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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11397
ICN PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0628076
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3300 HYLAND AVENUE, COSTA MESA, CALIFORNIA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 545-0100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
WHICH REGISTERED
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(INCLUDING ASSOCIATED PREFERRED
STOCK PURCHASE RIGHTS)
9- 1/4% SENIOR NOTES DUE 2005 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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. __
The aggregate market value of the Registrant's voting stock held by
non-affiliates on March 20, 1998, was approximately $3,212,481,000.
The number of outstanding shares of common stock as of March 20, 1998
was 71,687,163.
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List hereunder the following documents if incorporated by reference and
the part of the Form 10-K (e.g. Part I, Part II, etc.) into which the document
is incorporated: ICN Pharmaceuticals, Inc.'s definitive Proxy Statement for the
1998 Annual Meeting of Stockholders, to be filed not later than 120 days after
the end of the fiscal year covered by this report, is incorporated by reference
into Part III.
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<PAGE>
TABLE OF CONTENTS
Item Number And Caption
PART I
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PAGE NO.
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1. Business................................................................................. 2
2. Properties............................................................................... 16
3. Legal Proceedings........................................................................ 17
4. Submission of Matters to a Vote of Security Holders...................................... 17
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters............... 18
6. Selected Financial Data................................................................. 19
7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 21
8. Financial Statements and Supplementary Data............................................. 31
9. Changes in and Disagreements with Auditors on Accounting and Financial Disclosure....... 63
PART III
10. Directors and Executive Officers of the Registrant...................................... 64
11. Executive Compensation.................................................................. 64
12. Security Ownership of Certain Beneficial Owners and Management.......................... 64
13. Certain Relationships and Related Transactions.......................................... 64
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 65
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Page 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
On November 1, 1994, the stockholders of ICN Pharmaceuticals, Inc. ("ICN"), SPI
Pharmaceuticals, Inc. ("SPI"), Viratek, Inc. ("Viratek") and ICN Biomedicals,
Inc. ("Biomedicals") (collectively, the "Predecessor Companies") approved the
Merger of the Predecessor Companies ("the Merger"). On November 10, 1994, SPI,
ICN and Viratek merged into ICN Merger Corp. and Biomedicals merged into ICN
Subsidiary Corp., a wholly-owned subsidiary of ICN Merger Corp. In conjunction
with the Merger, ICN Merger Corp. was renamed ICN Pharmaceuticals, Inc. ("the
Company"). For accounting purposes, SPI was the acquiring company and, as a
result, the Company has reported the historical financial data of SPI in its
financial results for periods prior to the Merger. Subsequent to the Merger, the
results of the newly merged company include the combined operations of all
Predecessor Companies.
The Company is a multinational pharmaceutical company that develops,
manufactures, distributes and sells pharmaceutical, research and diagnostic
products and provides radiation monitoring services. The Company pursues a
strategy of international expansion which includes (i) the consolidation of the
Company's leadership position in Eastern Europe and Russia; (ii) the acquisition
of high margin products that complement existing product lines and can be
registered and introduced into additional markets to meet the specific needs of
those markets; and (iii) the creation of a pipeline of new products through
internal research and development, as well as strategic partnerships and
licensing arrangements.
BACKGROUND
As measured by sales, the Company believes it is currently the largest
pharmaceutical company in Eastern Europe, a region with an estimated population
of 425.1 million people with a collective GNP of $838.3 billion. The rate of per
capita spending on pharmaceuticals in Eastern Europe currently is only 13% of
such rate in Western Europe. The Company believes it has also established itself
as the largest pharmaceutical company, as measured by sales, in Russia, a market
that is expected to grow significantly over the next decade. The Company entered
the Hungarian market by acquiring 67% of Alkaloida, one of the largest
pharmaceutical companies in terms of sales in Hungary and a major world producer
of morphine and related compounds. In Yugoslavia, ICN Yugoslavia has an
approximate 50% market share with 1997 sales of $225,530,000. Although ICN
Yugoslavia's sales and profits have been adversely affected by an economic
environment that has included extended periods of hyperinflation and trade
sanctions, it historically has maintained profitability.
For more than ten years, the Company has pursued a strategy of targeted
expansion into regional markets which it considers to have significant potential
for the sale of pharmaceutical products. This strategy has been implemented in
large part through the acquisition of compatible businesses and product lines
and the formation of strategic alliances and joint ventures in targeted markets.
The Company believes that it has developed particular knowledge and skills in
the acquisition, development and conduct of pharmaceutical and related
businesses in Eastern Europe and Russia and it intends to continue its strategy
of seeking acquisition and other growth opportunities in those and other
emerging markets, such as China and Latin America, as well as in North America
and Western Europe.
The Company continues to explore acquisition and expansion opportunities in
Russia and Eastern Europe, and in February 1998, the Company announced that it
would invest $300,000,000 in Russia over the next five years, including
$47,000,000 for the construction of a new pharmaceutical plant as part of its
ongoing modernization of ICN Oktyabr. The Company also announced that it has
pledged to assist the government of Romania with the privatization of Romania's
pharmaceutical industry, and plans to take a stake in a major Romanian
pharmaceutical company to support the process. The Company believes Romania is
one of the largest markets in Eastern Europe, with a population of approximately
26 million. Romania borders Hungary and Yugoslavia, where the Company already
maintains operations.
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Page 3
ITEM 1. BUSINESS--continued
The Company believes it is uniquely positioned as being both large enough to
have an effective international distribution network not enjoyed by smaller
pharmaceutical companies and small enough to permit lower sales thresholds that
will achieve profitability that cannot be realized under the production and
marketing constraints of larger pharmaceuticals companies. The Company has
therefore increased sales and profitability in part by acquiring high margin
pharmaceutical products that complement its existing product lines.
In 1997, the Company acquired the rights to eleven products from F. Hoffmann-La
Roche Ltd. ("Roche"). The products include Librium (tranquilizer), Efudex
(topical anti-skin cancer), Glutril (anti-diabetic), Alloferin (anesthetic),
Ancotil (antifungal), Limbitrol (anti-depressant), Protamin (heparin overdose),
Levo-Dromoran (pain management) and Mestinon/Prostigmin (myasthenia gravis).
Sales of these products since the initial acquisition (effective July 1, 1997)
contributed $37,895,000 to the Company's revenues for 1997. The Company believes
that certain of these products in specific markets have growth potential and
intends to promote the products accordingly. A state-of-the-art manufacturing
facility in Humacao, Puerto Rico was also purchased from Roche in a separate
transaction. In February 1998, the Company acquired the Asian, Australian and
African rights to 39 prescription and over-the-counter pharmaceutical products
from SmithKline Beecham plc ("SKB"). The products include Actal, Breacol,
Coracten, Eskornade, Fefol, Gyno-Pevaryl, Maxolan, Nyal, Pevaryl, Ulcerin and
Vylcim.
The Company's research and development activities are based upon the expertise
accumulated in over thirty years of nucleic acids research focusing on the
internal generation of novel molecules. The research and development function
works closely with corporate marketing on a local, regional and worldwide basis.
In this connection, the Company has entered into a number of licensing
arrangements with other larger pharmaceutical companies, as well as strategic
partnerships to develop its proprietary products.
Among the Company's products is the broad spectrum antiviral agent ribavirin
which it markets in the United States, Canada and most of Europe under the
Virazole(R) trademark. Virazole(R) is currently approved for commercial sale in
over 40 countries for one or more of a variety of viral infections, including
respiratory syncytial virus ("RSV"), herpes simplex, influenza, chicken pox,
hepatitis and human immunodeficiency virus ("HIV"). In the United States and
Europe, Virazole(R) is approved only for use with hospitalized infants and
children with severe lower respiratory infections due to RSV.
In 1995, the Company entered into an agreement (the "License Agreement") with
Schering-Plough Corporation ("Schering-Plough") whereby Schering-Plough licensed
all oral forms of ribavirin, including for the treatment of chronic hepatitis C
in combination with their product INTRON-A(R) (interferon alpha 2b) (the
"Combination Therapy"). The License Agreement provided the Company an initial
non-refundable payment by Schering-Plough of $23,000,000 and future royalty
payments to the Company from sales of the drug by Schering-Plough, including
certain minimum royalty rates. Schering-Plough will have exclusive marketing
rights for oral forms of ribavirin for hepatitis C worldwide, except that the
Company will retain the right to co-market in the countries of the European
Union. In addition, Schering-Plough agreed to purchase up to $42,000,000 in
common stock of the Company upon achieving certain regulatory milestones. Under
the License Agreement, Schering-Plough will be responsible for all clinical
development and regulatory activities worldwide. During 1997, phase III clinical
trials comparing the Combination Therapy versus INTRON-A alone were completed in
the U.S. and Europe and demonstrated a statistically significant improvement in
sustained response in patients taking the Combination Therapy who had relapsed
following previous interferon treatment. In December 1997, the Company was
informed by Schering-Plough that Schering-Plough had filed a New Drug
Application for the Combination Therapy with the US Food and Drug Administration
(the "FDA"). The Company believes that Schering-Plough will submit similar
applications in Europe in 1998. Additional trials are ongoing to broaden
potential claims, specifically as first-line therapy.
Under the License Agreement, if the Company pursues regulatory approval to
market Virazole(R) for an additional hepatitis indication, Schering-Plough will
have the right to require that such indication become included in the License
Agreement on the same terms and conditions (including royalties), in which case
Schering-Plough must take responsibility for all further development activities
and reimburse the Company for its development costs.
<PAGE>
Page 4
ITEM 1. BUSINESS--continued
Schering-Plough has the right to terminate the License Agreement on six months'
notice, in which event it would retain a non-exclusive license to all oral forms
of ribavirin, subject to the royalty obligations of the License Agreement, but
it would no longer have any obligation to purchase common stock of the Company.
Also, on such a termination, Schering-Plough would be required to provide to the
Company reference to any regulatory approvals obtained by Schering-Plough and
all information and data to allow the Company to pursue regulatory approval of
oral forms of ribavirin.
The Company believes that the approval of Virazole(R) in Combination Therapy for
the treatment of chronic hepatitis C would be important to the Company because
of the potential size of the chronic hepatitis C market both in the United
States, Western Europe, Japan and other markets. However, there can be no
assurance that the clinical trials will be successful or that the required
governmental approvals will be obtained with respect to Virazole(R) for the
treatment of hepatitis C in Combination Therapy.
In addition to its pharmaceutical operations, the Company also develops,
manufactures and sells, through its wholly-owned subsidiary, ICN Biomedicals,
Inc., a broad range of research products and related services, immunodiagnostic
reagents and radiation monitoring services. The Company markets these products
internationally to major scientific, academic, health care and governmental
institutions through catalog and direct mail marketing programs. ICN
Biomedicals, Inc. accounted for approximately 9% of the Company's total 1997
revenues.
In March 1998, the Company completed a three-for-two stock split (in the form of
a dividend). Common share and per common share amounts for all periods presented
have been restated to give effect to the stock split.
PRODUCTS
ETHICAL DRUGS
ANTI-INFECTIVES: Anti-infective drugs treat bacterial and viral infections. The
Company sells approximately 70 antibacterial products, and sells its antiviral
drug, ribavirin, under the tradename Virazole(R) in North America and most
European countries. Ribavirin is sold as Vilona(R) and Virazide(R) in Latin
America and Virazide(R) in Spain. Reference to the sale of Virazole(R) includes
sales made under the trademarks Vilona(R) and Virazide(R).
ANTIVIRALS: Virazole(R) accounted for approximately 3%, 5% and 10% of the
Company's net sales for the years ended December 31, 1997, 1996 and 1995,
respectively. Virazole(R) is currently approved for sale in various
pharmaceutical formulations in over 40 countries for the treatment of several
different human viral diseases, including RSV, hepatitis, herpes, influenza,
measles, chicken pox and HIV. In the United States and Canada, Virazole(R) has
been approved only for hospital use in aerosolized form to treat infants and
young children who have severe lower respiratory infections caused by RSV. In
treating RSV, the drug is administered by a small particle aerosolized generator
("SPAG"), a system that permits direct delivery of Virazole(R) to the site of
the infection. Similar approvals for Virazole(R) for use in the treatment of RSV
have been granted by governmental authorities in 22 other countries.
A variety of small, independent clinical studies comparing the results of
combining Virazole(R) capsules and interferon alpha 2b therapies versus
interferon alone in the treatment of hepatitis C, demonstrated enhanced efficacy
of the combination. Based upon these clinical findings, the Company entered into
the License Agreement with Schering-Plough whereby Schering-Plough has assumed
responsibility for worldwide clinical development and registration of oral
ribavirin in combination with their product, INTRON-A(R) (interferon alpha 2b),
for the treatment of hepatitis C.
<PAGE>
Page 5
ITEM 1. BUSINESS--continued
ANTIBACTERIALS: Antibacterials accounted for approximately 14%, 22% and 21% of
the Company's net sales for the years ended December 31, 1997, 1996 and 1995,
respectively. Most of the antibacterials manufactured and sold by the Company
are under exclusive licenses held by ICN Yugoslavia for specific geographical
areas, primarily Yugoslavia, from other manufacturers, including Roche,
Bristol-Meyers Squibb and Eli Lilly. Jugocillin(R) and Pentrexyl(R) belong to
the penicillin group of medications used in a wide variety of bacterial
infections including urinary and upper respiratory tract infections.
