products manufactured by IVAX caused by the competitive factors
and industry practices described above, including the wholesaler programs,
combined with certain other factors discussed herein, were the primary factors
causing the decline in IVAX's operating results and the losses that began in
1996.
Price is a key competitive factor in the generic pharmaceutical
business. To effectively compete on the basis of price and remain profitable, a
generic drug manufacturer must manufacture its products in a cost-effective
manner. IVAX's manufacturing costs have had a negative impact on its operating
results. Therefore, beginning in the third quarter of 1996 and continuing
throughout 1997, IVAX announced and initiated several restructuring programs in
an effort to enhance operating efficiencies and reduce costs. These objectives
are to be achieved through workforce reductions, facility consolidations and
other cost saving measures throughout the organization, with primary emphasis on
IVAX's United States generic pharmaceutical business.
A significant amount of IVAX's United States generic pharmaceutical
sales are made to a relatively small number of drug wholesalers and retail
drug chains, which represent an essential part of the distribution chain of
pharmaceutical products in the United States. Both of these industries have
undergone, and are continuing to undergo, significant consolidation, which has
resulted in IVAX's customers gaining more purchasing leverage and consequently
increasing the pricing pressures facing IVAX's United States generic
pharmaceutical business. Further consolidation among IVAX's customers may result
in even greater pricing pressures and correspondingly reduce the gross margins
of this business, and may also cause such customers to reduce their purchases of
IVAX's products.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
IVAX reported a net loss of $233.3 million for the year ended December
31, 1997, compared to a net loss of $160.8 million for the year ended December
31, 1996. Loss from continuing operations was $219.5 million for the year ended
December 31, 1997, compared to a loss from continuing operations of $135.0
million for the prior year. Loss from discontinued operations was $8.7 million
for the year ended December 31, 1997, compared to a loss from discontinued
operations of $23.7 million for the prior year. Results for both periods
included a $2.1 million net extraordinary loss relating to the extinguishment of
debt. Results for the year ended December 31, 1997 also included a $2.9 million
charge resulting from a cumulative effect of a change in accounting principle.
4
<PAGE>
Net loss per common share was $1.92 for the year ended December 31,
1997, compared to a net loss of $1.33 for the prior year. Loss per common share
from continuing operations was $1.81 for the year ended December 31, 1997,
compared to a loss of $1.12 for the prior year. Loss per common share from
discontinued operations was $.07 for the year ended December 31, 1997, compared
to a loss from discontinued operations of $.19 for the prior year. The net
extraordinary losses recorded in both periods relating to the early
extinguishment of debt and the cumulative effect of a change in accounting
principle in 1997 each resulted in a $.02 loss per common share.
NET REVENUES AND GROSS PROFIT
Net revenues for the year ended December 31, 1997 totaled $602.1
million, a decrease of $60.5 million, or 9%, from the $662.6 million reported in
the prior year. An increase of $12.1 million in net revenues of IVAX's
international operations was more than offset by a decrease of $72.6 million in
net revenues of IVAX's domestic operations.
Domestic net revenues totaled $231.3 million for the year ended
December 31, 1997, compared to $303.9 million for the same period of 1996. The
$72.6 million, or 24%, decrease in domestic net revenues was primarily
attributable to lower prices and sales volumes of certain generic pharmaceutical
products. This decline was partially offset by lower sales returns and
allowances as well as net revenues generated by certain new generic
pharmaceutical products manufactured by IVAX and introduced into the market
during 1997.
The decline in sales returns and allowances during the year ended
December 31, 1997 compared to the same period of the prior year was primarily
due to unusually high provisions for these items during 1996. The factors
contributing to the unusually high provisions in 1996 are discussed in "Results
of Operations - Overview" and "Results of Operations - Year ended December 31,
1996 compared to the year ended December 31, 1995."
During 1997 and 1996, IVAX's United States generic pharmaceutical
operations provided reserves which reduced gross sales by $215.7 million and
$277.0 million, respectively. At December 31, 1997 and 1996, these reserve
balances totaled $105.4 million and $105.8 million, respectively, and are
included in accounts receivable, net of allowances for doubtful accounts and
accrued expenses and other current liabilities in the Consolidated Balance
Sheets.
IVAX's international operations generated net revenues of $370.8
million for the year ended December 31, 1997, compared to $358.7 million for the
same period of the prior year. The $12.1 million, or 3%, increase in
international net revenues was primarily due to increased sales volumes of
generic pharmaceutical products and, to a lesser extent, the favorable impact of
foreign currency fluctuations. These increases were partially offset by lower
fees from a license agreement relating to IVAX's breath operated inhaler device.
Gross profit for the year ended December 31, 1997 decreased $47.7
million, or 29%, from the same period of the prior year. Gross profit was $114.3
million (19.0% of net revenues) for the year ended December 31, 1997, compared
to $162.0 million (24.4% of net revenues) for the year ended December 31, 1996.
The decrease in gross profit percentage is primarily due to price declines and
unfavorable product mix for both the United States generic pharmaceutical and
international operations. These decreases were partially offset by lower sales
returns and allowances at IVAX's United States generic pharmaceutical
operations.
As noted in "Results of Operations - Overview," other manufacturers may
obtain regulatory approvals or otherwise determine to market generic products
equivalent to IVAX's manufactured generic
5
<PAGE>
products in 1998 and thereafter. As other companies commence to market products
which compete with those manufactured by IVAX, the resulting competition is
likely to reduce IVAX's net revenues and gross profit generated from those
products.
OPERATING EXPENSES
Selling expenses totaled $100.2 million (16.6% of net revenues) in
1997, compared to $98.8 million (14.9% of net revenues) in 1996, an increase of
$1.4 million. The increase was primarily attributable to additional sales force
and promotional costs related to IVAX's international operations. These
increases were partially offset by a decrease in selling expenses of the United
States generic pharmaceutical operations as a result of fewer product promotions
and reductions in sales and marketing personnel.
General and administrative expenses totaled $116.2 million (19.3% of
net revenues) in 1997, compared to $111.1 million (16.8% of net revenues) in
1996, an increase of $5.1 million. The increase is primarily attributable to an
increase in salary costs, legal expenses and settlement costs, and consulting
fees related to Year 2000 compliance (see "Liquidity and Capital Resources").
These increases were partially offset by lower bad debt provisions at IVAX's
United States generic pharmaceutical operations which were unusually high in the
comparable period of the prior year as a result of the 1996 bankruptcy of a
wholesaler customer.
Research and development expenses in 1997 increased 3% compared to
1996, to a total of $53.4 million (8.9% 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, strategic marketing decisions and liquidity.
During 1997 and 1996, IVAX recorded restructuring costs and asset
write-downs of $38.1 million and $69.1 million, respectively. During 1996, IVAX
instituted a restructuring program aimed at reducing costs and enhancing
operating efficiency at its United States generic pharmaceutical operations. The
restructuring program primarily involved facility consolidations, workforce
reductions and other cost saving measures. As a result, during 1996, IVAX
recorded a pre-tax charge of $13.2 million ($7.9 million after-tax) associated
with the United States generic pharmaceutical operations comprised of $2.3
million for severance and other employee termination benefits; $3.0 million for
plant closure and related costs; and $7.9 million to reduce the carrying value
of facilities to be closed and held for sale to their estimated fair market
value. The employee termination benefits during 1996 primarily represent
severance pay and other benefits associated with the elimination of
approximately 358 employee positions in the manufacturing, sales and marketing
and research and development areas of IVAX's United States generic
pharmaceutical operations.
During 1997, IVAX continued its ongoing efforts to reduce costs and
enhance operating efficiency by initiating further restructuring programs
primarily at its corporate headquarters and United States generic pharmaceutical
operations. As a result, during 1997, IVAX recorded a pre-tax charge of $14.3
million ($14.0 million after-tax) comprised of $5.1 million for severance and
other employee termination benefits and $9.2 million for certain costs
associated primarily with further manufacturing facility closures and additional
costs associated with facilities held for sale in connection with the 1996
restructuring program. The employee termination benefits during 1997 primarily
represent severance pay and other benefits associated with the elimination of
approximately 275
6
<PAGE>
employee positions at IVAX's corporate headquarters and throughout all functions
of IVAX's United States generic pharmaceutical operations.
Pursuant to the restructuring programs, IVAX closed its Shreveport,
Louisiana pharmaceutical manufacturing facility in the fourth quarter of 1996;
consolidated its United States pharmaceutical distribution facilities into a
single leased distribution center in Kenton County, Kentucky in 1997; closed its
Ft. Lauderdale, Florida office, packaging and warehouse facility in the first
quarter of 1998; closed its Syosset, New York pharmaceutical manufacturing
facility in the first quarter of 1998; is pursuing the sale of its Kirkland,
Canada pharmaceutical manufacturing facility; expects to close one of its
London, England manufacturing facilities in 1998; and may sell its Falkenhagen,
Germany facility and one of its Miami, Florida manufacturing facilities before
the end of 1998. The closed facilities are held for sale. Production from these
facilities has been or will be transferred to other IVAX manufacturing
facilities.
During 1996, IVAX management reevaluated the carrying value of certain
long-lived assets and goodwill related to those assets held and used in IVAX's
United States generic pharmaceutical operations. This reevaluation was
necessitated by management's determination that the expected future results of
operations and cash flows from that business would be substantially lower than
previously expected. As a result, IVAX recorded a charge of $55.9 million (pre-
and after-tax) to reduce the carrying value of goodwill related to those
operations. The write-down reduced amortization expense by approximately $1.6
million annually. See Note 7, Discontinued Operations, in the Notes to
Consolidated Financial Statements for a discussion of asset write-downs of the
specialty chemicals business.
During 1997, management again reevaluated the carrying value of certain
long-lived assets, primarily in conjunction with the initiatives noted above to
further consolidate facilities of IVAX's United States generic pharmaceutical
operations in a continuing effort to improve its efficiency. As a result of
these initiatives, management recorded a charge of $23.8 million (pre- and
after-tax) to reduce the carrying value of certain assets to their estimated
fair market value.
The workforce reductions, facility closures and other cost saving
measures implemented as part of these restructuring programs are expected to
generate between $20 million and $25 million in operating expense reductions
and between $5 million and $10 million in reductions in manufacturing costs in
1998.
The $2.3 million and $.6 million of merger expenses incurred in 1997
and 1996, respectively, were primarily related to a proposed merger with Bergen
Brunswig Corporation ("Bergen"), which was terminated in March 1997.
OTHER INCOME (EXPENSE)
Interest income increased $4.6 million in 1997, as compared to 1996,
primarily due to higher levels of cash on hand resulting from the proceeds
received from the divestiture of certain businesses classified as discontinued
operations and the sale of certain product rights. See Note 5, Divestitures, and
Note 6, Sale of Product Rights, in the Notes to Consolidated Financial
Statements for further discussion.
7
<PAGE>
Interest expense decreased $1.3 million in 1997, as compared to 1996,
primarily due to the repayment of IVAX's revolving credit facility. See Note 9,
Debt, in the Notes to Consolidated Financial Statements for further discussion.
Other income, net increased $46.7 million in 1997, as compared to 1996,
primarily due to the $43.2 million pre-tax gain on the sale of the rights to
Elmiron/Registered trademark/ and three other urology products in the 1997 third
quarter. See Note 6, Sale of Product Rights, in the Notes to Consolidated
Financial Statements for further discussion.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
IVAX reported a net loss of $160.8 million for the year ended December
31, 1996, compared to net income of $114.8 million for the prior year. Loss from
continuing operations was $135.0 million for the year ended December 31, 1996,
compared to income from continuing operations of $94.3 million for the prior
year. Loss from discontinued operations was $23.7 million for the year ended
December 31, 1996, compared to income from discontinued operations of $20.5
million for the prior year. Net loss for 1996 included $2.1 million in
extraordinary losses, net of tax, from the early extinguishment of debt.
Net loss per common share was $1.33 for the year ended December 31,
1996, compared to net earnings per common share of $.99 for the prior year. Loss
from continuing operations per common share was $1.12 for the year ended
December 31, 1996, compared to earnings from continuing operations per common
share of $.81 in the prior year. Loss from discontinued operations per common
share was $.19 for the year ended December 31, 1996, compared to earnings from
discontinued operations per common share of $.18 in the prior year. The net
extraordinary loss of $.02 per common share recorded in 1996 related to the
early extinguishment of debt.
NET REVENUES AND GROSS PROFIT
Net revenues totaled $662.6 million for 1996, a decrease of $126.4
million, or 16%, from the $789.0 million reported in the prior year. An increase
of $90.7 million in net revenues of IVAX's international operations was more
than offset by a decrease of $217.1 million in net revenues of IVAX's domestic
operations.
Domestic net revenues totaled $303.9 million for the year ended
December 31, 1996, compared to $521.0 million for the prior year. The $217.1
million, or 42%, decrease in domestic net revenues was primarily attributable to
significant price and volume declines for generic drugs manufactured by IVAX
during the second and third quarters of 1996, a time when customers had
significant inventories of such drugs. The significant price and volume declines
were caused by the competitive factors described in the "Results of
Operations - Overview," including the introduction of additional competing
products by other generic drug suppliers and the effect of the wholesaler
programs instituted during the year. These factors resulted in depressed
customer re-orders and increases in the reserves for customer inventory credits
and expected returns. In addition, to avoid exacerbating the inventory
situation, IVAX decreased promotional activities during the 1996 third quarter
which further reduced sales volumes. The declines were partially offset by net
revenues generated by certain new generic pharmaceutical products manufactured
by IVAX and introduced during 1996 and at the end of 1995.
During 1996 and 1995, IVAX's United States generic pharmaceutical
operations provided reserves which reduced gross sales by $277.0 million and
$150.7 million, respectively.