Longaceph(R) and Palitrex(R) belong to the cefalesporin group of medications
used to treat afflictions that may not be responsive to penicillin treatment.
Bactrim(R) is a combination product that is used in the treatment of urinary
tract infections.
OTHER ETHICALS: Other ethicals accounted for approximately 49%, 41% and 40% of
net sales for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company manufacturers a wide variety of other ethical pharmaceuticals
covering virtually every therapeutic category and/or disease state. Leading
product segments in the Company's portfolio, in addition to anti-infectives,
include: pain management, vitamins/minerals, cardiovascular, central nervous
system, respiratory, dermatology and gastrointestinal.
During 1997, the 10 pharmaceutical products generating the greatest sales for
the Company represented approximately 21% of worldwide pharmaceutical sales. The
anticholinergic product line consisting of Mestinon(R), Prostigmin(R) and
Tensilon(R), used for the treatment of myasthenia gravis (a progressive
neuromuscular disorder) and reversing the effects of certain muscle relaxants,
was the Company's leading sales contributor with worldwide sales of $28,000,000.
Virazole, with worldwide sales of $23,000,000, ranked second. Other major
products included: Bedayecta, a B-complex injectable vitamin marketed by ICN
Mexico; Palitrex, Pentrexyl, Gentamycin, Amikacin and Bactrim, anti-infectives
sold by ICN Yugoslavia in various Eastern European markets; Oxsoralen, an
antipsoriatic with sales primarily in North America; and Prilazid, an
antihypertensive sold in Yugoslavia. The Company also manufactures and markets
approximately 60 dermatological products, primarily in North America and Eastern
Europe.
OTHER OTC PRODUCTS: Other OTC products accounted for approximately 25%, 22% and
17% of the Company's net sales for the years ended December 31, 1997, 1996 and
1995, respectively. Other OTC products encompass a broad range of ancillary
products, sold through the Company's existing distribution channels.
RESEARCH PRODUCTS
Research chemicals, diagnostic and other biomedical products accounted for
approximately 9%, 10% and 12% of the Company's net sales for the years ended
December 31, 1997, 1996 and 1995, respectively.
RESEARCH CHEMICALS: The Company serves life science researchers throughout the
world through a catalog sales operation, direct sales and distributors. The
Company's catalog lists approximately 55,000 products which are used by medical
and scientific researchers involved in molecular biology, cell biology,
immunology and biochemistry, microbiology and other areas. A majority of these
products are purchased from third party manufacturers and distributed by the
Company. Products include biochemicals, immunobiologicals, radiochemicals,
tissue culture products and organic and rare and fine chemicals.
DIAGNOSTICS: Among the diagnostics marketed by the Company are reagents that are
routinely used by physicians and medical laboratories to accurately and quickly
diagnose hundreds of patient samples for a variety of disease conditions. The
Company manufactures both enzyme and radio-immunoassay kits, which it markets
under the ImmuChem(TM) product line. The Company is also a supplier of
immunodiagnostic tests for the screening of newborn infants for inherited and
other disorders.
<PAGE>
Page 6
ITEM 1. BUSINESS--continued
DOSIMETRY: The Company is a supplier of analytical monitoring services to
detect personal occupational exposure to radiation. This service is provided to
dentists, veterinarians, chiropractors, podiatrists, hospitals, universities,
government institutions, nuclear power plants, small office practitioners and
others exposed to ionizing radiation. The Company's service includes both film
and thermo luminescent badges in several configurations to accommodate a broad
scope of users. This service includes the manufacture of badges, distribution to
and from clients, analysis of badges and a radiation report including exposure.
ACQUISITIONS
The Company has pursued a strategy of targeted expansion into regional markets
which are considered to have significant potential for pharmaceutical and
related products. This strategy has been implemented in large part through the
acquisition of compatible businesses and product lines and the formation of
strategic alliances and joint ventures in targeted markets. In 1996 and 1997,
the Company undertook a series of strategic acquisitions designed to strengthen
its product lines and geographic presence.
PRODUCT RIGHTS: Effective July 1, 1997, the Company purchased the worldwide
rights to seven products and the non-U.S. rights to two other products (with an
option to purchase the U.S. rights to these products) from Roche, for aggregate
consideration of $90,000,000. The consideration was paid in a combination of
2,400,000 shares of the Company's common stock, valued at $40,000,000, and 2,000
shares of the Company's Series C Convertible Preferred Stock, valued at
$50,000,000 (together, the "Roche Shares"). Each share of the Company's Series C
Convertible Preferred Stock was convertible into 1,500 shares of the Company's
common stock. In conjunction with the issuance of the Roche Shares, the Company
guaranteed Roche a price initially at $17.17 per common share, increasing at a
rate of 6% per year for the three-year guarantee period. Should Roche sell the
Roche Shares at any time during the guarantee period, the agreement entitled the
Company to any of the proceeds realized by Roche in excess of the guaranteed
price. Effective October 1, 1997, as a result of the rise in the per share
market price of the Company's common stock since the initial acquisition from
Roche, the Company exercised its option to acquire the U.S. rights to the two
products noted above, plus two other U.S. product rights, for aggregate
consideration of $89,008,000, which was paid with cash owed to the Company by
Roche from the sale of the Roche Shares.
The Company also purchased from Roche a GMP-standard manufacturing plant in
Humacao, Puerto Rico (the "Humacao Plant") for $55,000,000. The Humacao Plant is
not currently producing any of the products acquired from Roche. The purchase of
the Humacao Plant is under a sale/leaseback arrangement, whereby Roche will
lease the Humacao Plant from the Company under a two year lease with lease
payments totaling $4,000,000 annually. During the term of the lease, Roche will
continue to use the Humacao Plant for the manufacture of pharmaceutical
products. The Company also entered into a toll manufacturing agreement under
which it will produce pharmaceutical products for Roche for a one-year period
after the expiration of the lease. The Company intends to use the Humacao Plant
to produce the products acquired from Roche and other products.
<PAGE>
Page 7
ITEM 1. BUSINESS--continued
In February 1998, the Company acquired from SKB the Asian, Australian and
African rights to 39 prescription and over-the-counter pharmaceutical products,
including Actal, Breacol, Coracten, Eskornade, Fefol, Gyno-Pevaryl, Maxolan,
Nyal, Pevaryl, Ulcerin and Vylcim. The Company received the product rights in
exchange for $45,000,000 payable in a combination of $22,500,000 in cash and 821
shares of the Company's Series D Convertible Preferred Stock valued at
$22,500,000. Each share of the Series D Convertible Preferred Stock is initially
convertible into 750 shares of the Company's common stock (together, the "SKB
Shares"). Except under certain circumstances, SKB has agreed not to sell the SKB
Shares until November 4, 1999. The Company has agreed to pay SKB an additional
amount in cash (or, under certain circumstances, in shares of common stock) to
the extent proceeds received by SKB from the sale of the SKB Shares during a
specified period ending in December 1999 and the then market value of the unsold
SKB Shares do not provide SKB with an average value of $46.00 per common share
(including any dividend paid on the SKB Shares). Alternatively, SKB is required
to pay the Company an amount, in cash or shares of the Company's common stock,
to the extent that such proceeds and market value provide SKB with an average
per share value in excess of $46.00 per common share (including any dividend
paid on the SKB Shares). The Company has also granted SKB certain registration
rights covering the common shares issuable upon conversion of the Series D
Preferred Stock.
WUXI ICN PHARMACEUTICALS: Effective January 1, 1997, ICN China, Inc., a
wholly-owned subsidiary of the Company, commenced operations of a pharmaceutical
company under a joint venture agreement with Wuxi Pharmaceutical Corporation
("Wuxi"), a Chinese state-owned company. Under the agreement, a limited
liability company (the "Chinese Joint Venture Entity") was established to
produce and sell pharmaceutical products. The Chinese Joint Venture Entity is
75% owned by ICN China and 25% owned by Wuxi. Wuxi is a supplier of injectable
antibiotics. Wuxi agreed to contribute its existing operation, with an
approximate net book value of $6,000,000, to the Chinese Joint Venture Entity
and ICN China agreed to contribute a total of $24,000,000 in cash over three
years, primarily for the construction of a new pharmaceutical production plant
and the purchase of related machinery and equipment. The Company contributed
approximately $3,600,000 to the joint venture in 1997.
AO TOMSK CHEMICAL PHARMACEUTICAL PLANT: Effective October 1, 1997, the Company
acquired a 75% interest in AO Tomsk Chemical Pharmaceutical Plant ("Tomsk"), a
pharmaceutical company located in Tomsk, Russia, for approximately $3,000,000 in
cash. Tomsk makes and distributes a wide range of pharmaceuticals, including
antiseptics, analgesics, antibiotics and herbal liquids and extracts. Under the
terms of the agreement, the Company will invest approximately $8,000,000 over
the next two years.
MARBIOPHARM: Effective October 1, 1997, the Company acquired a 72% interest in
Marbiopharm, a pharmaceutical company located in Yoshkar-Ola, Russia, for
approximately $3,500,000 in cash. Marbiopharm manufactures, sells and
distributes pharmaceutical products in Russia.
POLFA RZESZOW, S.A.: Effective October 1, 1997, the Company acquired an 80%
interest in Polfa Rzeszow, S.A., ("Polfa") a pharmaceutical company located in
Rzeszow, Poland, for approximately $33,700,000 in cash and approximately 48,000
shares of common stock of the Company valued at $1,709,000. Polfa makes and
distributes a wide range of pharmaceuticals, including anti-depressants,
anti-fungals, anti-infectives, pain relievers, anti-allergy, cardiovasculars and
nutritionals. Under the terms of the agreement, the Company will invest
approximately $20,000,000 over the next two years, primarily for the
construction of a new pharmaceutical production plant, at which time the Company
will own approximately 90% of Polfa.
<PAGE>
Page 8
ITEM 1. BUSINESS--continued
VELEFARM: In October 1997, the Company acquired a 42.6% ownership interest in
Velefarm, a major distributor of pharmaceutical products located in Belgrade,
Yugoslavia, for approximately $13,224,000. Under the terms of the agreement, the
Company exchanged accounts receivable due from Velefarm for the 42.6% interest.
ICN Yugoslavia recorded sales to Velefarm of approximately $140,700,000 and
$44,800,000 for the years ended December 31, 1997 and 1996, respectively, of
which approximately $30,200,000 of 1997 sales were subsequent to the Company's
investment.
FOREIGN OPERATIONS
The Company operates directly and through distributors in North America, Latin
America (principally Mexico), Western Europe and Eastern Europe and through
distributors elsewhere in the world. For financial information about domestic
and foreign operations and export sales, see Note 13 of Notes to Consolidated
Financial Statements.
Approximately 78%, 80%, and 75% of the Company's net sales for the years ended
December 31, 1997, 1996, and 1995 were generated from operations outside the
U.S. Foreign operations are subject to certain risks inherent in conducting
business abroad, including possible nationalization or expropriation, price and
exchange controls, limitations on foreign participation in local enterprises,
health-care regulation and other restrictive governmental actions. Changes in
the relative values of currencies take place from time to time and may
materially affect the Company's results of operations. Their effects on the
Company's future operations are not predictable. The Company does not currently
provide a hedge on its foreign currency exposure and, in certain countries in
which the Company operates, no effective hedging program is available.
ICN Yugoslavia represents a material part of the Company's business.
Approximately 30%, 44%, and 46% of the Company's net sales for the years ended
December 31, 1997, 1996, and 1995 were from ICN Yugoslavia. ICN Yugoslavia, a
75%-owned subsidiary, operates in a business environment that is subject to
significant economic volatility and political instability. The economic problems
in Yugoslavia include continuing liquidity problems, unemployment, a weakened
banking system and a high trade deficit. Between May 1992 and December 1995, ICN
Yugoslavia operated under sanctions imposed by the United Nations that severely
limited the ability to import raw materials and prohibited all exports. While
most of the United Nations sanctions have been suspended, certain risks, such as
hyperinflation, currency devaluations, wage and price controls and potential
government action could continue to have a material adverse effect on the
Company's financial position and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Inflation and Changing Prices and ICN Yugoslavia".
MARKETING AND CUSTOMERS
The Company markets its pharmaceutical products in some of the most developed
pharmaceutical markets, including the United States, Canada and Western Europe,
as well as developing markets, including Russia, Eastern Europe and Latin
America. The Company adjusts its marketing strategies according to the
individual markets in which it operates. The Company believes its marketing
strategy is distinguished by flexibility, allowing the Company to market
successfully a wide array of pharmaceutical products within diverse regional
markets as well as certain drugs, notably Virazole(R), on a worldwide basis.
The Company has a marketing and sales staff of approximately 2,200 persons,
including sales representatives in North America, Latin America, Western Europe
and Eastern Europe, who promote its pharmaceutical products. As part of its
marketing program for pharmaceuticals, the Company also uses direct mailings,
advertises in trade and medical periodicals, exhibits products at medical
conventions, sponsors medical education symposia, and sells through distributors
in countries where it does not have its own sales staff.
<PAGE>
Page 9
ITEM 1. BUSINESS--continued
In the United States, the Company currently promotes its pharmaceutical products
to physicians through its own sales force. These products are distributed to
drug stores and hospitals through wholesalers. In Latin America, principally
Mexico, the Company promotes to physicians and distributes products either
directly or indirectly to hospitals and pharmacies. The Company's Spanish and
Dutch subsidiaries promote and sell pharmaceutical products through their own
sales forces to physicians, hospitals, retail outlets, pharmacies and
wholesalers. In other Western European markets, particularly the United Kingdom
and Germany, sales forces have been recently established and distribution
methods are in transition as the Company's affiliates are formed. In Canada, the
Company has its own sales force and promotes and sells directly to physicians,
hospitals, wholesalers, and large drug store chains.
ICN Yugoslavia sells a broad range of pharmaceutical and other products in
Yugoslavia through approximately 30 wholesalers, 6 sales offices and 85 sales
representatives. In December 1995, the United Nations Security Council adopted a
resolution that suspended most economic sanctions imposed on the Federal
Republic of Yugoslavia. The suspension of sanctions enabled ICN Yugoslavia to
resume exporting certain of its product lines to Russia, other Eastern European
markets, Africa, the Middle East and the Far East. During 1997, approximately
80% or $162,200,000 of ICN Yugoslavia's domestic sales were to
government-sponsored entities of the Federal Republic of Yugoslavia. Future
domestic sales by ICN Yugoslavia could be dependent on the ability of the
Yugoslavian government to continue to subsidize purchases of pharmaceutical
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - ICN Yugoslavia".
In Russia, Hungary and Poland, the Company's sales and marketing organizations
are in various stages of development. In Russia, the lower-priced generic
domestic product line is sold through a network of distributors and their agents
which account for approximately 90% of in-market sales. Products imported from
other subsidiaries as branded generics or proprietary drugs are promoted to
physicians through the Company's own sales force to create demand and are
distributed to pharmacies and hospitals through distributors and wholesalers.
There are currently over 400 personnel in Russia supporting the sales and
marketing function. Alkaloida and Polfa Rzeszow, S.A. continue to develop sales
and marketing organizations sized and structured for their specific market
opportunities.
The research chemical and diagnostic product lines are sold worldwide primarily
through the Company's mail order catalogs, with additional sales being generated
through affiliates and a network of distributors.
RESEARCH AND DEVELOPMENT
The Company's research and development activities use the expertise accumulated
by the Company and its predecessors in over 30 years of nucleic acids research.
In addition, the Company develops innovative products targeted to address the
specific needs of the Company's local markets. The Company currently has
approximately 580 employees devoted to Research and Development activities.
NEAR AND MEDIUM-TERM RESEARCH AND DEVELOPMENT
The Company's short-term development pipeline includes the registration of a
number of products in regional markets, including, but not limited to, Latin
America and Eastern and Central Europe. This ongoing activity introduces both
high quality generic and licensed proprietary products into under-served
markets. There can be no assurance of the results of the Company's research and
development efforts or the ultimate commercial success of any of the products in
the development.
<PAGE>
Page 10
ITEM 1. BUSINESS--continued
The Company's medium-term research and development pipeline involves the
preclinical and clinical evaluation of certain nucleotide compounds which have
broad market attractiveness and which have shown promise for successful
commercialization (although there can be no assurances that these products will
be commercialized successfully). The majority of these compounds arose from the
nucleic acids programs but certain other compounds are in development to broaden
the portfolio of the Company. These compounds include:
VIRAZOLE(R) (RIBAVIRIN): Prior to 1995, a number of small, independent clinical
studies which compared the results of combining Virazole(R) capsules with
interferon alpha versus interferon alpha alone, found enhanced efficacy for the
combination. Based on these clinical findings, in 1995, the Company entered into
the License Agreement with Schering-Plough, under which Schering-Plough assumed
responsibility for the worldwide clinical development and registration of oral
ribavirin in combination with their product INTRON-A(R) (interferon alpha 2b),
for the treatment of hepatitis C virus infections and received certain
geographically exclusive marketing rights. During 1997, phase III clinical
trials comparing the Combination Therapy versus INTRON-A(R) alone were completed
in the U.S. and Europe and demonstrated a statistically significant improvement
in sustained response in patients taking the Combination Therapy who had
relapsed following previous interferon treatment. In December 1997, the Company
was informed by Schering-Plough that Schering-Plough had filed a New Drug
Application for the Combination Therapy with the FDA. The Company believes that
Schering-Plough will submit similar applications in Europe in 1998. Additional
trials are ongoing to broaden potential claims, specifically as first-line
therapy.
Clinical studies have been performed with Virazole(R) in various formulations
for the treatment of several other viral diseases. Among diseases for which at
least one governmental health regulatory agency, in countries other than the
United States, has approved commercialization of Virazole(R) are herpes zoster,
genital herpes, chicken pox, hemorrhagic fever with renal syndrome, Lassa Fever,
measles, influenza and HIV. The Company is initiating carefully focused clinical
studies evaluating the use of Virazole(R) in the treatment of papilloma virus
infections and for early intervention against RSV infections in persons whose
immune defenses are compromised as a consequence of bone marrow transplantation.
TIAZOLE(TM) (TIAZOFURIN): The Company has maintained an active research program
centered on tiazofurin, which the Company is developing under the tradename
Tiazole(TM). This product is a nucleoside analog demonstrated to cause
inhibition of IMP-dehydrogenase, whose activity is elevated in a number of
cancers. Studies of Tiazole(TM) by independent investigators indicate
significant activity in the treatent of myelogenous leukemia. The Company is in
the process of conducting Phase II/III evaluation of Tiazole(TM) for use in the
treatment of the late stages of refractory chronic myelogenous leukemia. The
Company is also evaluating Tiazole(TM) for the treatment of ovarian carcinoma.
<PAGE>
Page 11
ITEM 1. BUSINESS--continued
ADENAZOLE(TM) (8-CL-C-AMP): This nucleotide has been shown to control cell
proliferation and differentiation in certain cancers. Independent investigators
in Italy and Scotland have conducted human trials which indicate significant
utility of this compound. The Company is planning to continue to pursue the
development of Adenazole(TM).
SOMATORELIN (HGRF1-44): Somatorelin is a peptide which causes the synthesis and
release of human growth hormone. The Company believes that somatorelin offers
advantages over treatment with growth hormone. Notable among these advantages
are the induction of a normal daily cycle of growth hormone levels and the
induction of the ability of the body to produce growth hormone, which should
offer significant benefit to patients. The Company is currently sponsoring Phase
III trials in short stature pediatric patients.
A2545: This compound was acquired as part of the 1996 purchase of Alkaloida.
A2545 has a favorable preclinical profile and has shown good activity in Phase
I/II studies for the prevention of life-threatening irregularities of the
heartbeat (arrythmias), with good effectiveness in arrythmias resistant to
conventional therapy. The Company has not yet ascertained whether or not this
compound will have certain clinical advantages when compared with other agents
in this category. The drug is orally bioavailable and has a favorable toxicology
profile.
LONG-TERM RESEARCH AND DEVELOPMENT
The Company's long-term research and development activities are focused on the
identification and development of novel therapeutic and diagnostic agents for
the treatment of viral diseases, cancer, immunologic dysfunction, diseases of
the skin, hormonal therapy, and cardiovascular diseases.
The Company is engaged in two research areas both of which involve nucleic
acids. One area is based on extending the library of nucleoside analogs through
new synthesis and screening efforts. This is a proven approach which led to the
identification of Virazole(R) by the Company and to other nucleoside
therapeutics by other companies. The second area is the use of "antisense"
oligonucleotide technology. This approach seeks to block the undesirable
expression of genetic material in a highly selective way through the
construction of short sequences of nucleotides which uniquely bind and
inactivate the disease-causing genetic material. Both these approaches take
advantage of the Company's knowledge base in nucleic acids.
There can be no assurance of the results of the Company's research and
development efforts or the ultimate commercial success of any of the products in
development.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors, many of whom have substantially greater capital resources and
marketing capabilities and larger research and development staffs and facilities
than the Company, are actively engaged in marketing products similar to those of
the Company and in developing new products similar to those proposed to be
developed and sold by the Company. The Company believes that many of its
competitors spend significantly more on research and development related
activities than the Company spends. Competitive factors vary by product line and
customer and include service, product availability and performance, price and
technical capabilities. The Company does business in an industry characterized
by extensive and ongoing research efforts. Others may succeed in developing
products that are more effective than those presently marketed or proposed for
development by the Company. Progress by other researchers in areas similar to
those explored by the Company may result in further competitive challenges.
The Company is aware of several ongoing research programs which are attempting
to develop new products for the prevention or treatment of RSV, including one
product recently approved by the FDA for the prevention of RSV infections in
newborns. Although the Company will follow publicly disclosed developments in
this field, on the basis of currently available data it is unable to evaluate
whether the technology being developed in these programs poses a threat to its
current market position in the treatment of RSV or its revenue streams.
ORDER BACKLOG
As is customary in the pharmaceutical industry, all the Company's products are
sold on an "open order" basis. Consequently, order backlog is not considered a
significant factor.
<PAGE>
Page 12
ITEM 1. BUSINESS--continued
MANUFACTURING AND RAW MATERIALS
The Company manufactures pharmaceuticals at 15 facilities. Those facilities are
located in Bryan, Ohio; Mexico City, Mexico (at two locations); Montreal,
Canada; Zoetermeer, The Netherlands; Barcelona, Spain; Belgrade, Yugoslavia; St.
Petersburg, Chelyabinsk, Kursk, Tomsk, and Yoshkar-Ola, Russia; Rzeszow, Poland;
Tiszavasvari, Hungary; and Wuxi, China. The Company believes it has sufficient
manufacturing capacity to meet its needs for the foreseeable future. The
manufacturing facilities which require good manufacturing practices ("GMP")
approval from the FDA or foreign agencies, have obtained such approval.
In Bryan, Ohio, the Company manufactures topical and oral dosages of several
pharmaceutical products for the United States market. All of the Company's
dermatology products are formulated, packaged and distributed from the Bryan,
Ohio facility. The Bryan, Ohio facility also packages and distributes
Virazole(R) for RSV on a worldwide basis.
At the two facilities in Mexico City, the Company manufactures a variety of
pharmaceuticals in topical, oral and injectable dosage forms to serve the Latin
America market. In Montreal, Canada, the Company manufactures its line of
proprietary and generic pharmaceutical dosage forms for the U.S. and Canadian
markets, SPAG units for the administration of Virazole(R) in the treatment of
RSV, and other related medical devices. The Canadian facility also manufactures
a full line of products using the controlled drug substance morphine for the
management of pain in cancer and post-surgical states. In Spain, the Company
manufacturers and markets ethical pharmaceuticals principally for distribution
in Spain and Holland. In Yugoslavia, the Company manufactures over 450
pharmaceutical, veterinary, dental and other products in topical, oral and
injectable forms. In St. Petersburg, Russia, the Company manufactures primarily
pharmaceutical products in oral and injectable forms. At Kursk, Russia, the
Company produces bulk drugs as well as other chemically synthesized bulk drug
structures, and a variety of oral dosage forms for the Russian market. In
Chelyabinsk, Russia, the Company produces oral and injectable dosage forms for
the Russian market. The Company's recently acquired manufacturing sites in
Rzeszow, Poland and in Tomsk and Yoshkar-Ola, Russia manufacture a variety of
pharmaceutical products in oral and injectable forms. In Tiszavasvari, Hungary
the Company produces a variety of bulk drug substances for sale worldwide and
oral dosage forms for European and Asian markets. At Wuxi in China the Company
produces oral and injectable dosage forms for the Chinese market.
The Company subcontracts all of the manufacture of bulk ribavirin to third party
suppliers. Most of the finishing and packaging of Virazole(R) is done by the
Company and the balance by third party subcontractors. The Company believes that
capacities of these manufacturers are sufficient to meet the current demand for
Virazole(R).
Manufacturing of the Company's research chemical products is chiefly carried out
in three domestic facilities and one foreign facility: Irvine, California
(radiochemicals), Orangeburg, New York (diagnostic and immunobiologicals),
Aurora, Ohio (biochemicals and immuno-biologicals) and Eschwege, Germany
(chromatography products).
In general, raw materials used by the Company in the manufacture of all of its
products are obtainable from multiple sources in the quantities desired.
<PAGE>
Page 13
ITEM 1. BUSINESS--continued
LICENSES, PATENTS AND TRADEMARKS (PROPRIETARY RIGHTS)
The Company may be dependent on the protection afforded by its patents relating
to Virazole(R) and no assurance can be given as to the breadth or degree of
protection which these patents will afford the Company. The Company has patent
rights in the United States expiring in 1999 relating to the use of Virazole(R)
to treat specified human viral diseases. If future development of Virazole(R) in
Combination Therapy is successful and approval granted in the United States, an
additional award of exclusivity will likely be granted for up to three years
from date of approval pursuant to the Waxman-Hatch Act; however, there can be no
assurance that such development will be successful or that such approval will be
obtained. The Company has patents in certain foreign countries covering use of
Virazole(R) in the treatment of certain diseases, which coverage and expiration
varies and which patents expire at various times through 2006. The Company has
no, or limited, patent rights with respect to Virazole(R) and/or its use in
certain foreign countries where Virazole(R) is currently, or in the future may
be, approved for commercial sale, including France, Germany and Great Britain.