8
<PAGE>
IVAX's international operations generated net revenues of $358.7
million in 1996 compared to $268.0 million in 1995. The $90.7 million, or 33.8%,
increase in international net revenues included an increase of $36.1 million
attributable to the operations of Elvetium S.A. (Argentina), Alet Laboratorios
S.A.E.C.I y E. and Elvetium S.A. (Uruguay), (collectively, "Elvetium"), acquired
in March 1996. Although the acquisition of Elvetium was accounted for as a
pooling of interests, the acquisition was recorded as of January 1, 1996, and
IVAX's historical results of operations were not restated to give retroactive
effect to the acquisition due to the immateriality of the related amounts. The
remaining $54.6 million increase in net revenues of IVAX's international
operations was primarily due to higher sales of branded respiratory products and
licensing fees. Net revenues attributable to branded respiratory products (not
including licensing fees) represented approximately 13% of total international
net revenues in both 1996 and 1995. In the fourth quarter of 1996, IVAX entered
into a license agreement relating to its breath operated inhaler device pursuant
to which it recognized fees of $26.5 million in the 1996 fourth quarter.
Gross profit for the year ended December 31, 1996 decreased $150.8
million, or 48.2%, from the same period of the prior year. The gross profit
percentage was 24.4% of net revenues in 1996 as compared to 39.6% of net
revenues in 1995. The decline in the gross profit percentage was primarily
attributable to price declines for United States generic drugs and higher levels
of customer inventory credits and reserves for expected returns relating to the
United States generic pharmaceutical operations discussed above.
OPERATING EXPENSES
Selling expenses totaled $98.8 million (14.9% of net revenues) in 1996
compared to $71.0 million (9.0% of net revenues) in 1995, an increase of $27.8
million. Selling expenses of Elvetium, acquired during the first quarter of
1996, accounted for $14.1 million of the increase. The remaining $13.7 million
increase was primarily due to increased sales and marketing expenses associated
with the launch of newly approved products of IVAX's pharmaceutical operations.
General and administrative expenses totaled $111.1 million (16.8% of
net revenues) in 1996 compared to $71.8 million (9.1% of net revenues) for the
prior year. The $39.3 million increase in general and administrative expenses,
in comparison to the prior year, was principally the result of the impact of a
full twelve months of general and administrative expenses of Elvetium during
1996, increased bad debt expense and higher personnel related expenditures of
the international operations, and an increase in bad debt expense of the United
States generic pharmaceutical operations mainly resulting from the bankruptcy of
a wholesaler customer during the third quarter of 1996. Corporate general and
administrative expenses increased $6.6 million from the prior year primarily due
to increases in personnel, insurance and facilities costs.
Research and development expenses for 1996 totaled $51.7 million, an
increase of $6.1 million, or 13.5%, in comparison to the prior year.
The $.6 million of merger expenses recorded in 1996 were primarily
related to the proposed merger with Bergen. The $3.4 million of merger expenses
reported
9
<PAGE>
for 1995 were primarily related to a proposed merger with Hafslund Nycomed which
was abandoned in November 1995.
See "Results of Operations - Year ended December 31, 1997 compared to
the year ended December 31, 1996 - Operating Expenses" for a discussion of the
1996 restructuring costs and asset write-downs.
OTHER INCOME (EXPENSE)
Other income, net, decreased $10.9 million in 1996 compared to 1995,
primarily due to the sale of IVAX's investment in preferred stock of North
American Vaccine, Inc. which resulted in a pre-tax gain of $12.8 million in
1995. Interest expense increased $7.9 million in 1996, as compared to the prior
year, primarily because of additional borrowings to fund working capital.
DISCONTINUED OPERATIONS
During 1997, IVAX's Board of Directors determined to divest its
intravenous products, personal care products and specialty chemicals businesses.
As a result, IVAX classified these businesses as discontinued operations. Income
(loss) from discontinued operations totaled $(8,701), $(23,690) and $20,482 for
the years ended December 31, 1997, 1996 and 1995, respectively. The third
quarter of 1996 included charges of $9.8 million ($6.2 million after-tax) and
$38.7 million (pre- and after-tax) to reduce the carrying value of certain fixed
assets and goodwill, respectively, related to certain segments of the specialty
chemicals business. In addition, 1997 included the net gain on sales of the
intravenous products and specialty chemicals businesses of $12.6 million. See
Note 7, Discontinued Operations, in the Notes to Consolidated Financial
Statements for further information.
CURRENCY FLUCTUATIONS
For 1997, 1996 and 1995, approximately 67%, 56% and 36%, respectively,
of IVAX's net revenues were attributable to operations which principally
generated revenues in currencies other than the United States dollar.
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. Although IVAX does not speculate in the foreign exchange
market, it does from time to time manage exposures that arise in the normal
course of business related to fluctuations in foreign currency exchange rates by
entering into offsetting positions through the use of foreign exchange forward
contracts. At December 31, 1997, no IVAX subsidiaries were domiciled in highly
inflationary environments. As a result of exchange rate differences, net
revenues increased by $1.3 million in 1997 as compared to 1996, and decreased by
$3.3 million in 1996 as compared to 1995.
INCOME TAXES
IVAX's effective tax rate was (39%), 29% and 23% in 1997, 1996 and
1995, respectively. For the three years ended December 31, 1997, the effective
tax rate for IVAX's foreign subsidiaries was 31%, 17% and 22%, respectively.
IVAX's effective tax rate in 1996 was higher than in 1995 primarily as a result
of domestic losses benefited at the prevailing federal and state statutory rates
which exceeded foreign income taxed at the prevailing generally lower foreign
rates. IVAX's effective tax rate in 1997 was negative due to an increase in its
tax provision for the establishment of a valuation allowance on deferred tax
assets of $114.7 million at a time when domestic operations had significant
losses. The $114.7 million was comprised of a $62.8 million increase as a result
of recognizing a valuation allowance against the domestic deferred
10
<PAGE>
tax asset existing at December 31, 1996, a $12.7 million decrease due to an
additional tax refund received by the carrying back of the 1996 loss to earlier
years, and a $64.6 million increase as a result of recognizing a valuation
allowance against 1997 domestic losses. The establishment of this valuation
allowance in 1997 generated domestic deferred tax expense of $50.1 million,
despite the fact that IVAX's domestic operations generated losses.
At December 31, 1997, IVAX had substantial net operating loss and
credit carryforwards, some of which are subject to certain limitations. See Note
10, Income Taxes, in the Notes to Consolidated Financial Statements for further
information.
IVAX's future effective tax rate will depend on the mix between foreign
and domestic taxable income or losses, the statutory tax rates of the related
tax jurisdictions, and the timing of the release, if any, of the domestic
valuation allowance. The mix between IVAX's foreign and domestic taxable income
may be significantly affected by the jurisdictions in which new products are
developed and manufactured.
As a result of establishing the $114.7 million valuation allowance
discussed above, the domestic deferred tax asset is fully reserved as of
December 31, 1997. 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 domestic taxable income
is achieved.
At December 31, 1997, other current assets, other assets, and other
long-term liabilities include a $19.6 million net deferred tax asset, which
relates to foreign operations. Realization of this asset is dependent upon
generating sufficient future foreign taxable income. Although realization is not
assured, management believes it is more likely than not that the remaining
foreign net deferred tax asset will be realized based upon estimated future
taxable income of IVAX's foreign operations and, accordingly, no valuation
allowances for this asset were deemed necessary at December 31, 1997.
Management's estimates of future taxable income are subject to revision due to,
among other things, regulatory and competitive factors affecting the
pharmaceutical industries in the markets in which IVAX operates. Such factors
are discussed in the "Results of Operations - Overview" and elsewhere in this
report.
IVAX has historically received a United States tax credit under Section
936 of the Internal Revenue Code for certain income generated by its Puerto Rico
and Virgin Islands operations. For 1997, 1996 and 1995, this credit was
approximately $1.5 million, $5.7 million and $11.2 million, respectively, and
completely offset the entire United States tax liability of such operations. The
Section 936 tax credit will be phased out over 5 years beginning in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, IVAX's working capital, excluding net assets of
discontinued operations, totaled $238.9 million, compared to $415.9 million and
$354.7 million at December 31, 1996 and 1995, respectively. Cash and cash
equivalents were $199.2 million at December 31, 1997, compared to $80.8 million
and $14.7 million at December 31, 1996 and 1995, respectively.
Net cash provided by operating activities during 1997 was $90.8 million
compared to net cash used for operating activities of $13.2 million in 1996 and
net cash provided by operating activities of $16.4 million in 1995. The increase
in cash provided by operating activities during 1997 was primarily the result of
reductions in accounts receivable and inventory due to lower sales and improved
inventory management at IVAX's United States generic pharmaceutical operations
and a reduction in other current
11
<PAGE>
assets due to IVAX's receipt of a $52.5 million refund of federal income taxes
paid in prior years. The increase in cash used for operating activities during
1996 as compared to 1995 was primarily the result of operating losses incurred
during 1996, partially offset by a decrease in the level of accounts receivable
due to the decline in sales during the period.
Net cash of $372.7 million was provided by investing activities in
1997, compared to net cash used for investing activities of $86.9 million and
$97.3 million in 1996 and 1995, respectively. The increase was primarily
attributable to cash proceeds received during 1997 from the sale of the
intravenous products business, a significant portion of the specialty chemicals
business, and certain product rights.
Effective May 30, 1997, IVAX sold McGaw, Inc. ("McGaw"), its
intravenous products business, 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/Trademark/ drug delivery system. The Duplex/Trademark/ system, presently
in development by McGaw, is a multi-compartment intravenous drug delivery system
devised for drugs that have limited stability after mixing.
During July and August 1997, IVAX completed the sale of a significant
portion of the assets of its specialty chemicals business in three separate
transactions in which IVAX received an aggregate of $41.1 million in cash.
During February 1998, IVAX sold its vacuum pump fluids business, the only
remaining segment of IVAX's specialty chemicals business, for $3.9 million in
cash (subject to certain post-closing adjustments).
On September 18, 1997, IVAX sold the rights to its proprietary drug
Elmiron/Registered trademark/ and three additional urology products in the
United States and Canada to ALZA Corporation ("ALZA"). IVAX retained the rights
to these products outside of the United States and Canada. IVAX received $75
million in up-front payments and may receive additional fees based on the
achievement of specified sales levels of Elmiron/Registered trademark/ during
the next five years. IVAX will receive payments from ALZA based on sales of the
products.
In connection with the sale of its intravenous products and specialty
chemicals businesses, as well as certain of its facilities, IVAX has retained
certain contingent liabilities related to, among other things, environmental and
litigation matters. In addition, IVAX has agreed to indemnify the purchasers of
these operations and facilities against losses resulting from breaches of
representations and warranties made by IVAX in the agreements governing these
dispositions, as well as against certain other potential risks and
contingencies. Although IVAX does not expect these indemnification obligations
to materially adversely affect its earnings or operating results, there can be
no assurance that IVAX will not be subject to material indemnification claims
arising out of these transactions.
On March 20, 1998, IVAX terminated its paclitaxel development and
marketing agreement with NaPro BioTherapeutics, Inc. ("NaPro"). As part of the
termination, IVAX received, in perpetuity, a royalty-free, non-exclusive license
to NaPro's pending patents for a stable formulation of paclitaxel in the United
States, Europe and certain other world markets. IVAX paid consideration totaling
$8.1 million, and may pay up to an additional $6.4 million contingent upon the
issuance of the patents in certain jurisdictions.
12
<PAGE>
Cash utilized for capital expenditures decreased from $71.8 million in
1995 to $50.0 million in 1996 and $45.7 million in 1997 due to spending
constraints imposed by IVAX's revolving credit facility and, after termination
of the facility, further constraints imposed by management.
During the first quarter of 1997, IVAX purchased a pharmaceutical
manufacturing facility in Kirkland, Canada for $10.5 million. During 1996 and
1995, IVAX purchased additional shares of Galena, a.s. for cash of $12.4 million
and $2.1 million, respectively, increasing its ownership interest from 60% to
approximately 74%. During 1995, IVAX sold its investment in preferred stock of
North American Vaccine, Inc. for approximately $16.3 million in cash.
Net cash of $344.9 million was used for financing activities in 1997,
compared to net cash provided by financing activities of $165.4 million and
$58.5 million in 1996 and 1995, respectively, primarily reflecting the payoff of
IVAX's revolving credit facility in June 1997.
During 1995, IVAX had a revolving credit facility permitting borrowings
of up to $130.0 million. Amounts borrowed under the revolving credit facility
were primarily used to fund working capital requirements and to fund capital
expenditure programs within IVAX's pharmaceuticals and intravenous products
operations.
On May 14, 1996, IVAX entered into a revolving credit agreement with a
bank syndicate which permitted borrowings of up to $425.0 million, and IVAX
terminated the revolving credit facility discussed above. On November 14, 1996,
IVAX entered into an amendment to the May 14, 1996 revolving credit agreement
which, among other things, reduced permitted borrowings to $375.0 million and
shortened the maturity of the line of credit from May 2001 to November 1999.
During 1996, proceeds from the credit facility were used to refinance previously
existing credit facilities and to make an investment in and advances to McGaw to
permit it to redeem its 10-3/8% Senior Notes due 1999 (the "Senior Notes"), and
for working capital and general corporate purposes. At December 31, 1996, $337.1
million in borrowings were outstanding under this credit facility.
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. 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 1995, IVAX redeemed a total of $1.0 million face value of its 6
1/2% Convertible Subordinated Notes Due 2001 (the "6-1/2% Notes"). Additionally,
during 1995, McGaw repurchased $3.4 million face value of the Senior Notes at a
purchase price of 101% of the outstanding principal amount plus accrued and
unpaid interest. During 1996, McGaw repurchased the remaining face value of the
Senior Notes at a purchase price of 102% of the outstanding principal amount of
$87.6 million, plus accrued and unpaid interest, using proceeds from the May 14,
1996 credit facility contributed to McGaw by IVAX. Cash flows related to the
redemption of the Senior Notes are included in "Net financing activities of
discontinued operations" in the Consolidated Statements of Cash Flows included
in the Consolidated Financial Statements.
Proceeds from the exercise of stock options and warrants totaled $.2
million in 1997 compared to $31.8 million in 1996 and $24.6 million in 1995.
13
<PAGE>
During the first half of 1996, IVAX paid total cash dividends of $6.1
million, or $.05 per share, on its common stock, compared to the $9.3 million,
or $.08 per share, paid during 1995. No cash dividends were paid during 1997.
During 1996, IVAX issued 1.5 million shares of its common stock to
acquire Elvetium, valued at approximately $42.3 million as of the acquisition
date. During 1995, IVAX issued 350,000 shares of its common stock valued at
approximately $10.5 million as of the acquisition date in connection with the
acquisition of a pharmaceutical distribution company in Poland, and
approximately $4.9 million in cash in connection with three other acquisitions.