However, it is expected that Schering-Plough and the Company will be granted a
favorable review classification (Concertation Procedure) for Virazole(R) as a
treatment for chronic hepatitis C in Combination Therapy in all European Union
countries (including France, Germany and Great Britain). As a result, approval
of the application of Virazole(R) for treatment of chronic hepatitis C in
Combination Therapy (if such approval is granted) would, in the European Union,
provide Schering-Plough and the Company six or more years of regulatory
protection from the date of such approval of the application against generic
substitutes of Virazole(R) for treatment of chronic hepatitis C. There can be no
assurance that the loss of the Company's patent rights with respect to
Virazole(R) upon expiration of the Company's patent rights in the United States,
Europe and elsewhere will not result in competition from other drug
manufacturers or will not otherwise have a significant adverse effect upon the
business and operations of the Company.
Marketing approvals in certain foreign countries provide an additional level of
protection for products approved for sale in such countries. As a general
policy, the Company expects to seek patents, where available, on inventions
concerning novel drugs, techniques, processes or other products which it may
develop or acquire in the future. However, there can be no assurance that any
patents applied for will be granted, or that, if granted, they will have
commercial value or as to the breadth or the degree of protection which these
patents, if issued, will afford the Company. The Company intends to rely
substantially on its unpatented proprietary know-how, but there can be no
assurance that others will not develop substantially equivalent proprietary
information or otherwise obtain access to the Company's know-how. Patents for
pharmaceutical compounds are not available in certain countries in which the
Company markets its products.
ICN Yugoslavia manufactures and sells three of its top-selling antibacterial
products, Pentrexyl(R), Longaceph(R) and Palitrex(R), under licenses from
Bristol-Myers Squibb, Roche Holding AG and Eli Lilly, respectively. See
"Products."
Many of the names of the Company's products are registered trademarks in the
United States, Yugoslavia, Mexico, Canada, Spain, The Netherlands and other
countries. The Company anticipates that the names of future products will be
registered as trademarks in the major markets in which it will operate. Other
organizations may in the future apply for and be issued patents or own
proprietary rights covering technology which may become useful to the Company's
business. The extent to which the Company at some future date may need to obtain
licenses from others is not known.
<PAGE>
Page 14
ITEM 1. BUSINESS--continued
GOVERNMENT REGULATION
The Company is subject to licensing and other regulatory control by the FDA, the
Nuclear Regulatory Commission, other Federal and state agencies and comparable
foreign governmental agencies.
FDA approval must be obtained in the United States and approval must be obtained
from comparable agencies in other countries prior to marketing or manufacturing
new pharmaceutical products for use by humans. Obtaining FDA approval for new
products and manufacturing processes can take a number of years and involve the
expenditure of substantial resources. To obtain FDA approval for the commercial
sale of a therapeutic agent, the potential product must undergo testing programs
on animals, the data from which is used to file an Investigational New Drug
Application with the FDA. In addition, there are three phases of human testing.
Phase I: safety tests for human clinical experiments, generally in normal,
healthy people; Phase II: expanded safety tests conducted in people who are sick
with the particular disease condition that the drug is designed to treat; and
Phase III: greatly expanded clinical trials to determine the effectiveness of
the drug at a particular dosage level in the affected patient population. The
data from these tests is combined with data regarding chemistry, manufacturing
and animal toxicology and is then submitted in the form of a NDA to the FDA. The
preparation of a NDA requires the expenditure of substantial funds and the
commitment of substantial resources. The review by the FDA could take up to
several years. If the FDA determines that the drug is safe and effective, the
NDA is approved. No assurance can be given that authorization for the commercial
sale by the Company of any new drugs or compounds for any application will be
secured in the United States or any other country, or that, if such
authorization is secured, those drugs or compounds will be commercially
successful. The FDA in the United States and other regulatory agencies in other
countries also periodically inspect manufacturing facilities.
The Company is subject to price control restrictions on its pharmaceutical
products in the majority of countries in which it operates. To date, the Company
has been affected by pricing adjustments in Spain and by the lag in allowed
price increases in Yugoslavia and Mexico, which has created lower sales in U.S.
dollars and reductions in gross profit. Future sales and gross profit could be
materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation.
LITIGATION, GOVERNMENT INVESTIGATIONS AND OTHER MATTERS
LITIGATION: See Note 12 of Notes to Consolidated Financial Statements for a
description of the Company's Litigation.
PRODUCT LIABILITY: The Company could be exposed to possible claims for personal
injury resulting from allegedly defective products. The Company generally
self-insures against potential product liability exposure with respect to its
marketed products, including Virazole(R). While to date no material claim for
personal injury resulting from allegedly defective products, including
Virazole(R), has been successfully maintained against the Company or any of the
Predecessor Companies, a substantial claim, if successful, could have a material
adverse effect on the Company.
ENVIRONMENTAL MATTERS: The Company has not experienced any material impact on
its capital expenditures, earnings or competitive position as a result of
compliance with any laws or regulations regarding the protection of the
environment. The Company believes it is in compliance in all material respects
with applicable laws relating to the protection of the environment. For a
description of environmental exposure related to the Company's acquisition of
Alkaloida Chemical, see Note 12 of Notes to Consolidated Financial Statements.
<PAGE>
Page 15
ITEM 1. BUSINESS--continued
EMPLOYEES
As of December 31, 1997, the Company employed 15,744 persons, an increase from
12,784 in 1996. The increase is primarily due to acquiring the controlling
interest in the Tomsk, Russia, Yoshkar-Ola, Russia, and Rzeszow, Poland
operations and the commencement of operations under the joint venture in China.
At year end, the Company employed 2,168 persons in sales and marketing, 587 in
research and development, 10,676 in production and 2,313 in general and
administrative capacities. All of the employees employed by ICN Yugoslavia and
Alkaloida, 1,620 of the employees of ICN Russia, St. Petersburg, 708 of the
employees of ICN Russia, Chelyabinsk, 227 of the employees of the Company's
Mexican subsidiaries, 238 employees of the Company's Spanish subsidiary and 26
employees of the Company's German subsidiary are covered by collective
bargaining or similar agreements. National labor laws in some foreign countries
in which the Company has substantial operations, including Yugoslavia, Russia
and Spain, govern the amount of wages and benefits paid to employees and
establish severance and related provisions. The Company currently considers its
relations with its employees to be satisfactory and has not experienced any work
stoppage or serious labor problems which have materially impacted its business
operations.
<PAGE>
Page 16
ITEM 2. PROPERTIES
The following are the principal facilities of the Company and its subsidiaries:
<TABLE>
<CAPTION>
OWNED OR SQUARE
LOCATION PURPOSE LEASED FOOTAGE
<S> <C> <C> <C>
Costa Mesa, California Corporate headquarters and administrative offices Owned 178,000
Moscow, Russia Eastern European Headqauarters and
Administrative offices Owned 102,400
Moscow, Russia Administrative and sales office Leased 8,450
Budapest, Hungary Administrative and sales office Leased 8,740
Basingstoke, United Kingdom Administrative office Leased 3,300
Irvine, California Manufacturing facility Leased 27,000
Orangeburg, New York Manufacturing facility Owned 100,000
Aurora, Ohio Manufacturing and repackaging facility Leased 67,000
Bryan, Ohio Warehouse and manufacturing facility Owned 37,000
Montreal, Canada Offices and manufacturing facility Owned 93,519
Zoetermeer, The Netherlands Offices and manufacturing facility Owned 23,430
Eschwege, Germany Offices and manufacturing facility Owned 13,278
Mexico City, Mexico Offices and manufacturing facility Owned 220,000
Belgrade, Yugoslavia Offices and manufacturing facility Owned 781,000
St. Petersburg, Russia Offices and manufacturing facility Owned 319,102
Kursk, Russia Offices and manufacturing facility Leased 167,791
Chelyabinsk, Russia Offices and manufacturing facility Owned 166,534
Tomsk, Russia Offices and manufacturing facility Owned 294,582
Yoshkar-Ola, Russia Offices and manufacturing facility Owned 142,397
Rzeszow, Poland Offices and manufacturing facility Owned 397,775
Tiszavasvari, Hungary Offices and manufacturing facility Owned 559,465
Barcelona, Spain Offices and manufacturing facility Owned 93,991
Wuxi, China Offices and manufacturing facility Leased 299,240
Wuxi, China Offices and manufacturing facility Owned 112,750
Brussels, Belgium Sales office Leased 6,323
Paris, France Sales office Leased 2,658
Opera, Italy Sales office and warehouse Owned 153,777
Sydney, Australia Sales office Leased 10,650
Humacao, Puerto Rico Office and manufacturing facility Owned 410,000
</TABLE>
The Humacao, Puerto Rico plant is currently being leased to Roche under a two
year lease which expires in August 1999. After the expiration of the lease, the
Company intends to use the Humacao plant to produce pharmaceutical products.
In the opinion of the Company's management, all facilities occupied by the
Company are adequate for present requirements, and the Company's current
equipment is considered to be in good condition and suitable for the operations
involved.
<PAGE>
Page 17
ITEM 3. LEGAL PROCEEDINGS
See Note 12 of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
Page 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company began trading its common stock on the New York Stock Exchange
beginning November 14, 1994, the first trading day after the Merger was
completed and New ICN common stock was approved for listing on the New York
Stock Exchange (Symbol: ICN). Prior to the Merger, SPI common stock was first
listed on NASDAQ (National Association of Securities Dealers Automated Quotation
System) on October 7, 1983 and was subsequently listed on the American Stock
Exchange on July 22, 1988.
The following table sets forth the high and low sales prices of the Company's
common stock on the New York Stock Exchange. The market prices set forth below
have been retroactively adjusted for the effect of the three-for-two stock split
(in the form of a dividend) which became effective on March 16, 1998.
HIGH LOW
-------- ---------
1996
First Quarter $ 16 3/8 $ 11 3/8
Second Quarter 18 5/8 14 1/8
Third Quarter 16 5/8 13 3/8
Fourth Quarter 13 7/8 11 3/4
1997
First Quarter 18 13
Second Quarter 19 3/8 13 5/8
Third Quarter 35 1/4 17 5/8
Fourth Quarter 37 3/8 26 3/4
As of March 20, 1998, there were 9,339 holders of record of the Company's common
stock.
Beginning with the first quarter dividend of 1996, the Board of Directors
elected to discontinue the issuance of stock distributions while increasing the
quarterly per share cash dividend to 5.1 cents per quarter from 4.7 cents per
quarter in 1995. In March 1997, the Company again increased its quarterly per
share cash dividend to 5.3 cents per share. In January 1998, the Company
increased its quarterly per share cash dividend to 6 cents per share from 5.3
cents per share.
The Board of Directors will continue to review the Company's dividend policy.
The amount and timing of any future dividends will depend upon the financial
condition and profitability of the Company, the need to retain earnings for use
in the development of the Company's business, contractual restrictions and other
factors.
<PAGE>
Page 19
ITEM 6. SELECTED FINANCIAL DATA
ICN Pharmaceuticals, Inc. and Subsidiaries (the "Company") was formed in
November 1994, as a result of the merger of ICN Pharmaceuticals, Inc. ("ICN"),
SPI Pharmaceuticals, Inc. ("SPI"), Viratek, Inc. ("Viratek") and ICN
Biomedicals, Inc. ("Biomedicals") (collectively, the "Predecessor Companies") in
a transaction accounted for using the purchase method of accounting (the
"Merger"). For accounting purposes, SPI was treated as the acquiring company in
the Merger and, as a result, the Company's historical financial data includes
only the historical financial data of SPI for periods prior to the Merger; the
results of ICN, Viratek and Biomedicals are included in the consolidated
financial statements of the Company since the effective date of the Merger. The
following table sets forth certain consolidated financial data for the five
years ended December 31, 1997. This information should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements included elsewhere in this
Form 10-K. (Amounts in thousands, except per share information.)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995 1994 1993
-------------------------------------------------------------
Statement of
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales(1) $752,202 $614,080 $507,905 $366,851 $403,957
Cost of sales 351,978 291,807 206,049 182,946 211,923
-------------------------------------------------------------
Gross profit 400,224 322,273 301,856 183,905 192,034
Selling, general and
administrative expenses 256,234 192,441 191,459 112,919 134,895
Royalties to affiliates, net -- -- -- 7,468 6,121
Research and development costs 18,692 15,719 17,231 7,690 11,516
Purchased research
and development(2) -- -- -- 221,000 --
-------------------------------------------------------------
Income (loss) from operations 125,298 114,113 93,166 (165,172) 39,502
Translation and exchange (gains)
losses, net 12,790 2,282 (9,484) 191 (3,282)
Interest income (15,912) (3,001) (6,488) (4,728) (8,033)
Interest expense 22,849 15,780 22,889 9,317 23,750
-------------------------------------------------------------
Income (loss) before provision
(benefit) for income taxes and
minority interest 105,571 99,052 86,249 (169,952) 27,067
Provision (benefit) for
income taxes (27,736) (6,815) 2,997 10,360 5,368
Minority interest 19,383 18,939 15,915 3,269 189
-------------------------------------------------------------
Net income (loss) $ 113,924 $ 86,928 $ 67,337 $(183,581) $ 21,510
=============================================================
PER SHARE INFORMATION: (3) (4)
Basic earnings (loss) per common share $ 1.93 $ 1.75 $ 1.51 $ (5.29) $ .66
=============================================================
Shares used in per share computation 55,965 48,341 44,562 34,707 32,367
=============================================================
Cash dividends paid $ .21 $ .15 $ .19 $ .17 $ .16
=============================================================
BALANCE SHEET DATA:
Working capital $ 585,606 $306,764 $190,802 $ 137,802 $127,259
Total assets 1,491,745 778,651 518,298 441,473 302,017
Long-term debt 315,088 176,489 154,193 195,181 16,980
Stockholders' equity 796,328 315,350 162,172 88,908 155,879
</TABLE>
See accompanying notes to Selected Financial Data.
<PAGE>
Page 20
ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
NOTES TO SELECTED FINANCIAL DATA
(1) ICN Yugoslavia's sales have been adversely affected since the imposition in
May 1992 of United Nations sanctions on Yugoslavia, suspended in December
1995.
(2) The Merger resulted in $221,000,000 or $6.37 per basic share being ascribed
to purchased research and development for which no alternative use existed,
which was written-off immediately. This write-off was a one-time, non-cash
charge and is not related to the Company's ongoing research and development
activities for Virazole(R). Net income, excluding this one-time, non-cash
write-off, was $37,419,000 or $1.08 per basic share in 1994.
(3) Earnings per share amounts for all periods prior to 1997 have been restated
to comply with the requirements of Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE (see Note 7 of Notes to Consolidated
Financial Statements).
(4) In March 1998, the Company completed a three-for-two stock split (in the
form of a dividend). During 1995, 1994 and 1993 the Company issued stock
dividends and distributions which totaled 5.6%, 4.8%, and 6%, respectively.
Common share and per common share amounts for all periods presented in the
accompanying Selected Financial Data have been restated to reflect the
stock split and each of the stock dividends and distributions.
<PAGE>
Page 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
For financial reporting purposes, the Company's operations are divided into two
business segments, the Pharmaceutical segment and the Biomedical segment.
Certain financial information for the two business segments is set forth below.
This discussion should be read in conjunction with the consolidated financial
statements of the Company included elsewhere in this document. For additional
financial information by business segment, see Note 13 of Notes to Consolidated
Financial Statements.
1997 1996 1995
---- ---- ----
NET SALES (IN THOUSANDS)
Pharmaceutical......... $ 681,287 $ 549,753 $ 446,566
Biomedical............. 70,915 64,327 61,339
------------ ------------ ------------
Total Company.......... $ 752,202 $ 614,080 $ 507,905
============ ============ ============
NET SALES: Eastern Europe was the major contributor to sales growth in 1997.
Pharmaceutical net sales in Eastern Europe for the year ended December 31, 1997
were $433,268,000 compared to $355,415,000 for the same period in 1996. The
increase of $77,853,000 or 22% is primarily the result of the Company's
continued expansion program that includes three acquisitions in 1997, and of the
inclusion in 1997 of a full year's results of operations for the Company's 1996
acquisitions. In Russia, the Company acquired AO Tomsk and Marbiopharm in the
fourth quarter of 1997, which added $17,882,000 of sales. The Company's 1996
Russian acquisitions, Polypharm and Leksredstva, generated additional sales in
1997 of $35,374,000, of which approximately $15,923,000 was due to price and
volume increases and the remainder was the result of the inclusion of a full
year's sales in 1997. Sales at ICN Oktyabr in Russia have increased $14,644,000
in 1997 compared with 1996 due to price and volume increases. The Company also
acquired Polfa Rzeszow S.A., a pharmaceutical company in Rzeszow, Poland, in the
fourth quarter of 1997, which generated sales of $13,070,000. In Hungary, sales
at Alkaloida increased by $38,519,000, principally due to the inclusion of a
full year's operations in 1997. These increases were partially offset by ICN
Yugoslavia, where net sales were $225,530,000 in 1997, compared with
$267,166,000 in 1996. The Company has limited its sales to the Yugoslavian
government to those amounts which could be paid in cash or in notes receivable
fixed in dollar amounts. Sales at ICN Yugoslavia have also been affected by
limitations on governmental health care expenditures. See expanded discussion
below regarding ICN Yugoslavia.
Pharmaceutical net sales in Eastern Europe for the year ended December 31, 1996
were $355,415,000 compared to $254,961,000 for the same period in 1995. The
increase of $100,454,000 or 39% reflects the Company's expansion program that
included three acquisitions in 1996. In Russia, the Company acquired Leksredstva
in the second quarter of 1996, which added $21,068,000 of sales, and in the
third quarter of 1996 it acquired Polypharm, which added $7,397,000 of sales. In
Hungary, the Company acquired Alkaloida in the fourth quarter of 1996, which
added $21,461,000 of sales. Sales at ICN Oktyabr in Russia increased $18,023,000
in 1996 compared to 1995 due to price and volume increases and the inclusion of
a full twelve months of activity in 1996 compared to three quarters of ICN
Oktyabr sales in 1995. During 1996, ICN Yugoslavia began recovering from the
effects of a November 1995 devaluation of the Yugoslavian dinar. Net sales at
ICN Yugoslavia amounted to $267,166,000 in 1996, an increase of $32,505,000 or
14% over the previous year, primarily due to higher prices partially offset by
currency fluctuations resulting from the 1995 devaluation. With the lifting of
United Nations sanctions, ICN Yugoslavia was able to begin exporting in 1996,
which contributed $20,227,000 of sales.
<PAGE>
Page 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
Pharmaceutical net sales in North America for the year ended December 31, 1997
were $142,239,000 compared to $106,442,000 for the same period in 1996. The
increase of $35,797,000 or 34% is primarily the result of the Company's purchase
of the rights to eleven products from F. Hoffmann-La Roche Ltd. ("Roche".)
Effective July 1, 1997, the Company acquired the worldwide rights (except India)
to seven products: Alloferin, Ancotil, Glutril, Limbitrol, Mestinon, Prostigmin
and Protamin and the worldwide rights (outside of the United States and India)
to Efudex and Librium. Effective October 1, 1997, the Company obtained the
worldwide rights to Levo-Dromoran and Tensilon and the United States rights to
Efudex and Librium. Sales of the acquired products totaled $37,895,000 for 1997.
The increase in North American net sales related to the acquired product rights
was partially offset by a $10,254,000 decrease in unit sales of Virazole(R).
Virazole(R) is used in aerosol form to treat infants hospitalized with severe
respiratory infection caused by respiratory syncytial virus ("RSV") and is the
only antiviral therapeutic for this infection. RSV is a seasonal illness which
occurs primarily in late fall through early spring. Sales of Virazole(R) for
1997 were adversely impacted by increased wholesale inventory levels that
developed in 1996, along with continued health care industry trends toward cost
containment.
Pharmaceutical net sales in North America for the year ended December 31, 1996
were $106,442,000 compared to $109,505,000 for the same period in 1995. The
decrease of $3,063,000 or 3% reflects a decrease in unit sales of Virazole(R) in
the amount of $22,393,000, partially offset by an increase in unit sales
primarily in the dermatological, medicinal, and myasthenia gravis product lines.
Early in the 1995/1996 season, the number of hospital admissions and positive
cultures for RSV suggested a heavy incidence of infection. However, the severity
of infection in this season was not as high as the prior seasons nor as heavy as
such earlier evidence indicated, resulting in a lower hospital demand for
Virazole(R) and consequently an increased level of inventory at the wholesale
level. The increased wholesale inventory levels, combined with trends in the
industry toward managed health care during the first part of the 1996/1997
season, adversely impacted total 1996 Virazole(R) sales despite additional sales
promotional efforts which included more favorable credit terms and sales
discounts.
Sales of Virazole(R) for 1997 and 1996 may have been (and may continue to be)
affected by a January 1996 change in the American Academy of Pediatrics
guidelines for the use of Virazole(R) in RSV from "should be used" to "may be
considered". Future sales may also be impacted by the severity of the next RSV
season, the increased level of inventory still remaining at the wholesale level,
and by a recently approved product designed to prevent RSV. Due to the fact that
RSV is a seasonal disease, Virazole(R) sales from year to year are subject to
the incidence and severity of the disease which cannot be predicted with
certainty.
Pharmaceutical net sales in Western Europe for the year ended December 31, 1997
were $32,022,000 compared with $35,826,000 in 1996. The decrease of $3,804,000
or 11% primarily reflects unfavorable currency exchange fluctuations, partially
offset by an increase in Virazole(R) sales.
Pharmaceutical net sales in Western Europe for the year ended December 31, 1996
were $35,826,000 compared to $37,226,000 in 1995. The decrease of $1,400,000 or
4% primarily reflects a decline in vision care sales in Holland and a decline in
other pharmaceutical sales, partially offset by an increase in Virazole(R)
sales.
Pharmaceutical net sales in Latin America for the year ended December 31, 1997
were $59,371,000 compared with $47,359,000 for the same period in 1996, an
increase of $12,012,000 or 25%. Such increases were primarily due to price
increases and volume increases, partially offset by unfavorable currency
exchange fluctuations.
Pharmaceutical net sales in Latin America for the year ended December 31, 1996
were $47,359,000 compared to $41,984,000 for the same period in 1995, an
increase of $5,375,000 or 13%. Such increases were primarily due to price
increases, partially offset by a small decrease in unit sales and currency
exchange fluctuations. Net sales for 1995 were negatively impacted by inflation
and the devaluation of the Mexican peso.
Biomedical products net sales for 1997 were $70,915,000 compared with
$64,327,000 in 1996, an increase of $6,588,000 or 10%. This increase was
primarily due to the acquisition of the former Siemens Dosimetry Service in July
1996, partially offset by a $1,261,000 decrease resulting from the sale of the
Instrument business in March 1996.
<PAGE>
Page 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
The Biomedical business had net sales for 1996 of $64,327,000 compared to
$61,339,000 in 1995, an increase of $2,988,000 or 5%. This increase was
primarily due to the effect of the additional sales of diagnostic products
acquired from Becton-Dickinson in May 1995 of $1,837,000 and additional
Dosimetry sales resulting from the acquisition of the former Siemens Dosimetry
Service in July 1996 of $446,000, which were partially offset by a decrease in
Instrument sales of approximately $4,423,000 resulting from the sale of the
Instrument business in March 1996.
GROSS PROFIT: Gross profit as a percentage of sales was 53% for 1997 compared to
52% for 1996. ICN Yugoslavia achieved a gross profit margin of 48% in 1997
compared to 41% for 1996, when gross profit margins were adversely affected by
the November 1995 devaluation of the Yugoslavian dinar. The devaluation
suppressed gross margins in 1996 due to higher exchange rates and a lack of
sufficient price increases while the cost of sales for inventory manufactured
prior to the devaluation is expensed at a higher historical exchange rate. The
Company also achieved improved gross profit margins in each of the businesses
acquired during 1996, Leksredstva, Polypharm and Alkaloida, where in 1997
margins improved to 40%, 37% and 32%, respectively, compared with 36%, 36% and
22% for 1996. The improved margins on the previously acquired businesses were
partially offset by lower gross profit margins on the Company's 1997 Russian
acquisitions and at ICN Oktyabr where gross profit was affected by competitive
pricing pressures. Gross profit margins for the Company's North American
operations were 79% for 1997 compared with 85% in 1996. Lower Virazole sales,
which carry higher gross profit margins, and sales of the products acquired from
Roche, which generally yield a relatively lower gross profit, contributed to the
decrease.
Gross profit as a percentage of sales was 52% for 1996 compared to 59% for 1995.
The decrease in gross profit margins was primarily due to a decrease in gross
margins at ICN Yugoslavia reflecting the impact of the November 1995 devaluation
which was partially offset by an 83% price increase in December 1995 and a 30%
price increase in April 1996. Typically, sales made subsequent to a devaluation
are lower due to higher exchange rates and a lack of sufficient price increases
while the cost of sales for inventory manufactured prior to the devaluation is
expensed at a higher historical exchange rate. Margins will begin to improve
after a devaluation if price increases are obtained and when older, higher
priced inventory is replaced with inventory manufactured after the devaluation.
ICN Yugoslavia's gross margins for the first, second, third and fourth quarters
of 1996 were 29%, 37%, 43% and 53%, respectively. Additionally, the gross profit
margins of the companies acquired in 1996, Leksredstva (36%), Polypharm (36%)
and Alkaloida (22%), also contributed to the relative decline. The gross profit
margin in the Company's operating units outside of Eastern Europe remained
consistent with 1995 at 69%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses were $256,234,000 or 34% of sales in 1997 compared to
$192,441,000 or 31% in 1996. The increase is primarily due to additional
expenses of the operations acquired in 1997 and 1996 totaling $25,692,000,
additional costs of approximately $5,892,000 resulting from the establishment of
the Company's Eastern European headquarters in Moscow, and additional
amortization of purchased intangibles of approximately $3,762,000 resulting from
the acquisition of certain product rights from Roche. The 1997 amount also
includes a one-time $12,000,000 charge related to the settlement of the 1995
class action suit related to the Company's hepatitis C new drug application with
the Food and Drug Administration.