See Note 4, Mergers and Acquisitions, in the Notes to Consolidated Financial
Statements for further information concerning these acquisitions.
In December 1997, IVAX's Board of Directors approved a share
repurchase program authorizing IVAX to repurchase up to 5 million shares of IVAX
common stock. Through March 20, 1998, IVAX repurchased 1,686,800 shares of
common stock at a total cost, including commissions, of $14.5 million.
IVAX has engaged a consultant to assist in evaluating its computer
systems and facilities for any potential Year 2000 compliance issues. IVAX has
determined that a portion of its operating systems and equipment require
modification or replacement to ensure that they will be capable of recognizing
and processing dates beyond December 31, 1999. IVAX believes, based on existing
information, that its Year 2000 compliance issues can be mitigated, and it has
developed a plan to implement the required system and equipment modifications
and replacements. IVAX is also coordinating with its customers, suppliers and
other persons with which it interacts electronically to coordinate its Year 2000
compliance program.
IVAX anticipates that it will spend up to $15 million over the next two
years in connection with its plans to implement the required system and
equipment modifications and replacements. Amounts spent on modifying existing
systems and equipment will be expensed as incurred, and the cost of any new
software and equipment purchased will be capitalized. IVAX expects to complete
the implementation of its system and equipment modifications or replacements by
mid-1999. The expected costs of the Year 2000 compliance program and the date on
which IVAX expects to complete the implementation of the plan are based on
management's best estimates and involve certain assumptions, and actual results
could differ materially from the estimates set forth herein. There can be no
assurance that IVAX's Year 2000 compliance program will be successful. In
addition, the implementation of new information systems and the modification or
replacement of equipment involves risks that the systems and equipment will not
perform as expected and that productivity may suffer until employees are
properly trained. No assurance can be given that any such implementation will
not adversely affect IVAX's operations.
IVAX plans to spend substantial amounts of capital in 1998 to continue
the research and development of pharmaceutical products. Although research and
development expenditures are expected to be between $50 million and $60 million
during 1998, actual 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, strategic marketing decisions and liquidity. In
addition, IVAX plans to spend between $50 million and $55 million in 1998 to
improve and expand its pharmaceutical and other related facilities.
IVAX's principal sources of short term liquidity are existing cash and
cash generated from the disposition of certain non-strategic assets, including
those currently classified as discontinued
14
<PAGE>
operations, 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 principally internally generated funds, which are
anticipated to be derived primarily from the sale of existing pharmaceutical
products and pharmaceutical products currently under development. There can be
no assurance that IVAX will successfully complete the development of products
under development, that IVAX will be able to obtain regulatory approval for any
such product, or that any approved product may be produced in commercial
quantities, at reasonable costs, and be successfully marketed. In addition, the
6-1/2% Notes are scheduled to mature in November 2001. To the extent that
capital requirements exceed available capital or that IVAX is required to
refinance the 6-1/2% Notes, IVAX will need to seek alternative sources of
financing to fund its operations. IVAX has no existing 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
additional assets in order to meet its future obligations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
IVAX does not believe that it has material exposure to market rate
risk. IVAX's only material debt obligation relates to the 6-1/2% Notes, which
bear a fixed rate of interest. As noted above, IVAX may, however, require
additional financing to fund future obligations and no assurance can be given
that the terms of future sources of financing will not expose IVAX to material
market rate risk. IVAX does from time to time manage exposures that arise in the
normal course of business related to fluctuations in foreign currency rates by
entering into foreign exchange contracts. IVAX enters into these contracts with
counterparties that it believes to be creditworthy and does not enter into any
leveraged derivative transactions. IVAX does not believe that it has material
market rate risk associated with its foreign exchange forward contracts due to
the short term nature of the contracts and the notional amounts outstanding.
Information about IVAX's market sensitive instruments constitutes a "forward
looking statement."
15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF IVAX CORPORATION:
We have audited the accompanying consolidated balance sheets of IVAX Corporation
and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IVAX Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 20, 1998.
16
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
DECEMBER 31,
--------------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 199,235 $ 80,806
Accounts receivable, net of allowances for doubtful
accounts of $19,226 ($20,061 in 1996) 104,994 198,009
Inventories 145,716 204,194
Net assets of discontinued operations 37,820 398,329
Other current assets 22,939 101,117
------------- -------------
Total current assets 510,704 982,455
Property, plant and equipment, net 193,741 223,312
Intangible assets, net 39,458 54,726
Other assets 46,833 73,155
------------- -------------
Total assets $ 790,736 $ 1,333,648
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 4,025 $ 5,027
Current portion of long-term debt 7,858 5,595
Accounts payable 42,578 58,075
Accrued income taxes payable 9,126 13,437
Accrued expenses and other current liabilities 170,379 86,065
------------- -------------
Total current liabilities 233,966 168,199
Long-term debt, net of current portion 94,193 442,819
Other long-term liabilities 12,600 12,934
Minority interest 14,938 14,568
Shareholders' equity:
Common stock, $.10 par value, authorized 250,000 shares,
issued and outstanding 121,518 shares (121,476 in 1996) 12,152 12,148
Capital in excess of par value 515,234 515,070
Retained (deficit) earnings (72,294) 160,960
Cumulative translation adjustment and other (20,053) 6,950
------------- -------------
Total shareholders' equity 435,039 695,128
------------- -------------
Total liabilities and shareholders' equity $ 790,736 $ 1,333,648
============= =============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE BALANCE SHEETS.
17
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
NET REVENUES $ 602,110 $ 662,587 $ 788,988
COST OF SALES 487,806 500,618 476,235
------------- ------------- -------------
Gross Profit 114,304 161,969 312,753
------------- ------------- -------------
OPERATING EXPENSES:
Selling 100,220 98,770 70,964
General and administrative 116,185 111,122 71,769
Research and development 53,409 51,729 45,594
Amortization of intangible assets 3,760 4,594 2,632
Restructuring costs and asset write-downs 38,088 69,073 -
Merger expenses 2,343 557 3,392
------------- ------------- -------------
Total operating expenses 314,005 335,845 194,351
------------- ------------- -------------
Income (loss) from operations (199,701) (173,876) 118,402
OTHER INCOME (EXPENSE):
Interest income 5,738 1,126 1,453
Interest expense (14,685) (15,996) (8,066)
Other income, net 53,366 6,623 17,533
------------- ------------- -------------
Total other income (expense) 44,419 (8,247) 10,920
------------- ------------- -------------
Income (loss) from continuing operations before income
taxes and minority interest (155,282) (182,123) 129,322
PROVISION (BENEFIT) FOR INCOME TAXES 60,166 (52,488) 29,701
------------- ------------- -------------
Income (loss) from continuing operations before minority
interest (215,448) (129,635) 99,621
MINORITY INTEREST (4,086) (5,354) (5,302)
------------- ------------- -------------
Income (loss) from continuing operations (219,534) (134,989) 94,319
DISCONTINUED OPERATIONS, NET OF TAXES (8,701) (23,690) 20,482
------------- ------------- -------------
Income (loss) before extraordinary items and cumulative effect
of a change in accounting principle (228,235) (158,679) 114,801
EXTRAORDINARY ITEMS:
Gains (losses) on extinguishment of debt, net of a tax provision
(benefit) of $0 in 1997, $(1,382) in 1996 and $29 in 1995 (2,137) (2,073) 34
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, net of a tax benefit of $1,295 (2,882) - -
------------- ------------- -------------
NET INCOME (LOSS) $ (233,254) $ (160,752) $ 114,835
============= ============= =============
</TABLE>
(Continued)
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
18
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Continued)
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------- ------------- -------------
BASIC EARNINGS (LOSS) PER COMMON SHARE:
<S> <C> <C> <C>
Continuing operations $ (1.81) $ (1.12) $ .81
Discontinued operations (.07) (.19) .18
Extraordinary items (.02) (.02) -
Cumulative effect of a change in accounting principle (.02) - -
------------ ------------- -------------
Net earnings (loss) $ (1.92) $ (1.33) $ .99
============ ============= =============
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (1.81) $ (1.12) $ .79
Discontinued operations (.07) (.19) .17
Extraordinary items (.02) (.02) -
Cumulative effect of a change in accounting principle (.02) - -
------------ ------------- -------------
Net earnings (loss) $ (1.92) $ (1.33) $ .96
============ ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 121,496 120,949 116,065
============ ============= =============
Diluted 121,496 120,949 119,539
============ ============= =============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
19
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
COMMON STOCK CUMULATIVE
--------------------- CAPITAL IN RETAINED TRANSLATION
NUMBER EXCESS OF (DEFICIT) ADJUSTMENT
OF SHARES AMOUNT PAR VALUE EARNINGS AND OTHER TOTAL
--------- -------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 114,046 $ 11,405 $ 417,734 $ 216,156 $ (10,839) $ 634,456
Issuances of common stock:
Exercise of stock options and warrants 3,313 331 24,237 - - 24,568
Conversion of 9.00% Convertible
Subordinated Debentures 286 29 1,471 - - 1,500
Contribution to 401(k) plan 31 3 778 - - 781
Acquisition accounted for under the
pooling of interests method of accounting 350 35 (35) 68 - 68
Effect of tax deductions received from
the exercise of stock options - - 17,418 - - 17,418
Unrealized net gain on available-for-sale
equity securities - - - - 4,805 4,805
Distribution to shareholders by pooled
company - - - (66) - (66)
Minimum pension liability adjustment - - - 471 - 471
Sale of investment in affiliate which held
interest in IVAX stock - - - - 272 272
Cash dividends paid - - - (9,347) - (9,347)
Translation adjustment - - - - (589) (589)
Net income - - - 114,835 - 114,835
-------- -------- --------- ---------- --------- ----------
BALANCE, December 31, 1995 118,026 11,803 461,603 322,117 (6,351) 789,172
Issuances of common stock:
Exercise of stock options 1,881 188 31,651 - - 31,839
Contribution to 401(k) plan 78 8 2,078 - - 2,086
Acquisition accounted for under the
pooling of interests method of
accounting 1,491 149 (46) 5,652 - 5,755
Effect of tax deductions received from
the exercise of stock options - - 19,784 - - 19,784
Unrealized net gain on available-for-sale
equity securities - - - - 461 461
Cash dividends paid - - - (6,057) - (6,057)
Translation adjustment - - - - 12,840 12,840
Net loss - - - (160,752) - (160,752)
-------- -------- --------- ---------- --------- ----------
BALANCE, December 31, 1996 121,476 12,148 515,070 160,960 6,950 695,128
Issuances of common stock:
Exercise of stock options 42 4 148 - - 152
Effect of tax deductions received from
the exercise of stock options - - 16 - - 16
Unrealized net loss on available-for-sale
equity securities - - - - (6,230) (6,230)
Translation adjustment - - - - (20,773) (20,773)
Net loss - - - (233,254) - (233,254)
-------- -------- --------- ---------- --------- ----------
BALANCE, December 31, 1997 121,518 $ 12,152 $ 515,234 $ (72,294) $ (20,053) $ 435,039
======== ======== ========= ========== ========= ==========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
20
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (233,254) $ (160,752) $ 114,835
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Restructuring costs and asset write-downs 38,088 69,073 -
Depreciation and amortization 38,462 32,371 21,587
Deferred tax provision (benefit) 50,194 (50,243) (4,175)
Provision for allowances for doubtful accounts 8,973 30,737 4,579
Minority interest 4,086 5,354 5,302
Gain on sale of product rights (43,224) - -
Losses (gains) on disposal of assets, net 2,861 (3,969) (12,095)
Losses (gains) on extinguishment of debt 2,137 1,640 (63)
Cumulative effect of a change in accounting principle 4,177 - -
Loss (income) from discontinued operations 8,701 23,690 (20,482)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 75,783 80,184 (133,965)
Decrease (increase) in inventories 50,294 (28,947) (16,640)
Decrease (increase) in other current assets 51,583 (21,918) 3,849
Increase in other assets (5,603) (4,230) (6,179)
Increase (decrease) in accounts payable, accrued expenses
and other current liabilities 21,954 (1,579) 37,973
(Decrease) increase in other long-term liabilities (292) 2,864 1,326
Other, net (998) (1,753) 6
Net cash provided by operating activities of discontinued
operations 16,876 14,277 20,531
------------- ------------- -------------
Net cash provided by (used for) operating activities 90,798 (13,201) 16,389
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from divestitures 361,105 - -
Proceeds from sale of product rights 75,000 - -
Capital expenditures (45,741) (49,982) (71,761)
Proceeds from sale of assets 8,752 9,470 17,077
Acquisitions of patents, trademarks, licenses and other
intangibles (1,710) (1,848) (921)
Acquisitions of businesses and facilities, net of cash acquired (10,500) (12,006) (4,740)
Other, net 5 - (196)
Net investing activities of discontinued operations (14,186) (32,579) (36,777)
------------- ------------- -------------
Net cash provided by (used for) investing activities 372,725 (86,945) (97,318)
------------- ------------- -------------
Cash flows from financing activities:
Borrowings on long-term debt and loans payable 47,989 600,371 111,145
Payments on long-term debt and loans payable (392,914) (373,293) (63,808)
Issuance of common stock 152 31,839 24,568
Cash dividends paid - (6,057) (9,347)
Distributions to shareholders by pooled companies - - (66)
Net financing activities of discontinued operations (92) (87,473) (3,992)
------------- ------------- -------------
Net cash (used for) provided by financing activities (344,865) 165,387 58,500
------------- ------------- -------------
Effect of exchange rate changes on cash (229) 845 104
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 118,429 66,086 (22,325)
Cash and cash equivalents at the beginning of the year 80,806 14,720 37,045
------------- ------------- -------------
Cash and cash equivalents at the end of the year $ 199,235 $ 80,806 $ 14,720
============= ============= =============
</TABLE>
(Continued)
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
21
<PAGE>
<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Continued)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Supplemental disclosures:
Interest paid $ 21,313 $ 21,172 $ 13,001
============== ============= ==============
Income tax (refunds) payments $ (42,683) $ 12,870 $ 11,459
============== ============= ==============
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
Information with respect to IVAX's 1996 and 1995 acquisitions which were
accounted for under the purchase method of accounting are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Fair value of assets acquired $ - $ 718
Liabilities assumed - 181
------------- --------------
- 537
Reduction of minority interest (5,219) (813)
------------- --------------
5,219 1,350
============= ==============
Purchase price:
Cash (including related acquisition costs) 12,362 4,935
------------- --------------
Cost in excess of net assets of acquired companies $ 7,143 $ 3,585
============= ==============
</TABLE>
During the year ended December 31, 1995, 286 shares of IVAX common stock
were issued upon the conversion of $1,500 in debentures.
During the years ended December 31, 1996 and 1995, contributions to the
401(k) retirement plan resulted in the issuance of 78 and 31 shares of IVAX
common stock totaling $2,086 and $781, respectively.
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
22
<PAGE>
IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Financial amounts in thousands, except share data)
(1) ORGANIZATION:
IVAX Corporation is a holding company with subsidiaries engaged
primarily in the research, development, manufacture and marketing of generic and
branded pharmaceuticals. These products are sold primarily to customers within
the United States and the United Kingdom. All references to "IVAX" mean IVAX
Corporation and its subsidiaries unless otherwise required by the context.
During 1997, IVAX's Board of Directors approved a plan to dispose of
IVAX's intravenous products, specialty chemicals and personal care products
businesses. Accordingly, the consolidated financial statements have been
restated to reflect the intravenous products, specialty chemicals and personal
care products businesses as discontinued operations (See Note 7, Discontinued
Operations). Effective May 30, 1997, IVAX sold McGaw, Inc. ("McGaw"), its
intravenous products business. During the third quarter of 1997, IVAX completed
the sale of a significant portion of the assets of its specialty chemicals
business in three separate transactions (See Note 5, Divestitures).
IVAX's future revenues and profitability are largely dependent upon its
ability to continue to develop, obtain approval for, efficiently manufacture and
market pharmaceutical products. Revenues and profits derived from generic
pharmaceuticals, which presently constitute IVAX's principal business, can be
significantly affected by a variety of factors, including, among other things,
the timing of new generic drug approvals received by IVAX, the number and timing
of generic drug approvals for competing products, the timing of IVAX's initial
shipments of newly approved generic drugs, strategies adopted by brand name
companies to maintain market share, and IVAX's cost of manufacturing. Certain
raw materials and components used in the manufacture of IVAX's products are
available from limited sources, and in some cases, a single source. In addition,
because raw material sources for pharmaceutical products must generally be
approved by regulatory authorities, changes in raw material suppliers could
result in delays in production, higher raw material costs and loss of sales and
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations - Overview" for additional
discussion of IVAX's business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of IVAX Corporation and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Investments in affiliates representing 20% to 50% ownership
interests are recorded under the equity method of accounting. Investments in
affiliates representing less than 20% ownership interests are recorded at cost.
The minority interest held by third parties in a majority owned subsidiary is
separately stated. Certain amounts presented in the accompanying consolidated
financial statements for prior periods have been reclassified to conform to the
current period's presentation and as required with respect to discontinued
operations (See Note 7, Discontinued Operations).
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period.
23
<PAGE>
IVAX's actual results in subsequent periods may differ from the estimates and
assumptions used in the preparation of the accompanying consolidated financial
statements.
CASH AND CASH EQUIVALENTS - IVAX considers all investments with a
maturity of three months or less as of the date of purchase to be cash
equivalents.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market. Components of inventory cost include materials, labor and
manufacturing overhead. In evaluating whether inventory is stated at the lower
of cost or market, management considers such factors as the amount of inventory
on hand, estimated time required to sell such inventory, remaining shelf life
and current market conditions. Reserves are provided as appropriate. Inventories
consist of the following:
DECEMBER 31,
---------------------------------
1997 1996
------------- --------------
Raw materials $ 49,227 $ 70,375
Work-in-process 25,386 23,703
Finished goods 71,103 110,116
------------- --------------
$ 145,716 $ 204,194
============= ==============
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
carried at cost less accumulated depreciation and amortization and consist of
the following:
DECEMBER 31,
---------------------------------
1997 1996
------------- --------------
Land $ 10,932 $ 8,228
Buildings and improvements 116,978 142,358
Machinery and equipment 152,396 131,559
Furniture and computer equipment 55,881 45,893
------------- --------------
336,187 328,038
Less: Accumulated depreciation and
amortization 142,446 104,726
------------- --------------
$ 193,741 $ 223,312
============= ==============
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows: buildings and improvements
(10-50 years), machinery and equipment (3-15 years) and furniture and computer
equipment (2-10 years). Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or their estimated useful lives.
Costs of major additions and improvements are capitalized and expenditures for
maintenance and repairs which do not extend the life of the assets are expensed.
Upon sale or disposition of property, plant and equipment, the cost and related
accumulated depreciation or amortization are eliminated from the accounts and
any resulting gain or loss is credited or charged to operations.
24
<PAGE>
INTANGIBLE ASSETS - Intangible assets are carried at cost less
accumulated amortization and consist of the following:
DECEMBER 31,
---------------------------------
1997 1996
------------- --------------
Cost in excess of net assets of
acquired companies $ 15,343 $ 26,160
Patents, trademarks, licenses and
other intangibles 41,226 42,767
------------- --------------
56,569 68,927
Less: Accumulated amortization 17,111 14,201
------------- --------------
$ 39,458 $ 54,726
============= ==============
Cost in excess of net assets of acquired companies is amortized using
the straight-line method over periods not exceeding 40 years. Patents,
trademarks, licenses and other intangibles are amortized using the straight-line
method over their respective estimated lives (ranging from 3-25 years).
Following any acquisition, IVAX continually evaluates whether later
events and circumstances have occurred that indicate that the remaining
estimated useful life of intangible assets may require revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate that
an asset acquired in a purchase business combination and related goodwill may be
impaired, IVAX uses various methods to estimate the asset's future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, an impairment loss is recognized based on the excess of the
carrying amount over the estimated fair value of the asset. Any impairment
amount is charged to operations (See Note 3, Restructuring Costs and Asset
Write-Downs).
LONG-LIVED ASSETS - On January 1, 1996, IVAX adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Adoption did
not have a material effect on the consolidated financial statements (See Note 3,
Restructuring Costs and Asset Write-Downs).
MINORITY INTEREST - At December 31, 1997, IVAX owned 74% of the capital
stock of Galena a.s., a pharmaceutical company based in the Czech Republic
("Galena") (See Note 4, Mergers and Acquisitions). The accompanying consolidated
financial statements of IVAX reflect the full consolidation of the accounts of
Galena. Minority interest represents the minority shareholders' proportional
share of the equity in the income and net assets of Galena.
FOREIGN CURRENCIES - IVAX's operations include subsidiaries which are
located outside of the United States. Assets and liabilities as stated in the
local reporting currency are translated at the rate of exchange prevailing at
the balance sheet date. The gains or losses that result from this process are
shown in the "Cumulative translation adjustment and other" caption in the
shareholders' equity section of the accompanying consolidated balance sheets.
Statement of operations amounts are translated at the average rates for the
period.
FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash
equivalents, accounts receivable, loans payable, accounts payable and accrued
income taxes payable approximate fair value due to the short maturity of the
instruments and reserves for potential losses, as applicable. The disclosed fair
value of other assets and long-term debt is estimated using quoted market
prices, whenever available, or an
25
<PAGE>
appropriate valuation method (See Note 8, Investments In and Advances to
Unconsolidated Affiliates, and Note 9, Debt).
IVAX does not speculate in the foreign exchange market. IVAX may,
however, from time to time manage exposures that arise in the normal course of
business related to fluctuations in foreign currency rates by entering into
foreign exchange forward contracts. IVAX enters into these contracts with
counterparties that it believes to be creditworthy and does not enter into any
leveraged derivative transactions. Gains and losses on these contracts are
included in the consolidated statements of operations as they arise. Costs
associated with entering into these contracts are amortized over the contracts'
lives, which typically are less than one year. IVAX held foreign exchange
forward contracts with notional principal amounts of $2,870 at December 31,
1997, which mature January 1998 through May 1998, and $4,908 at December 31,
1996, which matured in January 1997.
In addition, IVAX has intercompany balances that are denominated in
foreign currencies. A portion of these balances are hedged using foreign
exchange forward contracts, and gains and losses on these contracts are included
in the consolidated statements of operations as they arise. IVAX Corporation,
the parent company, itself did not hold foreign exchange forward contracts at
December 31, 1997. IVAX Corporation held purchased foreign exchange forward
contracts with a notional principal amount of $3,018 at December 31, 1996.
REVENUE RECOGNITION - Revenues and the related cost of sales are
recognized at the time product is shipped. Net revenues are comprised of gross
revenues less provisions for expected customer returns, inventory credits,
discounts, promotional allowances, volume rebates, chargebacks and other
allowances. These sales provisions totaled $220,810, $287,540 and $156,522 in
the years ended December 31, 1997, 1996 and 1995, respectively. The reserve
balances included in "Accounts receivable, net of allowances for doubtful
accounts and "Accrued expenses and other current liabilities" in the
accompanying consolidated balance sheets are $53,702 and $54,257, respectively,
at December 31,1997, and $100,898 and $8,936, respectively, at December 31,
1996.
The custom in the pharmaceutical industry is generally to grant
customers the right to return purchased goods. In the generic pharmaceutical
industry, this custom has resulted in a practice of suppliers issuing inventory
credits (also known as shelf-stock adjustments) to customers based on the
customers' existing inventory following decreases in the price of the supplier's
generic pharmaceutical products. The determination to grant a credit to a
customer following a price decrease is generally at the discretion of IVAX, and
generally not pursuant to contractual arrangements with customers.
Reserves for estimated returns and inventory credits are established by
IVAX concurrently with the recognition of revenue. The amount of reserves are
established in accordance with generally accepted accounting principles based
upon consideration of a variety of factors, including actual return and
inventory credit experience for products during the past several years by
product type, the number and timing of regulatory approvals for the product by
competitors of IVAX, both historical and projected, the market for the product,
estimated customer inventory levels by product and projected economic
conditions. Actual product returns and inventory credits incurred are, however,
dependent upon future events, including price competition and the level of
customer inventories at the time of any price declines. IVAX continually
monitors the factors that influence the pricing of its products and customer
inventory levels and makes adjustments to these reserves when management
believes that actual product returns and inventory credits may differ from
established reserves.
26
<PAGE>
Royalty and licensing fee income are recognized when obligations
associated with earning the royalty or licensing fee have been satisfied and are
included in "Net revenues" in the accompanying consolidated statements of
operations.
RESEARCH AND DEVELOPMENT COSTS - IVAX-sponsored research and
development costs related to future products are expensed currently.
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 under 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.
STOCK-BASED COMPENSATION PLANS - In 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 allows either adoption of a fair value method of
accounting for stock-based compensation plans or continuation of accounting
under Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related interpretations with supplemental disclosures.
IVAX has chosen to account for all stock-based compensation arrangements under
which employees receive shares of IVAX common stock under APB Opinion No. 25
with related disclosures under SFAS No. 123. Pro forma net earnings (loss) per
common share amounts, as if the fair value method had been adopted, are
presented in Note 12, Shareholders' Equity. The adoption of SFAS No. 123 did not
have a material impact on IVAX's results of operations, financial position or
cash flows.
EARNINGS (LOSS) PER COMMON SHARE - During 1997, IVAX adopted SFAS No.
128, EARNINGS PER SHARE. SFAS No. 128 establishes standards for computing and
presenting basic and diluted earnings (loss) per share. Basic earnings (loss)
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 (loss) per share, the weighted average number of common
shares outstanding is adjusted for the effect of all dilutive potential common
stock. In computing diluted earnings (loss) per share, IVAX has utilized the
treasury stock method. All prior periods earnings (loss) per share data have
been restated to conform with SFAS No. 128.
27
<PAGE>
For the years ended December 31, 1996 and 1997, there was no difference
between basic and diluted loss per common share. A reconciliation of the
numerator and the denominator of the basic and diluted earnings per share
computation for income from continuing operations is as follows for the year
ended December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------- --------------- --------------
<S> <C> <C> <C>
Basic EPS:
Income from continuing operations $ 94,319 116,065 $ 0.81
==============
Effect of Dilutive Securities:
9.0% Convertible Subordinated Debentures 62 286
Stock options - 3,188
-------------- ---------------
Diluted EPS:
Income from continuing operations
plus assumed conversions $ 94,381 119,539 $ 0.79
============== =============== ==============
</TABLE>
CHANGE IN ACCOUNTING PRINCIPLE - On November 20, 1997, the Emerging
Issues Task Force ("EITF") of the FASB reached a consensus in EITF Abstract No.
97-3 that the costs of business process reengineering activities are to be
expensed as incurred. This consensus applies to business process reengineering
activities that are part of an information technology project. Beginning in
1995, IVAX's wholly-owned subsidiary, Norton Healthcare Limited ("Norton
Healthcare"), initiated an enterprise Business Excellence program that combines
design and installation of business processes and software packages to achieve
global best practices. Under the Business Excellence initiatives, Norton
Healthcare had capitalized certain external costs associated with business
process reengineering activities as part of the software asset. EITF Abstract
No. 97-3 prescribes that previously capitalized business process reengineering
costs should be expensed and reported as a cumulative effect of a change in
accounting principle. Accordingly, for the fourth quarter of 1997, IVAX reported
a charge of $2,882 (net of a tax benefit of $1,295), or $.02 per share, for the
write-off of business process reengineering costs previously capitalized. Such
costs are being expensed as incurred prospectively.
RECENTLY ISSUED ACCOUNTING STANDARDS - IVAX is required to adopt SFAS
No. 130, REPORTING COMPREHENSIVE INCOME, in the first quarter of 1998. 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 comprehensive income, 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. 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 upon adoption.
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, establishes standards for the way that public business enterprises
report information about operating segments and for related disclosures about
products and services, geographic areas and major customers. IVAX will implement
the disclosure provisions of SFAS No. 131 effective December 31, 1998.