Under the Exclusive License and Supply Agreement with a subsidiary of
Schering-Plough Corporation ("Schering-Plough") to develop Virazole(R) for the
treatment of hepatitis C, the Company retains the right to co-market in the
countries of the European Economic Community. The Company expects to incur
significant pre-launch marketing expenses over the next two years. These efforts
may cause the ratio of selling, general and administrative expenses to sales to
increase during this period of time resulting from additional expenses without
immediate incremental revenues.
Selling, general and administrative expenses were $192,441,000 or 31% of sales
in 1996 compared to $191,459,000 or 38% in 1995. For 1996, these costs reflect
decreasing expenses primarily at ICN Yugoslavia principally due to differences
in exchange rates of the Yugoslavian dinar in 1996 compared to 1995 and lower
level of expenditures. Offsetting such decreases were increases in selling,
general and administrative expenses in North America and Western Europe due to
expanded marketing efforts in these regions and a charge of $3,500,000 related
to the settlement of a commercial dispute and a penalty imposed by the Canadian
Patent Price Review Board. Additionally, the new Eastern European acquisitions
contributed $4,504,000 of expenses in 1996.
<PAGE>
Page 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
RESEARCH AND DEVELOPMENT COSTS: Research and development costs increased
$2,973,000 in 1997 compared to 1996. The increase is primarily the result of the
acquisition of personnel and modern research facilities at Alkaloida, and
increased investment in research and development efforts at ICN Yugoslavia.
Research and development costs decreased $1,512,000 in 1996 compared to 1995.
Such decrease occurred primarily at ICN Yugoslavia and was principally due to
differences in exchange rates of the Yugoslavian dinar.
TRANSLATION AND EXCHANGE GAINS AND LOSSES, NET: Foreign exchange losses, net, in
1997 were $12,790,000 compared to foreign exchange losses, net, of $2,282,000 in
1996. In 1997, ICN Yugoslavia had translation losses of $12,602,000, related to
changes in local currency and its impact on their net monetary asset position.
In addition, Alkaloida recorded transaction losses of approximately $2,421,000
on long-term obligations denominated in currencies other than its functional
currency. Partially offsetting these losses were gains of $1,121,000 related to
the Company's foreign-denominated debt.
Foreign exchange losses, net, in 1996 were $2,282,000 compared to foreign
exchange gains, net, of $9,484,000 in 1995. For the year ended December 31,
1996, ICN Yugoslavia's and ICN Oktyabr's translation losses were $4,290,000 and
$1,033,000, respectively, which related to changes in local currency and its
impact on their net monetary asset position. Partially offsetting these losses
were translation gains of $3,276,000 related to the Company's foreign
denominated debt.
INTEREST INCOME AND EXPENSE: The increase in interest expense in 1997 compared
to 1996 of $7,069,000 is primarily due to interest expense on the Company's
$275,000,000 9-1/4% Senior Notes due 2005, issued in August 1997 and to interest
expense on debt acquired in connection with the Company's 1996 and 1997
acquisitions. This additional interest expense was partially offset by reduced
interest expense as a result of the conversion of $114,980,000 principal amount
of the Company's 8.5% Convertible Subordinated Notes due 1999 and all of the
outstanding 5-5/8% Swiss Franc Exchangeable Certificates, as well as increased
interest capitalization of interest costs related to plant construction at ICN
Yugoslavia. During 1997, the Company capitalized interest of $5,419,000 compared
with $3,770,000 in 1996. Interest income increased to $15,912,000 in 1997 from
$3,001,000 in 1996 due to the investment of a significant portion of the
proceeds of the $275,000,000 Senior Notes.
The decrease in interest expense in 1996 compared to 1995 of $7,109,000 is
primarily due to the effect of the retirement of $34,160,000 of the Company's 12
7/8% Sinking Fund Debentures during 1995 and the capitalization of interest cost
related to plant construction at ICN Yugoslavia. During 1996, the Company
capitalized $3,770,000 compared to $1,978,000 in 1995.
INCOME TAXES: The Company's effective income tax rate (benefit) was (26%), (7%),
and 3% for 1997, 1996, and 1995, respectively. The Company operates in many
regions where the tax rate is low or it benefits from a tax holiday. In 1997,
the provision for income taxes reflects a deferred tax benefit of $35,376,000
resulting from the recognition of certain deferred tax assets and the reduction
of the related valuation allowance. During 1997 the Company acquired certain
products from Roche and in early 1998 it acquired certain products from
SmithKline Beecham plc. These new products are expected to generate future
taxable income that provided a basis for reducing the Company's valuation
allowance for its deferred tax assets in 1997. Ultimate realization of the
deferred tax assets is dependent upon the Company generating sufficient taxable
income prior to expiration of the loss carryforwards. Although realization is
not assured, management believes it is more likely than not that the net
deferred tax assets will be realized. In 1997, the benefits from a tax holiday
expired in Yugoslavia; however, changes in Yugoslavian tax law in 1997 created
benefits that resulted in an overall 2% effective tax rate. The benefits from
the 1997 change in tax law will probably continue into 1998. In Russia, the
Company continued to benefit from special tax relief that benefits
pharmaceutical companies resulting in an effective tax rate of 8%. In Hungary,
the Company continued to benefit from a tax holiday expiring December 31, 1998.
In 1996, the Company benefited from tax credits arising from the acquisition of
ICN Yugoslavia and in Russia the tax rate was low due to special tax relief
afforded to pharmaceutical companies. In 1996, the Company recorded a tax
benefit of $6,815,000 primarily resulting from the favorable outcome of tax
audits and the tax benefit from the Company's current year tax loss in the U.S.
which was carried back to prior tax years resulting in the recovery of taxes
previously paid.
<PAGE>
Page 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
The trend of low tax rates may not continue in the future. In 1997, the Company
recognized substantially all of the benefit of its future U.S. net operating
loss carryforwards. The continuing tax benefits in Yugoslavia and Russia are
subject to potential changes in tax law that may be enacted in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in 1997 was $9,315,000 compared with cash
used by operating activities of $25,548,000 in 1996. Operating cash flows for
1997 were affected by working capital increases (after the effect of business
acquisitions and currency translation adjustments) totaling approximately
$129,219,000. The working capital increases are principally related to increases
in accounts and notes receivable, especially at ICN Yugoslavia. The collection
period of receivables for ICN Yugoslavia continues to be affected by the lack of
availability of dinars in Yugoslavia. During 1997, approximately $50,000,000 of
accounts receivable from the Yugoslavian government were converted from
dinar-denominated, unsecured accounts receivable to notes receivable payable in
dinars, but fixed in dollar amounts. Additional sales to the Yugoslavian
government and government-sponsored entities during 1997 were made under similar
note receivable terms in order to reduce the Company's exposure to losses
resulting from exchange rate fluctuations. The outstanding balance of the notes
receivable from the Yugoslavian government is approximately $145,431,000 at
December 31, 1997. See expanded discussion below regarding liquidity at ICN
Yugoslavia. The Company's inventories increased by approximately $6,227,000,
primarily to support increased sales volume in the Company's Russian operations.
The net deferred income tax asset increased by $35,376,000 due to increases in
the expected tax benefits to be derived from the future utilization of the
Company's net operating losses. These amounts were partially offset by a
$30,665,000 increase in trade payables and accrued liabilities, and by other
working capital changes.
Cash used in investing activities increased to $100,096,000 in 1997 compared
with $41,962,000 in 1996. Capital expenditures totaled $100,397,000, including
cash payments of approximately $49,000,000 for the Humacao, Puerto Rico
manufacturing plant acquired from Roche, approximately $7,250,000 for the
Company's Eastern European headquarters building in Moscow, Russia,
approximately $12,740,000 of capital expenditures at ICN Yugoslavia, and
approximately $11,343,000 at the Company's Russian subsidiaries. The ICN
Yugoslavia expenditures primarily represent the continuation of the Company's
ongoing plant expansion efforts. The estimated cost of completing this project
is approximately $50,000,000, with a planned completion date in 2000. From the
beginning of the project in 1994, ICN Yugoslavia has expended $62,358,000. ICN
Yugoslavia intends to fund this program through existing funds, funds generated
from local operations and locally funded debt. Cash used in investing activities
also includes payments of $44,829,000 for the acquisition of four businesses--AO
Tomsk and Marbiopharm in Russia, Polfa Rzeszow S.A. in Poland, and Wuxi ICN
Pharmaceuticals in China. These expenditures were partially offset by proceeds
from the sale of marketable securities of $40,826,000 and other sources. In
1996, net cash used in investing activities of $41,962,000 principally consisted
of payments for acquisitions (primarily in Eastern Europe and the United States)
totaling $51,222,000 and capital expenditures of $26,216,000, which were
partially offset by proceeds from the sale of marketable securities of
$27,663,000 and other sources.
Net cash provided by financing activities was $262,675,000 in 1997 compared with
$82,680,000 in 1996. In 1997 funds were principally provided by long-term
borrowings totaling $284,051,000, including the sale of $275,000,000 principal
amount of the Company's 9-1/4% Senior Notes due 2005 in August 1997, and
proceeds from the exercise of stock options of $20,498,000. These amounts were
partially offset by principal payments on long-term debt of $17,555,000, a net
reduction in notes payable of $14,395,000, and cash dividends of $11,631,000.
Included in 1996 are $32,842,000 and $47,392,000 of net proceeds from the
issuance of common stock and preferred stock, respectively, primarily used to
fund acquisitions in the United States and Eastern Europe and working capital,
and $10,167,000 of proceeds from the exercise of stock options, partially offset
by payment of short-term and long-term debt of $42,288,000 and $6,999,000 of
dividends paid.
<PAGE>
Page 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
During 1997, $114,919,000 of the Company's 8-1/2% Convertible Subordinated Notes
were converted into approximately 7,793,939 shares of the Company's common
stock, and the remainder was redeemed for cash. In addition, Swiss francs
66,510,000 principal amount of the Company's 5-5/8% Swiss Franc Exchangeable
Certificates were converted into 2,246,868 shares of the Company's common stock,
and the remainder was redeemed for cash. The conversion and redemption of these
obligations reduced the Company's long-term debt by an aggregate of
$123,817,000. In addition, marketable securities with a value of approximately
$38,779,000, previously held in trust for the payment of debt service on the
5-5/8% Swiss Franc Exchangeable Certificates, became available to the Company
and were sold for cash.
In March 1998, the Company announced the redemption of its Bio Capital Holdings
5-1/2% Swiss Franc Exchangeable Certificates (the "New Certificates"). At
December 31, 1997 the SFr 37,870,000 outstanding principal amount of the New
Certificates are exchangeable for an aggregate of approximately 806,000 shares
of the Company's common stock. Based upon the current market price of the
Company's common stock and the exchange rate of the New Certificates, the
Company expects the holders of the New Certificates will elect to exercise their
right to exchange the New Certificates for shares of the Company's common stock.
If the holders of the New Certificates do not exchange the certificates for
common stock, the Company will redeem the New Certificates using existing cash
and cash equivalents. Upon completion of such redemption, marketable securities
presently held in trust for the payment of the New Certificates, having a market
value of approximately $23,300,000, will become available to the Company.
DEMANDS ON LIQUIDITY: The Company's principal sources of liquidity are its
existing cash and cash equivalents and cash provided by operations. Cash and
cash equivalents at December 31, 1997 are $209,896,000 compared with $39,366,000
at December 31, 1996. Working capital increased to $585,606,000 compared with
$306,764,000 at the end of 1996, primarily due to 1997 net income and the net
increase in long-term borrowings. The Company currently has available various
lines of credit with financial institutions which provide for aggregate
borrowings of up to $46,027,000; outstanding borrowings under these lines of
credit totaled $10,598,000 at December 31, 1997. Certain of the lines of credit
and long-term borrowings include covenants restricting the payment of dividends,
the issuance of new indebtedness, and the repurchase of the Company's common
stock and requiring the maintenance of certain financial ratios. Management
believes that funds generated from operations will be sufficient to meet its
normal operating requirements and to fund capital expenditures estimated at
$116,300,000 for the coming year. Also, if the historic rate of growth in
Eastern Europe continues, these operations will require increasing levels of
working capital and funds for additional facilities or upgrading of existing
facilities. The Company also has several preliminary acquisition prospects that
may require significant funds in 1998. Management believes that the Company's
existing cash and cash equivalents along with funds generated from operations
will be sufficient to meet these liquidity requirements and to fund anticipated
acquisitions.
PRODUCT LIABILITY: The Company is currently self-insured with respect to product
liability claims. While to date no material adverse claim for personal injury
resulting from allegedly defective products has been successfully maintained
against the Company, a substantial claim, if successful, could have a material
adverse effect on the Company's liquidity and financial performance. See Note 12
of Notes to Consolidated Financial Statements.
INFLATION AND CHANGING PRICES: Foreign operations are subject to certain risks
inherent in conducting business abroad, including price and currency exchange
controls, fluctuations in the relative values of currencies, political
instability and restrictive governmental actions. Changes in the relative values
of currencies occur from time to time and may, in certain instances, materially
affect the Company's results of operations. The effect of these risks remains
difficult to predict.
During the last three years, the cumulative inflation rate in Mexico has
exceeded 100%. In 1997, the Company began translating the financial statements
of its operations in Mexico using accounting methods that apply to
hyperinflationary economies, resulting in a foreign exchange loss of
approximately $400,000. At December 31, 1997, Mexico had a net monetary asset
position of approximately $6,719,000, which would be subject to loss if a
devaluation were to occur.
<PAGE>
page 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
The Company and its subsidiaries are also subject to foreign currency risk on
its foreign-denominated debt of $26,006,000 at December 31, 1997, which is
primarily denominated in Swiss francs and German Marks and, at Alkaloida, in
U.S. dollars, and to devaluation losses on net monetary asset positions in
Yugoslavia and Russia. See "ICN Yugoslavia" below and Note 14 of Notes to
Consolidated Financial Statements for further discussion. At December 31, 1997,
the net monetary asset position of the Company's Russian operations was
$28,745,000, which would be subject to a loss if a devaluation were to occur.
The effects of inflation are experienced by the Company through increases in the
costs of labor, services and raw materials. The Company is subject to price
control restrictions on its pharmaceutical products in the majority of countries
in which it operates. While the Company attempts to raise selling prices in
anticipation of inflation, the Company has been affected by the lag in allowed
price increases in Yugoslavia and Mexico, which has created lower sales in U.S.
dollars and reductions in gross profit. Future sales and gross profit could be
materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation. Pharmaceutical prices in neither the
United States nor the Russian pharmaceutical markets are heavily regulated by
the government.
THE YEAR 2000 ISSUE: The Company is pursuing an action plan to be Year 2000
compliant in all locations by the middle of 1999. The Company does not have
heavy reliance on custom, internally generated software; the Company principally
uses third party software that is in most cases already Year 2000 compliant. The
Company has completed an assessment of its worldwide computer systems and has
determined that it will be required to perform some modification or replacement
of software so that all systems will properly utilize dates beyond December 31,
1999.
The cost of making the Company's information systems and software Year 2000
compliant is not expected to be material to the financial results of the
Company. The Company does not consider itself particularly vulnerable to third
parties' failure to remediate those third parties' own Year 2000 issues and
continues to assess the issue.
ICN YUGOSLAVIA
ICN Yugoslavia, a 75% owned subsidiary, operates in a business environment that
is subject to significant economic volatility and political instability. The
current economic trend in Yugoslavia is toward unfavorable economic conditions
that include continuing liquidity problems, inflation and monetary exposures,
potential currency devaluation, government spending limitations, credit risk,
political instability, sanctions and price controls. The future of the economic
and political environment of Yugoslavia is uncertain and could deteriorate to
the point that a material adverse impact on the Company's financial position and
results of operations could occur.
Yugoslavia is subject to political instability. The elections that took place in
1997 have not resulted in a change of political leadership that would provide
for a foundation of significant economic reforms. The Federal Republic of
Yugoslavia is comprised of two states, Serbia and the much smaller state of
Montenegro. Within Yugoslavia there exist political dissension and unrest. The
state of Montenegro has been active in seeking greater autonomy from Serbia.
Additionally, recent social unrest in the Serbian province of Kosovo could lead
to increased instability in the Balkans. United States diplomats have warned
that the Serbian actions and policies in Kosovo could lead to the reinstatement
of economic sanctions on Yugoslavia.
<PAGE>
Page 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
Inflationary trends in Yugoslavia continue to worsen, resulting in increased
risk of a devaluation of the Yugoslavian Dinar in 1998. During 1997, the Company
has reduced its net monetary asset exposure by $74,000,000 from its net monetary
asset position of $134,000,000 at the beginning of 1997. The reduction in net
monetary asset exposure was achieved through the conversion of dinar-denominated
accounts receivable into notes receivable payable in dinars, but fixed in dollar
amounts. At December 31, 1997, ICN Yugoslavia holds approximately $145,431,000
notes receivable from the Yugoslavian government. ICN Yugoslavia's net monetary
asset exposure of approximately $60,000,000 at December 31, 1997 would be
subject to foreign exchange loss if a devaluation of the dinar were to occur.
Since the last devaluation on November 24, 1995, the cumulative level of
inflation has been estimated at approximately 70%. If a devaluation were to
occur based on this level of inflation, and assuming the Company's net monetary
exposure of $60,000,000 at December 31, 1997, the Company could incur a foreign
exchange loss of approximately $24,000,000. The risk of devaluation increases as
time passes and inflation continues. However, the Company is unable to predict
either the exact magnitude or the timing of any future devaluation.
For additional information and expanded discussion regarding the impact of ICN
Yugoslavia, see Note 14 of Notes to Consolidated Financial Statements.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and becomes effective for the Company for the year ending
December 31, 1998. Comprehensive income includes such items as foreign currency
translation adjustments and unrealized holding gains and losses on
available-for-sale securities that are currently being presented by the Company
as a component of stockholders' equity (deficit). SFAS No. 130 does not affect
current principles of measurement of revenues and expenses and accordingly the
adoption of SFAS No. 130 will not have any effect on the Company's results of
operations or financial position.
Also in June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement supersedes SFAS No. 14, FINANCIAL REPORTING FOR
SEGMENTS OF A BUSINESS Enterprise. The new standard becomes effective for the
Company for the year ending December 31, 1998, and requires that comparative
information from earlier years be restated to conform to the requirements of
this standard. The Company does not expect this pronouncement to materially
change the Company's current reporting and disclosures.
<PAGE>
Page 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995.
This Annual Report on Form 10-K contains statements that constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Those statements appear in a number of places in this Annual
Report on Form 10-K and include statements regarding, among other matters, the
Company's growth opportunities, the Company's acquisition strategy, regulatory
matters pertaining to governmental approval of the marketing or manufacturing of
certain of the Company's products and other factors affecting the Company's
financial condition or results of operations. Stockholders are cautioned that
any such forward looking statements are not guarantees of future performance and
involve risks, uncertainties and other factors which may cause actual results,
performance or achievements to differ materially from the future results,
performance or achievements, expressed or implied in such forward looking
statements. Such factors are discussed in this Annual Report on Form 10-K and
also include, without limitation, the Company's dependence on foreign operations
(which are subject to certain risks inherent in conducting business abroad,
including possible nationalization or expropriation, price and exchange control,
limitations on foreign participation in local enterprises, health-care
regulations and other restrictive governmental conditions); the risk of
operations in Yugoslavia, Eastern Europe, Russia and China in light of the
unstable economies, political and regulatory conditions in such regions; the
Company's ability to successfully develop and commercialize future products; the
limited protection afforded by the patents relating to Virazole(R), and possibly
on future drugs, techniques, processes or products the Company may develop or
acquire; the potential impact of the Year 2000 issue; the Company's ability to
continue its expansion plan and to integrate successfully any acquired
companies; the results of lawsuits pending against the Company; the Company's
dependence on its management, including Milan Panic, its Chairman and Chief
Executive Officer; the Company's potential product liability exposure and lack
of any insurance coverage thereof; government regulation of the pharmaceutical
industry (including review and approval for new pharmaceutical products by the
FDA in the United States and comparable agencies in other countries) and
competition.
<PAGE>
Page 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of quarterly financial data for the years ended December
31, 1997 and 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997(1) QUARTER QUARTER QUARTER QUARTER
- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $158,968 $160,229 $177,397 $255,608
Gross profit 84,164 84,272 100,088 131,700
Net income 22,312 21,268 34,557 35,787
Basic earnings per common share(2) $ .37 $ .38 $ .61 $ .55
Diluted earnings per common share(2) $ .32 $ .34 $ .50 $ .49
FIRST SECOND THIRD FOURTH
1996(1) QUARTER QUARTER QUARTER QUARTER
- ------- ------- ------- ------- -------
Net sales $138,162 $143,746 $157,917 $174,255
Gross profit 70,134 71,439 87,402 93,298
Net income 22,003 14,893 20,835 29,197
Basic earnings per common share(2) $ .47 $ .32 $ .42 $ .54
Diluted earnings per common share(2) $ .42 $ .27 $ .38 $ .46
</TABLE>
(1) The increased sales trend is substantially due to the Company's expansion
program in 1997 and 1996.
(2) Earnings per share for 1996 and the first three quarters of 1997 have been
restated to comply with Statement of Financial Accounting Standards No.
128, EARNINGS PER SHARE. Earnings per share amounts for all periods have
also been restated to reflect the Company's three-for-two stock split (in
the form of a dividend) which became effective March 16, 1998.
<PAGE>
Page 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
DECEMBER 31, 1997
<TABLE>
<S> <C>
Report of independent accountants ............................................... 32
Financial statements:
Consolidated balance sheets at December 31, 1997 and 1996..................... 33
For the years ended December 31, 1997, 1996 and 1995:
Consolidated statements of income............................................. 34
Consolidated statements of stockholders' equity............................... 35
Consolidated statements of cash flows......................................... 36
Notes to consolidated financial statements.................................... 37
Schedule supporting the consolidated financial statements for the years ended
December 31, 1997, 1996 and 1995:
II.-- Valuation and qualifying accounts....................................... 62
The other schedules have not been submitted because they are not
applicable.
</TABLE>
<PAGE>
Page 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of ICN Pharmaceuticals, Inc.:
We have audited the consolidated financial statements and the financial
statement schedule of ICN Pharmaceuticals, Inc. (a Delaware corporation) and
Subsidiaries listed in the index on page 31 of this Form 10-K. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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.
As discussed in Note 14 to the financial statements, as of December 31, 1997,
the Company has net monetary assets of $60,000,000 at ICN Yugoslavia which would
be subject to foreign exchange loss if a devaluation of the Yugoslavian dinar
were to occur.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICN Pharmaceuticals, Inc. and
Subsidiaries as of December 31, 1997 and 1996, and the consolidated 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. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
March 5, 1998
<PAGE>
Page 33
ICN PHARMACEUTICALS, INC.