28
<PAGE>
(3) RESTRUCTURING COSTS AND ASSET WRITE-DOWNS:
During 1996, IVAX instituted a restructuring program aimed at reducing
costs and enhancing operating efficiency in IVAX's United States generic
pharmaceutical operations by consolidating facilities and reducing the
workforce. As a result, during the third quarter of 1996, IVAX recorded a
pre-tax charge of $13,974 associated with the United States generic
pharmaceutical operations comprised of $2,324 for severance and other employee
termination benefits; $3,000 for plant closure and related costs; and $8,650 to
reduce the carrying value of facilities to be closed and held for sale to their
estimated fair market value. In the fourth quarter of 1996, the charge related
to reducing the carrying value of certain assets to their estimated fair market
value was adjusted by $800 as it was expected that certain assets would be
transferred to IVAX's Kirkland, Canada facility, acquired in January 1997, for
use in operations. The employee termination benefits during 1996 primarily
represent severance pay and other benefits associated with the elimination of
approximately 358 employee positions in the manufacturing, sales and marketing
and research and development areas of IVAX's United States generic
pharmaceutical operations.
During 1997, IVAX continued its ongoing efforts to reduce costs and
enhance operating efficiency by initiating further restructuring programs
primarily at its corporate headquarters and United States generic pharmaceutical
operations. As a result, during 1997, IVAX recorded a pre-tax charge of $14,274
comprised of $5,094 for severance and other employee termination benefits and
$9,180 for certain costs associated primarily with further manufacturing
facility closures and additional costs associated with facilities held for sale
in connection with the 1996 restructuring programs. The employee termination
benefits during 1997 primarily represent severance pay and other benefits
associated with the elimination of approximately 275 employee positions at
IVAX's corporate headquarters and throughout all functions of IVAX's United
States generic pharmaceutical operations.
Pursuant to the restructuring programs, IVAX closed its Shreveport,
Louisiana pharmaceutical manufacturing facility in the fourth quarter of 1996;
consolidated its United States pharmaceutical distribution facilities into a
single leased distribution center in Kenton County, Kentucky in 1997; closed its
Ft. Lauderdale, Florida office, packaging and warehouse facility in the first
quarter of 1998; closed its Syosset, New York pharmaceutical manufacturing
facility in the first quarter of 1998; is pursuing the sale of its Kirkland,
Canada pharmaceutical manufacturing facility; expects to close one of its
London, England manufacturing facilities in 1998; and may sell its Falkenhagen,
Germany facility and one of its Miami, Florida manufacturing facilities before
the end of 1998. The closed facilities are held for sale. Production from these
facilities has been or will be transferred to other IVAX manufacturing
facilities.
During 1996, IVAX management reevaluated the carrying value of certain
long-lived assets and goodwill related to those assets held and used in IVAX's
United States generic pharmaceutical operations. This reevaluation was required
by management's determination that, based on results of operations during that
period and conditions and trends within the generic pharmaceutical industry, the
expected future cash flows to be derived from the assets and related goodwill
would be substantially lower than previously expected. As a result, management
reduced the carrying value of goodwill related to the United States generic
pharmaceutical operations by recording a pre-tax charge of $55,899. See Note 7,
Discontinued Operations, for a discussion of asset write-downs of the specialty
chemicals business.
During 1997, management again reevaluated the carrying value of certain
long-lived assets, primarily in conjunction with the initiatives noted above to
further consolidate facilities of IVAX's United States generic pharmaceutical
operations in a continuing effort to improve its efficiency. As a result of
29
<PAGE>
these initiatives, management reduced the carrying value of certain assets to
their estimated fair market value by recording a pre-tax charge of $23,814.
These restructuring costs and asset write-downs were recorded in
accordance with EITF Abstract No. 94-3, LIABILITY RECOGNITION FOR CERTAIN
EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AND ACTIVITY (INCLUDING
CERTAIN COSTS INCURRED IN A RESTRUCTURING), and SFAS No. 121, respectively, and
are shown as "Restructuring costs and asset write-downs" in the accompanying
consolidated statements of operations. Management determined the amount of the
write-downs by estimating the fair market value of the impaired assets using
various valuation techniques, including discounted cash flow analysis,
independent appraisals and third party offers.
The components of the restructuring costs and asset write-downs,
spending and other activity, as well as the remaining reserve balances at
December 31, 1997 and 1996, which are included in "Accrued expenses and other
current liabilities" in the accompanying consolidated balance sheets, are as
follows:
<TABLE>
<CAPTION>
EMPLOYEE
ASSET TERMINATION PLANT
WRITE-DOWNS BENEFITS CLOSURES TOTAL
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1996 restructuring costs and asset
write-downs $ 63,749 $ 2,324 $ 3,000 $ 69,073
Cash payments during 1996 - (370) (346) (716)
Non-cash activity (63,749) - - (63,749)
------------- -------------- ------------- --------------
Balance at December 31, 1996 - 1,954 2,654 4,608
1997 restructuring costs and asset
write-downs 23,814 5,094 9,180 38,088
Cash payments during 1997 - (2,400) (1,360) (3,760)
Non-cash activity (23,814) (101) (1,107) (25,022)
------------- -------------- ------------- --------------
Balance at December 31, 1997 $ - $ 4,547 $ 9,367 $ 13,914
============= ============== ============= ==============
</TABLE>
(4) MERGERS AND ACQUISITIONS:
On March 1, 1996, IVAX acquired Elvetium S.A. (Argentina), Alet
Laboratorios S.A.E.C.I. y E. and Elvetium S.A. (Uruguay), three affiliated
companies engaged in the manufacture and marketing of pharmaceuticals in
Argentina and Uruguay, in exchange for 1,490,909 shares of IVAX common stock.
Although the acquisition was accounted for using the pooling of interests method
of accounting, the acquisition was recorded as of January 1, 1996, and the
accompanying consolidated financial statements have not been restated to give
retroactive effect to the acquisition due to the immateriality of the related
amounts.
On September 30, 1995, IVAX acquired Pharmatop Limited, a company
engaged exclusively in the distribution and marketing in Poland of products of
Norton Healthcare in consideration for 350,000 shares of IVAX common stock.
Although the acquisition was accounted for using the pooling of interests method
of accounting, the accompanying consolidated financial statements have not been
restated to give retroactive effect to the acquisition due to the immateriality
of the related amounts.
On July 17, 1995, IVAX paid approximately $2,783 in cash to acquire
ImmunoVision, Inc. ("ImmunoVision"), a company engaged in the manufacture and
sale of certain diagnostic products. The
30
<PAGE>
acquisition was accounted for using the purchase method of accounting. The
historical operations of ImmunoVision, when compared to the historical
operations of IVAX, were not significant.
In 1995, IVAX increased its ownership interest in Galena from 60% to
62%. In 1996, IVAX increased its ownership interest to 74% with additional open
market purchases totaling $12,362.
(5) DIVESTITURES:
Effective May 30, 1997, IVAX sold McGaw 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/Trademark/ drug delivery system. The Duplex/Trademark/
system, presently in development by McGaw, is a multi-compartment intravenous
drug delivery system devised for drugs that have limited stability after mixing.
During the third quarter of 1997, IVAX completed the sale of a
significant portion of the assets of its specialty chemicals business in three
separate transactions in which IVAX received an aggregate of $41,105 in cash.
During February 1998, IVAX sold its vacuum pumps fluids business, the only
remaining segment of IVAX's specialty chemicals business, for $3,885 in cash
(subject to certain post-closing adjustments). IVAX retained certain real estate
assets of the specialty chemicals business which are held for sale.
The gain on sale and results of operations of both the intravenous
products and specialty chemicals businesses were classified as part of
discontinued operations for all periods presented (See Note 7, Discontinued
Operations).
(6) SALE OF PRODUCT RIGHTS:
On September 18, 1997, IVAX sold the rights to its proprietary drug
Elmiron/Registered trademark/ and three additional urology products in the
United States and Canada to ALZA Corporation ("ALZA"). IVAX retained the rights
to these products outside of the United States and Canada. IVAX received $75
million in up-front payments and may receive additional fees based on the
achievement of specified sales levels of Elmiron/Registered trademark/ during
the next five years. IVAX will receive payments from ALZA based on sales of the
products. Included in "Other income, net" in the accompanying consolidated
statements of operations is a $43,224 pre- and after-tax gain on the
transaction. The gain is net of $15,000 in reserves provided for a related
research and development cost sharing arrangement included in "Accrued expenses
and other current liabilities" in the accompanying consolidated balance sheets,
the write-off of $11,774 in certain assets of the domestic proprietary
pharmaceutical operations, $3,000 in payments due to a third party associated
with an existing licensing agreement, and $2,002 primarily in severance and
other employee termination benefits associated with workforce reductions in
IVAX's domestic proprietary pharmaceutical operations.
31
<PAGE>
(7) DISCONTINUED OPERATIONS:
During 1997, IVAX's Board of Directors determined to divest its
intravenous products, personal care products and specialty chemicals businesses.
As a result, IVAX classified these businesses as discontinued operations and has
included their results of operations in "Discontinued operations, net of taxes"
in the accompanying consolidated statements of operations. Results of these
operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
INTRAVENOUS PRODUCTS (THROUGH MAY 30, 1997)
Net revenues (1) $ 140,634 $ 343,028 $ 339,978
============== ============= ==============
Income from operations before taxes (2) $ 3,770 $ 13,759 $ 17,161
Income tax benefit (427) (6,771) (2,564)
-------------- ------------- --------------
Income from operations $ 4,197 $ 20,530 $ 19,725
-------------- ------------- --------------
PERSONAL CARE PRODUCTS
Net revenues (1) $ 73,870 $ 80,000 $ 65,368
============== ============= ==============
Income (loss) from operations before taxes (2) $ (18,254) $ 6,089 $ 3,885
Income tax provision 3,283 1,686 1,652
-------------- ------------- --------------
Income (loss) from operations $ (21,537) $ 4,403 $ 2,233
-------------- ------------- --------------
SPECIALTY CHEMICALS
Net revenues (1) $ 41,562 $ 67,857 $ 66,886
============== ============= ==============
Loss from operations before taxes (2) $ (1,749) $ (53,274) $ (1,927)
Income tax provision (benefit) 2,235 (4,651) (451)
-------------- ------------- --------------
Loss from operations $ (3,984) $ (48,623) $ (1,476)
-------------- ------------- --------------
Sub-total income (loss) from operations $ (21,324) $ (23,690) $ 20,482
-------------- ------------- --------------
DIVESTITURES (SEE NOTE 5)
Pre-tax gain on divestitures $ 44,715 $ - $ -
Income tax provision 32,092 - -
-------------- ------------- --------------
Net gain on divestitures $ 12,623 $ - $ -
-------------- ------------- --------------
Total income (loss) from discontinued operations $ (8,701) $ (23,690) $ 20,482
============== ============= ==============
<FN>
(1) Net revenues include intersegment sales of $569, $2,165 and $1,454 for
1997, 1996 and 1995, respectively.
(2) Includes 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 $5,799, $6,556 and $3,250 for 1997, 1996 and 1995, respectively.
</FN>
</TABLE>
32
<PAGE>
The net assets of IVAX's remaining discontinued operations (excluding
intercompany balances) at December 31, 1997, as presented in the accompanying
consolidated balance sheets, are as follows:
<TABLE>
<CAPTION>
PERSONAL CARE SPECIALTY
PRODUCTS CHEMICALS
BUSINESS BUSINESS TOTAL
---------------- ------------- --------------
<S> <C> <C> <C>
Current assets $ 24,419 $ 1,919 $ 26,338
Property, plant and equipment, net 5,572 926 6,498
Other assets 19,676 3,717 23,393
---------------- ------------- --------------
Total assets 49,667 6,562 56,229
---------------- ------------- --------------
Current liabilities 13,599 3,958 17,557
Other liabilities - 852 852
---------------- ------------- --------------
Total liabilities 13,599 4,810 18,409
---------------- ------------- --------------
Net assets of discontinued operations $ 36,068 $ 1,752 $ 37,820
================ ============= ==============
</TABLE>
During 1996, IVAX management reevaluated the carrying value of certain
long-lived assets and goodwill related to those assets to be held and used in
IVAX's specialty chemicals business. This reevaluation was necessitated by
management's determination that, based on recent results of operations during
that period and conditions and trends of that business, the expected future cash
flows to be derived from the assets and related goodwill would be substantially
lower than had previously been expected. As a result, management reduced the
carrying value of certain long-lived assets and goodwill of the specialty
chemicals business by recording pre-tax charges of $9,753 and $38,689,
respectively. Management determined the amount of the charges based on various
valuation techniques, including discounted cash flow analysis and net realizable
value for assets to be held and used. The asset write-downs related to the
specialty chemicals business have been included in "Discontinued operations, net
of taxes" in the accompanying consolidated statements of operations.
(8) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
In November 1995, IVAX sold its investment in 1,000,000 shares of North
American Vaccine, Inc. ("NAVA") Series A Convertible Preferred Stock at fair
value to a limited partnership beneficially owned by IVAX's chairman and chief
executive officer for $16,250 in cash. IVAX considered a variety of factors in
determining the fair value of the preferred shares, including, among other
things, the market price of the common stock and an opinion from an independent
valuation firm. The investment had been recorded at $3,415, the historical cost
of the preferred shares, less $272 which represented IVAX's interest in shares
of IVAX common stock held by NAVA. The pre-tax gain of $12,835 resulting from
the sale of the preferred shares is included in "Other income, net" in the
accompanying consolidated statement of operations for the year ended December
31, 1995.
In March 1995, IVAX and Knoll AG ("Knoll"), a wholly-owned subsidiary
of BASF Aktiengesellschaft, established a joint venture for the marketing of
generic pharmaceutical products in Europe. In December 1996, IVAX sold its share
of the joint venture to Knoll and terminated the joint venture agreement. The
results of the joint venture, IVAX's equity in its earnings, and the sale of
IVAX's interest were not significant to IVAX.
33
<PAGE>
IVAX has ownership interests of 50% in various other unconsolidated
affiliates. Undistributed earnings of these affiliates, as well as IVAX's equity
in their earnings, were not significant in any of the periods presented in the
accompanying consolidated financial statements.
At December 31, 1997 and 1996, IVAX held marketable equity securities
which it classified as available for sale. Based on quoted market prices, the
securities are stated at fair value of $3,405 and $12,094, respectively, and are
included in "Other assets" in the accompanying consolidated balance sheets. At
December 31, 1997 and 1996, net unrealized gains (losses) of $(963) and $5,267,
respectively, are included in "Cumulative translation adjustment and other" in
the accompanying consolidated balance sheets.
(9) DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Borrowings under revolving line of credit due November 14, 1999
at LIBOR plus 2% (7.51% - 8.19% at December 31, 1996).
Paid in full in 1997. $ - $ 337,150
6 1/2% Convertible Subordinated Notes due 2001. Interest payable
semi-annually. Convertible at the option of the holders into
2,866,929 shares of common stock at a conversion rate of $31.75
per share. 91,025 91,025
Industrial revenue bonds due 2008. Collateralized by mortgages on
real property and equipment and a standby letter of credit. Interest
payable semi-annually at adjustable rates (4.35% at December 31,
1997). Paid in full in the first quarter of 1998. 6,700 6,700
Industrial revenue bonds due 2006. Interest at adjustable rates
(3.85% at December 31, 1996). Paid in full in 1997. - 3,680
Mortgage loans, payable at adjustable rates (6.25% - 9.0%
at December 31, 1996 ). Paid in full in 1997. - 3,978
International subsidiaries' debt 3,862 4,858
Other 464 1,023
------------- --------------
102,051 448,414
Current portion of long-term debt 7,858 5,595
------------- --------------
$ 94,193 $ 442,819
============= ==============
</TABLE>
On May 14, 1996, IVAX entered into a revolving line of credit agreement
with a bank syndicate which permitted borrowings of up to $425,000. On November
14, 1996, IVAX entered into an amendment to the May 14, 1996 line of credit
agreement which, among other things, reduced permitted borrowings to $375,000
and shortened the maturity of the line of credit from May 2001 to November 1999.
Proceeds from the credit facility were used to refinance previously existing
credit facilities and for working capital and general corporate purposes.
On June 17, 1996, IVAX made an investment in and advances to McGaw in
the aggregate amount of $91,150 using proceeds from the credit facility. McGaw
used the proceeds to redeem the remaining outstanding face value of its 10-3/8%
Senior Notes due April 1, 1999 at a purchase price of approximately 102% of
their outstanding principal of $87,420, plus accrued interest. The redemption
resulted in a pre-tax extraordinary loss of $3,455.
34
<PAGE>
During 1997, IVAX utilized a portion of the proceeds from the sale of
its intravenous products business (See Note 5, Divestitures) to pay the $270,147
outstanding balance of its revolving credit facility. 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.
Certain of IVAX's international subsidiaries maintain relationships
with foreign banks providing uncommitted borrowings in the aggregate amounts of
approximately $7,033 and $6,273 at December 31, 1997 and 1996, respectively.
Outstanding borrowings under these lines of credit totaled $4,025 and $5,027 at
December 31, 1997 and 1996, respectively, and are included as "Loans payable" in
the accompanying consolidated balance sheets.
The estimated fair values of IVAX's long-term debt are as follows:
DECEMBER 31,
---------------------------------
1997 1996
------------- --------------
6 1/2% Convertible Subordinated
Notes due 2001 $ 77,826 $ 85,108
Other 11,026 357,389
------------- --------------
$ 88,852 $ 442,497
============= ==============
Fair value of the 6 1/2% Convertible Subordinated Notes due 2001 is
based on available quoted market prices. Management believes that the carrying
amounts of other debt approximate the fair value.
The stated future maturities of all long-term debt for the next five
years and thereafter are approximately $7,858, $758, $636, $91,617, $591 and
$591, respectively.
(10) INCOME TAXES:
The provision (benefit) for income taxes of consolidated operations
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Current
U.S. Federal $ - $ (24,581) $ 16,590
State - (5,198) 2,861
Puerto Rico and the U.S.
Virgin Islands 1,607 5,752 4,216
Foreign 7,851 20,719 6,904
Deferred 84,368 (63,415) (5,248)
-------------- ------------- --------------
$ 93,826 $ (66,723) $ 25,323
============== ============= ==============
</TABLE>
35
<PAGE>
The provision (benefit) for income taxes of continuing operations
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Current
U.S. Federal $ - $ (25,033) $ 19,130
State - (4,140) 2,569
Puerto Rico and the U.S.
Virgin Islands 679 3,093 2,229
Foreign 9,293 23,835 9,948
Deferred 50,194 (50,243) (4,175)
-------------- ------------- --------------
$ 60,166 $ (52,488) $ 29,701
============== ============= ==============
</TABLE>
The components of income (loss) from continuing operations before
income taxes and minority interest are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
United States $ (189,427) $ (276,693) $ 43,378
Puerto Rico and the U.S.
Virgin Islands 4,389 16,993 31,980
Foreign 29,756 77,577 53,964
-------------- ------------- --------------
$ (155,282) $ (182,123) $ 129,322
============== ============= ==============
</TABLE>
A reconciliation of the difference between the expected provision
(benefit) for income taxes using the statutory Federal tax rate and IVAX's
actual provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Tax using statutory Federal tax rate $ (54,349) $ (63,743) $ 45,263
Effect of state income taxes - (3,908) 1,183
Write-down of cost in excess of net assets of
acquired companies 3,270 20,057 -
Establishment of valuation allowance on
deferred tax assets 114,660 - -
Foreign tax rate differential (5,949) (7,879) (6,809)
Effect of Puerto Rico taxes and tollgate 679 3,876 3,602
Puerto Rico and U.S. possessions tax incentives (1,536) (5,734) (11,193)
Other, net 3,391 4,843 (2,345)
-------------- ------------- --------------
$ 60,166 $ (52,488) $ 29,701
============== ============= ==============
</TABLE>
During 1997, IVAX established $114,660 in valuation allowances,
primarily against its domestic deferred tax assets generated from losses
incurred by its domestic operations. As a result, the domestic deferred tax
asset is fully reserved as of December 31, 1997. 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
domestic taxable income is achieved.
Deferred taxes arise due to timing differences in reporting of certain
income and expense items for book purposes and income tax purposes. A detail of
the significant components of deferred tax
36
<PAGE>
balances included in "Other current assets," "Other assets" and "Other long-term
liabilities," in the accompanying consolidated balance sheets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Accounts receivable allowances $ 485 $ 42,030
Reserves and accruals 30,401 (1,401)
Differences in capitalization of inventory costs 434 361
Other 3,920 2,572
Valuation allowance (33,903) -
------------- --------------
Amount included in "Other current assets" 1,337 43,562
------------- --------------
Basis differences on fixed assets 8,932 1,297
Depreciation differences on fixed assets 9,566 12,154
Recognition of revenue (410) (4,463)
Carrying value of long-term assets 6,952 11,083
Other 2,865 513
Tax credits 9,891 628
Net operating losses 105,745 57,353
Valuation allowance (119,330) (34,663)
------------- --------------
Amount included in "Other assets" 24,211 43,902
------------- --------------
Carrying value of long-term assets - (2,410)
Other (5,914) (4,008)
------------- --------------
Amount included in "Other long-term liabilities" (5,914) (6,418)
------------- --------------
Net deferred tax asset $ 19,634 $ 81,046
============= ==============
</TABLE>
The reduction in the deferred tax asset related to "Accounts receivable
allowances" relates primarily to an election made during 1997 to write-down
trade receivables to their net realizable value for tax purposes, utilizing the
mark-to-market method of accounting. The increase in the deferred tax asset for
"Reserves and accruals" relates to significant reserves and accruals established
in 1997 which are not deductible for tax purposes, including restructuring and
asset write-down reserves, inventory reserves, and research and development cost
sharing reserves associated with the sale of product rights (See Note 3,
Restructuring Costs and Asset Write-Downs, and Note 6, Sale of Product Rights).
Income from Zenith Laboratories, Inc's ("Zenith's") Puerto Rico
manufacturing operations is subject to certain tax exemptions under the
terms of a grant from the Puerto Rico government which expires in 1999. IVAX has
applied for a new grant. The grant reduced tax expense by approximately $575,
$1,837 and $11,171 for the years ended December 31, 1997, 1996 and 1995,
respectively. Under the terms of the grant, Zenith is required to maintain
certain employment levels.
IVAX has historically received a United States tax credit under Section
936 of the Internal Revenue Code for certain income generated by its Puerto Rico
and Virgin Islands operations. For 1997, 1996 and 1995, this credit was
approximately $1,536, $5,734 and $11,193, respectively, and completely offset
the entire United States tax liability of such operations. In 1996, Congress
repealed the Section 936 tax credit and it will be phased out over 5 years
beginning in 2001.
37
<PAGE>
At December 31, 1997, IVAX had $48,993 of net operating loss
carryforwards which relate to losses transferred to IVAX as a result of the
disposition of McGaw. These losses will begin to expire in 2002. The utilization
of these net operating loss carryforwards is subject to limitations of $21,000
per year which are cumulative to the extent not utilized by IVAX. The deferred
tax asset related to the future benefit of these net operating loss
carryforwards has been reduced to zero by a valuation allowance. Approximately
$37,910 of these net operating loss carryforwards relate to McGaw's predecessor
and are subject to a further annual limitation of $3,000 which is cumulative to
the extent not utilized by IVAX.
At December 31, 1997, Zenith had net operating loss carryforwards of
$16,530 which will begin to expire in 2004. The deferred tax asset related to
the future benefit of these net operating loss carryforwards has been reduced to
zero through a valuation allowance. Approximately $3,132 of the net operating
loss carryforwards relate to Zenith's predecessor and are subject to an annual
limitation of $1,700 which is cumulative to the extent not utilized by IVAX.
Since all of these net operating loss carryforwards relate to the exercise of
certain stock options, any future benefits recognized from the reduction of the
valuation allowances related to these net operating loss carryforwards will
increase paid in capital.
In addition to the Zenith and McGaw net operating loss carryforwards,
at December 31, 1997 and 1996, IVAX had consolidated net operating loss
carryforwards of $202,250 and $69,795, respectively, which will begin to expire
in 2012. The deferred tax asset related to the future benefit of these net
operating loss carryforwards has been reduced to zero by a valuation allowance
at December 31, 1997.
At December 31, 1997, IVAX had consolidated tax credit carryforwards of
$9,891. The tax credits are comprised of foreign tax credits of $3,070, which
begin to expire in 1999, $1,021 of research and development credits, which begin
to expire in 2008, and $5,800 of minimum tax credits, which never expire.
Realization of the net deferred tax asset of $19,634, which relates
to foreign operations, is dependent upon generating sufficient future
foreign taxable income. Although realization is not assured, management believes
it is more likely than not that the remaining additional net deferred tax asset
will be realized based upon estimated future taxable income of IVAX's foreign
operations and, accordingly, no valuation allowances for this asset were deemed
necessary at December 31, 1997. Management's estimates of future taxable income
are subject to revision due to, among other things, regulatory and competitive
factors affecting the pharmaceutical industries in the markets in which IVAX
operates.
United States taxes have not been provided on undistributed earnings of
foreign subsidiaries, as such earnings are being retained indefinitely by such
subsidiaries for reinvestment. The distribution of these earnings would first
reduce the domestic valuation allowance before resulting in additional United
States taxes.
Minority interest included in the accompanying consolidated statements
of operations is net of a provision for income taxes of $2,228, $3,116 and
$3,044 for the years ended December 31, 1997, 1996 and 1995, respectively.
38
<PAGE>
(11) 401(K) PLANS:
IVAX's employees within the United States, the United States Virgin
Islands and Puerto Rico are eligible to participate in 401(k) retirement plans,
which permit pre-tax employee payroll contributions (subject to certain
limitations) and discretionary employer matching contributions. Total matching
contributions (including those of discontinued operations) for the years ended
December 31, 1997, 1996 and 1995 were $2,025, $3,272 and $3,125, respectively, a
portion of which was made in IVAX common stock.
(12) SHAREHOLDERS' EQUITY:
STOCK OPTION PLANS - IVAX administers and has stock options outstanding
under IVAX's 1997 Employee Stock Option Plan ("1997 Plan"), IVAX's 1994 Stock
Option Plan ("1994 Plan"), IVAX's 1985 Stock Option Plan ("1985 Plan"), and
certain stock option plans assumed in business acquisitions. The options
outstanding under the plans assumed in the business acquisitions were converted
into options to acquire IVAX common stock using the applicable exchange ratios.
No additional stock options may be issued under the 1985 Plan or the plans
assumed in the business acquisitions.
The 1997 Plan permits the issuance of options to employees and
consultants to purchase up to 4,000,000 shares of IVAX common stock. The 1994
Plan permits the issuance of options to employees, non-employee directors and
consultants to purchase up to 7,000,000 shares of IVAX common stock. Both plans
provide that the exercise price of the issued options shall be no less than the
fair market value of the common stock on the date of grant and that the option
term of such options shall not exceed ten years.
The following table presents additional information concerning the
activity in the stock option plans (number of shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
----------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 10,102 $ 22.50 10,198 $ 20.51 12,307 $ 17.37
Granted 2,487 10.67 2,621 26.07 2,247 22.56
Exercised (42) 3.59 (1,881) 16.93 (2,975) 7.86
Terminated (2,490) 21.61 (836) 21.90 (1,381) 24.03
-------- -------- --------
Balance at end of year 10,057 19.87 10,102 22.50 10,198 20.51
======== ======== ========
Exercisable at December 31, 6,220 $ 20.62 4,454 $ 21.51 4,012 $ 19.83
</TABLE>
39
<PAGE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -----------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
.48 - 9.99 1,189 6.9 $ 7.98 320 $ 7.35
10.00 - 19.99 2,141 4.2 14.17 1,131 15.85
20.00 - 29.99 6,382 3.6 22.76 4,557 22.15
30.00 - 36.38 345 3.9 32.76 212 33.34
------ -----
.48 - 36.38 10,057 4.1 19.87 6,220 20.62
====== =====
</TABLE>
In December 1997, IVAX instituted a stock option exchange program in
which it offered holders of certain outstanding out-of-the-money stock options,
excluding executive officers and directors of IVAX, the right to exchange such
options for the same or a lesser number of new options with a lower exercise
price and, in some cases, a modified vesting schedule and term. As a result of
the exchange program, on January 23, 1998, approximately 3,000,000 stock options
with exercise prices ranging from $9.88 to $34.88 were exchanged for
approximately 2,100,000 stock options with an exercise price of $8.33.
IVAX's pro forma net loss, pro forma net loss per common share and pro
forma weighted average fair value of options granted, with related assumptions,
assuming IVAX had adopted the fair value method of accounting for all
stock-based compensation arrangements consistent with the provisions of SFAS No.
123, using the Black-Scholes option pricing model for all options granted after
January 1, 1995, are indicated below:
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996
--------------- ----------------
Pro forma net loss $ (241,452) $ (167,993)
Pro forma net loss
per common share $ (1.99) $ (1.39)
Pro forma weighted average fair
value of options granted $ 7.20 $ 10.04
Expected life (years) 4.8 5.5
Risk-free interest rate 5.51% - 6.75% 5.41% - 6.79%
Expected volatility 28% 28%
Dividend yield 0% 0%
As the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
WARRANTS - At December 31, 1994, IVAX had warrants outstanding for the
purchase of up to 337,500 shares of common stock at an exercise price of $5.00
per share. These warrants were exercised in January 1995 resulting in proceeds
of $1,688. No warrants were issued or exercised during the years ended December
31, 1996 and 1997.
CONVERTIBLE DEBT - At December 31, 1997 and 1996, IVAX had outstanding
$91,025 of 6 1/2% Convertible Subordinated Notes due 2001 (See Note 9, Debt).
The notes are convertible at the option of
40
<PAGE>
the holders into 2,866,929 shares of IVAX common stock at a conversion rate of
$31.75 per share. During 1995, the outstanding $1,500 of 9.0% Convertible
Subordinated Debentures due 1995 were converted by the debenture holders into a
total of 286,371 shares of IVAX common stock at conversion rates ranging from
$5.20 to $5.31 per share.
DIVIDENDS - IVAX did not pay dividends during the year ended December
31, 1997. During the years ended December 31, 1996 and 1995, IVAX paid cash
dividends of $.05 and $.08 per share with respect to its common stock, totaling
approximately $6,057 and $9,347, respectively.
(13) GEOGRAPHIC INFORMATION:
Information about IVAX's domestic and foreign operations as of and for
the three years ended December 31, 1997 is set forth in the table below.
Identifiable assets by country include assets directly identifiable with those
operations.
<TABLE>
<CAPTION>
UNITED UNITED CZECH
GEOGRAPHIC AREAS: STATES KINGDOM REPUBLIC OTHER TOTAL
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues 1997 $ 199,208 $ 225,313 $ 22,595 $ 154,994 $ 602,110
1996 292,285 232,273 27,343 110,686 662,587
1995 510,595 174,735 26,901 76,757 788,988
Income (loss) from
operations 1997 (223,842) 17,715 21,800 (15,374) (199,701)
1996 (259,430) 63,111 27,834 (5,391) (173,876)
1995 63,661 32,910 21,955 (124) 118,402
Identifiable assets 1997 339,422 248,777 84,791 79,926 752,916
1996 478,136 300,026 86,203 70,954 935,319
1995 540,900 220,491 61,655 48,509 871,555
</TABLE>
Identifiable assets are reconciled below to "Total assets" as presented in the
accompanying consolidated balance sheets:
DECEMBER 31,
---------------------------------
1997 1996
------------- --------------
Identifiable assets $ 752,916 $ 935,319
Net assets of discontinued operations 37,820 398,329
------------- --------------
Total assets $ 790,736 $ 1,333,648
============= ==============
No single customer accounted for 10% or more of IVAX's consolidated net
revenues for any of the three years ended December 31, 1997.
(14) COMMITMENTS AND CONTINGENCIES:
LEASES - IVAX leases office, plant and warehouse facilities and
automobiles under noncancellable operating leases. Motor vehicles, production
equipment and certain manufacturing facilities are also leased under capital
leases. Rent expense for the three years ended December 31, 1997 totaled
approximately $5,022, $5,540 and $7,817, respectively. The future minimum lease
payments under noncancellable capital leases and their related assets recorded
at December 31, 1997 and 1996 were not
41
<PAGE>
material. The future minimum lease payments under noncancellable operating
leases with initial or remaining terms of one year or more at December 31, 1997,
were as follows:
OPERATING
LEASES
-------------
1998 $ 4,605
1999 2,554
2000 1,752
2001 1,395
2002 989
Thereafter 8,524
-------------
Total minimum lease payments $ 19,819
=============
LEGAL PROCEEDINGS - In April 1995, Zenith received approvals from the
FDA to manufacture and market the antibiotic cefaclor in capsule and oral
suspension formulations. Cefaclor is the generic equivalent of Ceclor/Registered
trademark/, a product of Eli Lilly and Company ("Lilly"). In April 1995, Lilly
filed a lawsuit against Zenith and others in federal court alleging that
Biochimica Opos S.p.A. ("Opos"), Zenith's cefaclor raw material supplier,
manufactured cefaclor raw material in a manner which infringed two process
patents owned by Lilly, and that Zenith and the other defendants knowingly and
willfully infringed and induced Opos to infringe the patents by importing the
raw material into the United States. The lawsuit seeks to enjoin Zenith and the
other defendants from infringing or inducing the infringement of the patents and
from making, using or selling any product incorporating the raw material
provided by Opos, and seeks an unspecified amount of monetary damages and the
destruction of all cefaclor raw material manufactured by Opos and imported into
the United States. In August 1995, the Court denied Lilly's motion for
preliminary injunction which sought to prevent Zenith from selling cefaclor
until the merits of Lilly's allegations could be determined at trial. In May
1996, the United States Court of Appeals for the Federal Circuit affirmed the
district court's denial of Lilly's motion for preliminary injunction. In
February 1997, Lilly filed an amended complaint which alleges the infringement
of an additional patent. Zenith ceased selling cefaclor in January 1997, when it
announced a recall in the United States of cefaclor as a result of a recall by
Opos of the raw material used to manufacture the product.
In April 1997, Lilly filed a complaint in federal court against various
defendants, including Zenith. With respect to Zenith, the complaint asserts
claims for violation of the Lanham Act, unfair competition under New Jersey
state law, common law unfair competition and unjust enrichment. The claims
asserted against the other defendants are essentially the same as those asserted
against Zenith, and additional claims are also asserted against the other
defendants. All of the asserted claims arise out of what Lilly contends were
fraudulent misrepresentations to Lilly and the FDA by Opos regarding the methods
utilized by Opos to manufacture bulk cefaclor and the location of the
manufacturing facility of such cefaclor. According to Lilly, through these
alleged misrepresentations, Opos fraudulently obtained approval from the FDA to
market bulk cefaclor in the United States. Lilly alleges that Zenith, in
marketing and selling retail dosage units of cefaclor manufactured from Opos'
bulk cefaclor, used false and misleading descriptions and representations
regarding Zenith's cefaclor product. The relief sought by Lilly against Zenith,
jointly and severally with the other defendants, is an accounting to Lilly for
any and all profits derived by Zenith from the sale of cefaclor and an award of
damages to Lilly. Lilly further seeks an award of treble damages and litigation
costs, including attorneys' fees and interest. Zenith filed a motion to dismiss
the action in August 1997, which motion remains pending.
42
<PAGE>
In June 1994, the former chairman and chief executive officer of McGaw
individually filed a complaint against IVAX and its chairman, alleging violation
of federal securities laws as well as certain additional state law claims
arising out of the acquisition of McGaw by IVAX. The complaint seeks up to
$21,000 in compensatory damages (and up to $48,000 in rescissionary damages upon
tender of IVAX shares held by the plaintiff), as well as punitive damages,
litigation costs and attorneys' fees. Although the lawsuit was initially
consolidated for all purposes with a class action suit alleging the same claims,
in August 1995, the Court entered an order allowing the former McGaw chairman to
opt out of the class action and to proceed under his separate complaint. In
January 1998, the parties entered into a settlement agreement pursuant to which
they settled the lawsuit in its entirety in exchange for the payment by the
defendants and their insurers of $1,750. IVAX's portion of the settlement
obligation, which is not significant, was appropriately accrued at December 31,
1997. Pursuant to the settlement agreement, the lawsuit was dismissed with
prejudice on January 30, 1998.
In July 1994, an action was filed in federal court against IVAX in
which plaintiffs, shareholders of McGaw at the time of its acquisition by IVAX,
alleged that IVAX violated Sections 11 and 12(2) of the Securities Act, as well
as certain state securities laws, and that it breached certain provisions of the
merger agreement and IVAX's bylaws, by issuing to plaintiffs shares of IVAX
common stock subject to the restrictions imposed by Rule 145 promulgated under
the Securities Act and Accounting Series Release 135. The plaintiffs claim that,
as a result of the restrictions imposed on the certificates issued to them, they
suffered damages from the loss of value of their shares, and seek damages of
$11,000, plus expenses and attorneys' fees. In June 1995, the Court entered an
order denying plaintiffs' motion for summary judgment with respect to the claims
alleging that IVAX breached certain provisions of the merger agreement and
IVAX's bylaws and granted IVAX's motion to dismiss such counts. The Court denied
IVAX's motion to dismiss the counts relating to alleged violation of Sections 11
and 12(2) of the Securities Act and alleged violations of certain state
securities laws, as well as its motion to transfer venue. In October 1995, the
Court entered an order granting the plaintiffs' motion to amend their complaint
to assert new causes of action under the Uniform Commercial Code and granting
the plaintiffs' motion for reconsideration of the dismissal of the counts
alleging breach of IVAX's bylaws, and ordered that such counts be reinstated.
During April and May 1997, the parties filed cross motions for summary
judgment, which motions remain pending.
In November 1996, individuals purporting to be shareholders of IVAX
filed a class action complaint against IVAX and certain of its current or former
officers or directors in federal court which consolidates, amends and
supplements a number of similar complaints filed earlier in 1996. The plaintiffs
seek to act as representatives of a class consisting of all purchasers of IVAX
common stock between July 31, 1995 and June 27, 1996. The consolidated amended
complaint alleges violations of federal securities laws and also asserts a claim
for negligent misrepresentation. The complaint generally asserts that IVAX made
untrue statements of material fact and omitted to state material facts necessary
to make statements made not misleading in its public disclosure documents and in
communications to the public regarding its operations and financial results and
that its financial statements were not prepared in accordance with generally
accepted accounting principles. These allegations are centered around claims
that IVAX failed to disclose that it offered its customers shelf stock
adjustments and failed to establish reserves for such adjustments. In general,
the complaint seeks an unspecified amount of compensatory damages, pre-judgment
interest, litigation costs and attorneys' fees. In January 1997, the IVAX
defendants filed a motion to dismiss the action, which motion remains pending.
In March 1997, individuals purporting to be shareholders of IVAX filed
a class action complaint against IVAX, its chairman and its former chief
financial officer in federal court. The plaintiffs seek to act as
representatives of a class consisting of all persons who purchased IVAX common
stock or call
43
<PAGE>
options during the period from September 30, 1996 through November 11, 1996 and
who were allegedly damaged thereby. The complaint alleges violations of Section
10(b) of the Securities Exchange Act of 1934 and negligent misrepresentation.
The complaint alleges that defendants made untrue statements of material fact
and omitted to state material facts necessary to make statements made not
misleading in a September 30, 1996 press release regarding IVAX's forecasted
earnings for the third quarter of 1996. The complaint seeks unspecified
compensatory damages, pre-judgment interest, attorneys' fees and litigation
costs.
In April 1997, individuals purporting to be shareholders of IVAX filed
a class action complaint against IVAX, its chairman and its former chief
financial officer in federal court. The plaintiffs seek to act as
representatives of a class consisting of all persons who purchased IVAX common
stock or call options during the period from August 2, 1996 through November 11,
1996, inclusive. The complaint alleges claims for violation of Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 and for negligent
misrepresentation. The complaint alleges, among other things, that during the
class period defendants made untrue statements of material fact and omitted to
state material facts necessary to make statements made not misleading in its
statements to the public, including in a September 30, 1996 press release
regarding IVAX's forecasted earnings for the third quarter of 1996. The
complaint seeks unspecified compensatory damages, interest, attorneys' fees,
costs of suit and unspecified other and further relief from the court.
With respect to the cases filed in March 1997 and April 1997, in June
1997, the court entered an order dismissing the second action without prejudice
and ordered the plaintiffs in both actions to file an amended complaint
incorporating the allegations in both actions under a single case. The amended
complaint was filed in July 1997, and plaintiffs therein seek to act as
representatives of a class consisting of all persons who purchased IVAX common
stock or call options during the period from August 2, 1996 through November 11,
1996, inclusive. In July 1997, the IVAX defendants filed a motion to dismiss the
action, which motion remains pending.
In March 1995, Baxter International Inc. and Baxter HealthCare Corp.
(collectively, "Baxter") filed an action against McGaw in federal court. The
plaintiffs alleged that McGaw's SafeLine/Trademark/ Needle Free System infringes
three United States patents owned by Baxter. After a trial, the jury found in
favor of McGaw, determining that each of the claims of the asserted patents was
either invalid or was not infringed by McGaw. In addition, the judge found that
two of Baxter's patents are unenforceable because of inequitable conduct.
Judgment was entered in favor of McGaw in March 1996, and Baxter's appeal is
presently pending in the United States Court of Appeals for the Federal Circuit.
In connection with IVAX's sale of McGaw in June 1997, IVAX agreed to continue to
conduct the defense of this action at its expense and to hold the purchaser of
McGaw harmless against any judgment rendered or settlement entered into with
respect to this action. Any such judgment or settlement will have the effect of
limiting the amount of contingent payments IVAX may receive under the agreement
governing the sale of McGaw (See Note 5, Divestitures).
In February 1993, Smith & Nephew, Inc., a Delaware corporation ("S&N")
filed an action against IVAX and Solopak, Inc., a Delaware corporation and
wholly-owned subsidiary of IVAX ("Subsidiary") in Illinois state court. S&N
alleged that IVAX breached an Asset Purchase Agreement (the "Agreement"), dated
February 28, 1992, among IVAX, the Subsidiary and S&N, pursuant to which, among
other things, S&N agreed to sell to this Subsidiary substantially all of the
assets of Smith & Nephew Solopak, a division of S&N (the "Division"), for $19
million in cash, by failing to close when all conditions precedent to the
closing were satisfied. S&N further alleged that in November 1992, it sold the
Division to another party for $13.5 million. S&N is seeking damages of $5.5
million, the difference between the
44
<PAGE>
$19 million purchase price specified in the Agreement and the eventual sale
price, plus attorneys' fees and costs. S&N claimed additional unspecified
damages resulting from IVAX's alleged interference with S&N's employees during
the due diligence process. IVAX counterclaimed against S&N for breach of the
Agreement and is seeking as damages the expenses incurred in connection with the
failed acquisition plus attorneys' fees and costs. The case is presently set for
trial in July 1998.
IVAX intends to vigorously defend each of the foregoing lawsuits, but
their respective outcomes cannot be predicted. Any of such lawsuits, if
determined adversely to IVAX, could have a material adverse effect on IVAX's
financial position and results of operations. IVAX's ultimate liability with
respect to any of the foregoing proceedings is not presently determinable.
IVAX is involved in various other legal proceedings arising in the
ordinary course of business, some of which involve substantial amounts. While it
is not feasible to predict or determine the outcome of these proceedings, in the
opinion of management, based on a review with legal counsel, any losses
resulting from such legal proceedings will not have a material adverse impact on
IVAX's financial position or results of operations.
45
<PAGE>
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following tables summarize selected quarterly data of IVAX for the
years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1997
Net revenues $ 166,898 $ 173,809 $ 126,357 $ 135,046 $ 602,110
Gross profit 48,870 45,708 3,889 15,837 114,304
Income (loss) from continuing
operations (1) (11,092) (52,824) (78,754) (76,864) (219,534)
Income (loss) from discontinued
operations 3,153 7,447 (11,380) (7,921) (8,701)
Net income (loss) (7,939) (47,514) (90,134) (87,667) (233,254)
Basic and diluted earnings (loss)
per common share:
Continuing operations (.09) (.43) (.65) (.63) (1.81)
Discontinued operations .02 .06 (.09) (.07) (.07)
Net earnings (loss) (.07) (.39) (.74) (.72) (1.92)
Cash dividends per share - - - - -
1996
Net revenues $ 215,810 $ 151,627 $ 101,641 $ 193,509 $ 662,587
Gross profit 95,482 28,503 (24,305) 62,289 161,969
Income (loss) from continuing
operations (2) 34,487 (23,304) (137,728) (8,444) (134,989)
Income (loss) from discontinued
operations (3) 1,409 9,373 (40,941) 6,469 (23,690)
Net income (loss) 35,895 (16,003) (178,669) (1,975) (160,752)
Basic and diluted earnings (loss)
per common share:
Continuing operations .29 (.19) (1.13) (.07) (1.12)
Discontinued operations .01 .08 (.34) .05 (.19)
Net earnings (loss) .30 (.13) (1.47) (.02) (1.33)
Cash dividends per share - .05 - - .05
<FN>
(1) The third and fourth quarter of 1997 includes restructuring costs of $4,359
and $9,915, respectively. The second and fourth quarter of 1997 includes
asset write-downs of $20,500 and $3,314, respectively.
(2) The third quarter of 1996 includes restructuring costs and asset
write-downs of $5,324 and $64,549, respectively. The fourth quarter of 1996
includes a reduction to the asset write-downs of $800.
(3) The third quarter of 1996 includes asset write-downs of $48,442.
</FN>
</TABLE>
46
<PAGE>
DIRECTORS AND OFFICERS
IVAX BOARD OF
DIRECTORS
Phillip Frost, M.D.
CHAIRMAN & CHIEF EXECUTIVE
OFFICER, IVAX CORPORATION
Isaac Kaye
DEPUTY CHIEF EXECUTIVE
OFFICER, IVAX CORPORATION
Jack Fishman, Ph.D.
DIRECTOR OF RESEARCH,
STRANG CANCER RESEARCH LABORATORY
Jane Hsiao, Ph.D.
VICE CHAIRMAN - TECHNICAL
AFFAIRS AND CHIEF TECHNICAL OFFICER, IVAX CORPORATION
Mark Andrews
VICE CHAIRMAN,
LOUIS DREYFUS NATURAL
GAS CORP.
Ernst Biekert, Ph.D.
PROFESSOR OF CHEMISTRY,
UNIVERSITY OF HEIDELBERG
Neil W. Flanzraich, Esq.
SHAREHOLDER,
HELLER, EHRMAN, WHITE &
MCAULIFFE
IVAX OFFICERS
Phillip Frost, M.D.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
David R. Bethune
PRESIDENT AND CHIEF
OPERATING OFFICER
Isaac Kaye
DEPUTY CHIEF EXECUTIVE
OFFICER AND CHIEF EXECUTIVE
OFFICER OF NORTON
HEALTHCARE, LIMITED
Jane Hsiao, Ph.D.
VICE CHAIRMAN - TECHNICAL
AFFAIRS AND CHIEF TECHNICAL
OFFICER AND CHAIRMAN, CHIEF
EXECUTIVE OFFICER AND
PRESIDENT OF DVM
PHARMACEUTICALS, INC.
Thomas E. Beier
SENIOR VICE PRESIDENT -
FINANCE AND CHIEF FINANCIAL
OFFICER
Samuel Broder, M.D.
SENIOR VICE PRESIDENT -
RESEARCH & DEVELOPMENT
AND CHIEF SCIENTIFIC OFFICER
Rafick G. Henein, Ph.D.
SENIOR VICE PRESIDENT AND
PRESIDENT AND CHIEF
EXECUTIVE OFFICER OF ZENITH
GOLDLINE PHARMACEUTICALS,
INC.
James M. Millsap
SENIOR VICE PRESIDENT -
CORPORATE DEVELOPMENT AND
CHIEF EXECUTIVE OFFICER OF
JOHNSON PRODUCTS CO., INC.
Armando A. Tabernilla
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND
SECRETARY
Jeffrey S. Bauer, Ph. D.
VICE PRESIDENT - GLOBAL
PROCUREMENT - ACTIVE
PHARMACEUTICAL MATERIALS
William S. Hisey
VICE PRESIDENT - BUSINESS
DEVELOPMENT, LICENSING AND
ACQUISITIONS
Michael Metzkes
VICE PRESIDENT - ACCOUNTING
AND CORPORATE CONTROLLER
Richard D. Radabaugh
VICE PRESIDENT - COMPLIANCE
John S. Shaub
VICE PRESIDENT - TAXATION
Rao Uppaluri
VICE PRESIDENT - STRATEGIC
PLANNING
Donald C. Wagner
VICE PRESIDENT - HUMAN
RESOURCES
Jordan Siegel
TREASURER
Jeffrey F. Eisenberg
ASSISTANT SECRETARY
47
<PAGE>
COMMON STOCK AND INVESTOR INFORMATION
CORPORATE HEADQUARTERS -- IVAX Corporation, 4400 Biscayne Boulevard, Miami,
Florida 33137. Telephone: 305-575-6000.
INDEPENDENT AUDITORS -- Arthur Andersen LLP, One Biscayne Tower, Suite 1470,
Miami, Florida 33131.
COMMON STOCK INFORMATION -- IVAX common stock is listed on the American Stock
Exchange under the symbol "IVX." As of the close of business on March 20, 1998,
there were approximately 5,626 holders of record of IVAX common stock. The
following table sets forth the high and low closing prices of IVAX common stock
as reported on the composite tape of the American Stock Exchange and cash
dividends paid by IVAX for each quarter indicated:
1996
QUARTER HIGH LOW DIVIDEND
------- ---- --- --------
First $30.00 $25.38 $--
Second 31.00 14.75 .05
Third 16.63 12.75 --
Fourth 18.50 9.81 --
1997
QUARTER HIGH LOW DIVIDEND
------- ---- --- --------
First $13.50 $ 9.63 $--
Second 11.75 6.50 --
Third 12.63 8.75 --
Fourth 11.13 6.63 --
The declaration and payment of dividends is made at the discretion of IVAX's
Board of Directors.
SHAREHOLDER INQUIRIES -- Shareholders, analysts, investors, and others seeking
company information should contact:
Investor Relations
IVAX Corporation
4400 Biscayne Boulevard
Miami, Florida 33137
Toll Free: 800-980-IVAX
Electronic Mail: [email protected]
SHAREHOLDER SERVICE -- Shareholders desiring to change the name, address, or
ownership of stock, report lost certificates, or consolidate accounts should
contact the Transfer Agent & Registrar:
ChaseMellon Shareholder Services LLC
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
Toll Free: 800-756-3353
SEC FORM 10-K -- Shareholders may obtain a copy of IVAX's 1997 Annual Report on
Form 10-K filed with the Securities and Exchange Commission by writing to
Investor Relations at IVAX's corporate headquarters.
QUARTERLY FINANCIAL RESULTS -- In order to provide quarterly financial and other
information to our shareholders in a more timely and cost-effective manner, we
have discontinued producing our traditional quarterly report. Instead, we make
press releases containing that information available to shareholders who request
them. If you wish to receive these releases as they become available, please
send your name and address to Investor Relations at IVAX's corporate
headquarters. IVAX press releases are available by facsimile by dialing
800-758-5804, ext. 457725, and on the Internet at http://www.prnewswire.com.
The following are trademarks of IVAX or its subsidiaries: Elmiron/Registered
trademark/ and Paxene/Registered trademark/.
EXCEPT FOR THE HISTORICAL MATTERS CONTAINED HEREIN, STATEMENTS MADE IN THIS
REPORT ARE FORWARD LOOKING AND ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS
OF THE SECURITIES LITIGATION REFORM ACT OF 1995. INVESTORS ARE CAUTIONED THAT
FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT MAY AFFECT
IVAX'S BUSINESS AND PROSPECTS, INCLUDING ECONOMIC, COMPETITIVE, GOVERNMENTAL,
TECHNOLOGICAL, AND OTHER FACTORS DISCUSSED IN THIS REPORT AND IN IVAX'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION.
48
EXHIBIT 21.1
SUBSIDIARIES OF IVAX CORPORATION(1)
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ---------------
DOMESTIC
Baker Norton Pharmaceuticals, Inc. Florida
Baker Norton U.S., Inc. Florida
Cummins Properties, Inc. Florida
D & N Holding Company Delaware
Diamedix Corporation Florida
DVM Pharmaceuticals, Inc. Florida
Flori Roberts, Inc. New Jersey
Goldcaps, Inc. Florida
Goldline Laboratories, Inc. Florida
Goldline Properties Florida, Inc. Florida
Goldline Properties New York, Inc. Florida
Immunovision, Inc. Florida
Ivax D Sub, LLC Delaware
IVAX Diagnostics, Inc. Florida
IVAX Industries, Inc. Delaware
IVAX Personal Care Products P.R., Inc. Puerto Rico
IVAX Specialty Chemicals Sub, LLC Delaware
Johnson Products Co., Inc. Florida
Johnson Products Export Sales, Inc. Illinois
N Holding Company Delaware
Pet Technology Corp. Florida
Pralex Corporation Delaware
Zenith Goldline Dermatologicals, Inc. Florida
Zenith Goldline Golden Glades, Inc. Florida
Zenith Goldline Pharmaceuticals, Inc. Florida
Zenith Goldline Shreveport, Inc. Florida
Zenith Laboratories, Inc. Florida
Zenith Laboratories Caribe, Inc. Delaware
Zenith Parenterals, Inc. New Jersey
<PAGE>
SUBSIDIARIES OF IVAX CORPORATION
(Continued)
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ---------------
INTERNATIONAL
Alet Laboratorios S.A.E.C.I. y E. Argentina
Baker Cummins Inc. Canada
Baker Norton Asia, Ltd. Hong Kong
Becpharm Limited England
Beijing JiAi Pharmaceuticals
Limited Liability Company(2) China
Delta Biologicals S.r.l. Italy
Elvetium S.A. Argentina
Elvetium S.A. Uruguay
Galena a.s.(3) Czech Republic
IVAX Industries Canada, Inc. Canada
IVAX Industries UK, Ltd. England
IVAX International, B.V. Netherlands
Johnson Products Co. (UK) Limited England
Kunming Baker Norton
Pharmaceutical Co. Ltd.(2) China
Norton Gelkaps Gelatine
Kapsel Produktion GmbH Germany
Norton Healthcare Limited England
Norton (Waterford) Limited Ireland
Norton Poland Sp. z. o. o. Poland
Pharmatop Limited England
- ----------------------
(1) As of March 20, 1998. All subsidiaries are wholly-owned
(directly or indirectly) unless otherwise indicated.
(2) Owned 50% by the Company.
(3) Owned 74% by the Company.
EXH. 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated March 20, 1998 incorporated by reference in
this Form 10-K, into IVAX's previously filed registration statement on Form S-8
Nos. 333-07811, 33-82756, 33-67090, 33-39186, 33-44042, 33-53944, 33-88914,
33-88912, 33-65133, 333-24593 and 333-42997, Form S-3 No. 33-46173, and Form
S-4 Nos. 33-44116 and 33-60847.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IVAX
CORPORATION'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 199,235
<SECURITIES> 0
<RECEIVABLES> 124,220
<ALLOWANCES> 19,226
<INVENTORY> 145,716
<CURRENT-ASSETS> 510,704
<PP&E> 336,187
<DEPRECIATION> 142,446
<TOTAL-ASSETS> 790,736
<CURRENT-LIABILITIES> 233,966
<BONDS> 94,193
0
0
<COMMON> 12,152
<OTHER-SE> 422,887
<TOTAL-LIABILITY-AND-EQUITY> 790,736
<SALES> 602,110
<TOTAL-REVENUES> 602,110
<CGS> 487,806
<TOTAL-COSTS> 487,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,973
<INTEREST-EXPENSE> 14,685
<INCOME-PRETAX> (155,282)
<INCOME-TAX> 60,166
<INCOME-CONTINUING> (219,534)
<DISCONTINUED> (8,701)
<EXTRAORDINARY> (2,137)
<CHANGES> (2,882)
<NET-INCOME> (233,254)
<EPS-PRIMARY> (1.92)
<EPS-DILUTED> 0<F1>
<FN>
<F1>AMOUNT IS ANTI-DILUTIVE.
</FN>
</TABLE>