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1997 1996
---- ----
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 209,896 $ 39,366
Restricted cash 549 552
Receivables, net 260,495 258,531
Notes receivable 145,431 --
Inventories, net 146,988 120,973
Prepaid expenses and other current assets 23,392 24,979
------------ ----------
Total current assets 786,751 444,401
Property, plant and equipment, net 360,713 234,209
Deferred income taxes, net 69,710 34,334
Other assets 47,978 32,230
Goodwill and intangibles, net 226,593 33,477
------------ ----------
$ 1,491,745 $ 778,651
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 96,437 $ 62,049
Accrued liabilities 67,883 55,383
Notes payable 13,759 13,231
Current portion of long-term debt 19,359 5,961
Income taxes payable 3,707 1,013
------------ ----------
Total current liabilities 201,145 137,637
Long-term debt, less current portion:
Convertible into common stock 220 130,941
Other long-term debt 314,868 45,548
Deferred license and royalty income 12,449 13,850
Other liabilities 24,658 15,622
Minority interest 142,077 96,583
Common stock subject to Put Agreement -- 23,120
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000 shares authorized;
2 and 50 shares of Series B issued and outstanding at
December 31, 1997 and 1996, respectively
($2,249 liquidation preference at December 31, 1997) 1 1
Common stock, $.01 par value; 100,000 shares authorized;
71,432 and 50,134 shares issued and outstanding
at December 31, 1997 and 1996, respectively
(including shares subject to Put Agreement in 1996) 714 485
Additional capital 766,868 368,026
Retained earnings (deficit) 70,129 (25,915)
Foreign currency translation adjustment (41,384) (27,247)
------------- ----------
Total stockholders' equity 796,328 315,350
------------ ----------
$ 1,491,745 $ 778,651
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
Page 34
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 752,202 $ 614,080 $ 507,905
Cost of sales 351,978 291,807 206,049
---------- ---------- ---------
Gross profit 400,224 322,273 301,856
Selling, general and administrative expenses 256,234 192,441 191,459
Research and development costs 18,692 15,719 17,231
---------- ---------- ---------
Income from operations 125,298 114,113 93,166
Translation and exchange (gains) losses, net 12,790 2,282 (9,484)
Interest income (15,912) (3,001) (6,488)
Interest expense 22,849 15,780 22,889
---------- ---------- ---------
Income before provision (benefit) for income
taxes and minority interest 105,571 99,052 86,249
Provision (benefit) for income taxes (27,736) (6,815) 2,997
Minority interest 19,383 18,939 15,915
---------- ---------- ---------
Net income $ 113,924 $ 86,928 $ 67,337
========== ========== =========
Basic earnings per common share $ 1.93 $ 1.75 $ 1.51
========== ========== =========
Shares used in per share computation 55,965 48,341 44,562
========== ========== =========
Diluted earnings per common share $ 1.69 $ 1.51 $ 1.44
========== ========== =========
Shares used in per share computation 69,650 60,197 54,384
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Page 35
<TABLE>
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
FOREIGN UNREALIZED GAIN
RETAINED CURRENCY (LOSS) ON
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS TRANSLATION MARKETABLE
---------------- --------------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT SECURITIES TOTAL
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 -- $ -- 42,042 $ 420 $ 251,575 $(142,946) $(16,709) $ (3,432) $ 88,908
Exercise of stock options -- -- 754 7 3,695 -- -- -- 3,702
Translation adjustments -- -- -- -- -- -- (5,915) -- (5,915)
Issuance of common stock in
connection with acquisitions -- -- 1,073 11 11,069 -- -- -- 11,080
Net unrealized gain on
marketable securities -- -- -- -- -- -- -- 3,662 3,662
Tax benefit of stock options exercised -- -- -- -- 1,300 -- -- -- 1,300
Cash dividends ($.19 per share) -- -- -- -- (7,902) -- -- (7,902)
Effect of 1995 quarterly stock
distributions -- -- 1,761 18 22,315 (22,333) -- -- --
Net income -- -- -- -- -- 67,337 -- -- 67,337
--------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 -- -- 45,630 456 289,954 (105,844) (22,624) 230 162,172
Exercise of stock options -- -- 1,302 13 10,154 -- -- -- 10,167
Translation adjustments -- -- -- -- -- -- (4,623) -- (4,623)
Issuance of preferred stock 50 1 -- -- 47,391 -- -- -- 47,392
Issuance of common stock in
connection with acquisitions -- -- 536 5 6,840 -- -- -- 6,845
Issuance of common stock -- -- 1,068 11 12,087 -- -- -- 12,098
Net unrealized gain on
marketable securities -- -- -- -- -- -- -- (230) (230)
Tax benefit of stock options exercised -- -- -- -- 1,600 -- -- -- 1,600
Cash dividends ($.15 per share) -- -- -- -- -- (6,999) -- -- (6,999)
Net income -- -- -- -- -- 86,928 -- -- 86,928
--------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 50 1 48,536 485 368,026 (25,915) (27,247) -- 315,350
Exercise of stock options -- 1,863 19 20,479 -- -- -- 20,498
Translation adjustments -- -- -- -- -- -- (14,137) -- (14,137)
Expiration of put option -- -- 1,598 16 24,614 (533) -- -- 24,097
Issuance of common stock:
In connection with acquisition 2 -- 2,454 24 180,685 -- -- -- 180,709
Conversion of debt -- -- 10,052 101 161,258 -- -- -- 161,359
In settlement of litigation -- -- 812 8 9,992 -- -- -- 10,000
Conversion of preferred shares (50) -- 5,797 58 (58) -- -- -- --
Cash dividends ($.21 per share) -- -- -- -- -- (15,472) -- -- (15,472)
Stock dividends -- -- 320 3 1,872 (1,875) -- -- --
Net income -- -- -- -- -- 113,924 -- -- 113,924
--------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 2 $ 1 71,432 $714 $766,868 $ 70,129 $(41,384) $ -- $796,328
============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Page 36
<TABLE>
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<CAPTION>
1997 1996 1995
----- ------ -----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 113,924 $ 86,928 $ 67,337
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 28,753 17,936 13,814
Provision for losses on accounts receivable 4,021 4,345 (1,262)
Provision for inventory obsolescence 3,342 106 (2,310)
Translation and exchange (gains) losses, net 12,790 2,282 (9,484)
Deferred income (5,072) (1,644) --
Loss (gain) on sale of fixed assets (1,184) 982 10
Deferred income taxes (35,376) 358 (1,820)
Other non-cash gains (2,047) (387) (331)
Minority interest 19,383 18,939 15,915
Change in assets and liabilities, net of effects of
acquired companies:
Accounts and notes receivable (154,433) (181,726) 524
Inventories (6,227) 43,306 (33,950)
Prepaid expenses and other assets 3,936 (11,618) (11,461)
Proceeds from license and royalty fees -- -- 23,000
Other liabilities (4,839) (11,153) 20,940
Trade payables and accrued liabilities 30,665 13,683 5,410
Income taxes payable 1,679 (7,885) (7,006)
---------- ----------- ---------
Net cash provided by (used in) operating activities 9,315 (25,548) 79,326
---------- ----------- ---------
Cash flows from investing activities:
Capital expenditures (100,397) (26,216) (49,685)
Proceeds from sale of fixed assets 3,051 6,954 64
Proceeds from sale of marketable securities 40,826 27,663 6,204
Decrease in restricted cash 3 -- 887
Cash acquired in connection with acquisitions 1,250 859 --
Acquisition of foreign license rights,
product lines and businesses (44,829) (51,222) (4,495)
---------- ---------- ----------
Net cash used in investing activities (100,096) (41,962) (47,025)
---------- ---------- ----------
Cash flows from financing activities:
Net increase (decrease) in notes payable (14,395) (10,908) 268
Proceeds from issuance of long-term debt 284,051 20,975 284
Payments on long-term debt (17,555) (13,984) (52,623)
Proceeds from issuance of preferred stock -- 47,392 --
Proceeds from issuance of common stock -- 32,842 5,753
Proceeds from issuance of stock put right 1,707 3,195 --
Proceeds from exercise of stock options 20,498 10,167 3,702
Dividends paid (11,631) (6,999) (7,902)
---------- ---------- ---------
Net cash provided by (used in) financing activities 262,675 82,680 (50,518)
---------- ---------- ---------
Effect of exchange rate changes on cash and cash equivalents (1,364) 102 (65)
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 170,530 15,272 (18,282)
Cash and cash equivalents at beginning of year 39,366 24,094 42,376
---------- ---------- ---------
Cash and cash equivalents at end of year $ 209,896 $ 39,366 $ 24,094
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Page 37
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BACKGROUND
ICN Pharmaceuticals, Inc. and Subsidiaries ("the Company") was formed in
November 1994, as a result of the merger of ICN Pharmaceuticals, Inc. ("ICN"),
SPI Pharmaceuticals, Inc. ("SPI"), Viratek, Inc. ("Viratek") and ICN
Biomedicals, Inc. ("Biomedicals") (collectively, the "Predecessor Companies"),
in a transaction accounted for using the purchase method of accounting (the
"Merger"). The Company is a multinational pharmaceutical company that develops,
manufactures, distributes and sells pharmaceutical, research, and diagnostic
products and provides radiation monitoring services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of the Company and all of its majority-owned subsidiaries.
Investments in 20% through 50% owned affiliated companies are included under the
equity method where the Company exercises significant influence over operating
and financial affairs. Investments in less than 20% owned companies are recorded
at cost. The accompanying consolidated financial statements reflect the
elimination of all significant intercompany account balances and transactions.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents at December 31, 1997 and
1996 includes $22,221,000 and $28,687,000, respectively, of certificates of
deposit which have maturities of three months or less. For purposes of the
consolidated statements of cash flows, the Company considers highly-liquid
investments purchased with a maturity of three months or less to be cash
equivalents. The carrying amount of these assets approximates fair value due to
the short-term maturity of these instruments.
MARKETABLE SECURITIES: In 1995, the Company classified its investment in
corporate bond securities, with maturities ranging from 1999 to 2003, as
available for sale. Changes in market values were reflected as unrealized gains
and losses, calculated on the specific identification method, in stockholders'
equity. The contractual maturity value of these securities was $26,700,000.
During 1996, the Company sold $26,663,000 of corporate bond securities for a
total of $26,952,000 resulting in a realized gain of $289,000.
INVENTORIES: Inventories, which include material, direct labor and factory
overhead, are stated at the lower of cost or market. Cost is determined on a
first-in, first-out ("FIFO") basis.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost.
The Company primarily uses the straight-line method for depreciating property,
plant and equipment over their estimated useful lives. Buildings and related
improvements are depreciated from 7-50 years, machinery and equipment from 3-30
years, furniture and fixtures from 3-15 years and leasehold improvements and
capital leases are amortized over their useful lives, limited to the life of the
related lease.
The Company follows the policy of capitalizing expenditures that materially
increase the lives of the related assets and charges maintenance and repairs to
expense. Upon sale or retirement, the costs and related accumulated depreciation
or amortization are eliminated from the respective accounts and the resulting
gain or loss is included in income.
The Company capitalizes interest on borrowed funds during construction periods
as part of the cost of the related asset.
<PAGE>
Page 38
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
GOODWILL AND INTANGIBLES: The difference between the purchase price and the fair
value of net assets acquired at the date of acquisition is included in the
accompanying consolidated balance sheets as goodwill and intangibles. Intangible
assets also include acquired product rights. Goodwill and intangibles
amortization periods range from 5 to 23 years depending upon the nature of the
business or products acquired. Accumulated amortization at December 31, 1997 and
1996 was $18,145,000 and $14,945,000, respectively. The Company periodically
evaluates the carrying value of goodwill and intangibles including the related
amortization periods. The Company determines whether there has been impairment
by comparing the anticipated undiscounted future operating income of the
acquired entity or product line with the carrying value of the goodwill. Based
on its review, the Company does not believe that any impairment of its goodwill
and intangibles has occurred.
NOTES PAYABLE: The Company classifies various borrowings with initial terms of
one year or less as notes payable. The weighted average interest rate on
short-term borrowings outstanding at December 31, 1997 and 1996 was
approximately 18% and 17%, respectively.
REVENUE RECOGNITION: Revenues and related cost of sales are recorded at the time
of shipment or as services are performed.
FOREIGN CURRENCY TRANSLATION: The assets and liabilities of the Company's
foreign operations, except those in highly inflationary economies, are
translated at the end of period exchange rates. Revenues and expenses are
translated at the average exchange rates prevailing during the period. The
effects of unrealized exchange rate fluctuations on translating foreign currency
assets and liabilities into U.S. dollars are accumulated in stockholders'
equity. The monetary assets and liabilities of foreign subsidiaries in highly
inflationary economies are remeasured into U.S. dollars at the end of period
exchange rates and non-monetary assets and liabilities at historical exchange
rates. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52, FOREIGN CURRENCY TRANSLATION, the Company has included in earnings all
foreign exchange gains and losses arising from foreign currency transactions and
the effects of foreign exchange rate fluctuations on subsidiaries operating in
highly inflationary economies. The recorded (gains) losses from foreign exchange
translation and transactions for 1997, 1996 and 1995, were $12,790,000,
$2,282,000 and $(9,484,000), respectively.
INCOME TAXES: Income taxes are calculated in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or tax returns. A valuation allowance is
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. In estimating future tax consequences, SFAS No. 109
generally considers all expected future events other than an enactment of
changes in the tax law or rates.
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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
PER SHARE INFORMATION: In 1997, the Financial Accounting Standards Board issued
SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. The Company has adopted SFAS No. 128 in 1997, and earnings per share
amounts for all periods prior to 1997 have been restated to comply with its
requirements.
During 1997, the Company's Board of Directors declared quarterly cash
distributions and dividends for each quarter, totaling $.213 per share. During
1996, the Company's Board of Directors declared quarterly cash distributions for
the first, second and third quarters totaling $.154 per share. For the fourth
quarter of 1996, the Company's Board of Directors declared a cash distribution
of $.051 per share in January 1997.
<PAGE>
page 39
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
STOCK SPLIT AND STOCK DISTRIBUTIONS: In February 1998, the Company's Board of
Directors approved a three-for-two stock split (in the form of a dividend) which
became effective March 16, 1998. In addition, during 1995, the Company issued
quarterly stock distributions which totaled 5.6%. Common share and per common
share amounts for all periods presented have been restated to reflect the stock
split and the stock distributions.
STOCK-BASED COMPENSATION: The Company has adopted the disclosure-only provisions
of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 defines a
fair value based method of accounting for an employee stock option. Fair value
of the stock option is determined considering factors such as the exercise
price, the expected life of the option, the current price of the underlying
stock and its volatility, expected dividends on the stock, and the risk-free
interest rate for the expected term of the option. Under the fair value based
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period. Pro forma disclosures
for entities that elect to continue to measure compensation cost under the
intrinsic value method provided by Accounting Principles Board No. 25 must
include the effects of all awards granted in fiscal years that begin after
December 15, 1994.
RECLASSIFICATIONS: Certain prior year items have been reclassified to conform
with the current year presentation, with no effect on previously reported net
income or stockholders' equity.
3. ACQUISITIONS
WUXI ICN PHARMACEUTICALS - Effective January 1, 1997, ICN China, Inc. (a
wholly-owned subsidiary of the Company), commenced operations of a
pharmaceutical company under a joint venture agreement with Wuxi Pharmaceutical
Corporation ("Wuxi"), a Chinese state-owned company. Under the agreement, a
limited liability company (the "Chinese Joint Venture Entity") was established
to produce and sell pharmaceutical products. The Chinese Joint Venture Entity is
75% owned by ICN China and 25% owned by Wuxi. Wuxi is a supplier of injectable
antibiotics. Wuxi agreed to contribute its existing operation, with an
approximate net book value of $6,000,000, to the Chinese Joint Venture Entity
and ICN China agreed to contribute a total of $24,000,000 in cash over three
years, primarily for the construction of a new pharmaceutical production plant
and the purchase of related machinery and equipment. The Company contributed
approximately $3,600,000 to the joint venture in during 1997.
AO TOMSK CHEMICAL PHARMACEUTICAL PLANT - Effective October 1, 1997, the Company
acquired a 75% interest in AO Tomsk Chemical Pharmaceutical Plant ("Tomsk"), a
pharmaceutical company located in Tomsk, Russia, for approximately $3,000,000 in
cash. Tomsk makes and distributes a wide range of pharmaceuticals, including
antiseptics, analgesics, antibiotics and herbal liquids and extracts. Under the
terms of the agreement, the Company will invest approximately $8,000,000 over
the next two years.
MARBIOPHARM - Effective October 1, 1997, the Company acquired a 72% interest in
Marbiopharm, a pharmaceutical company located in Yoshkar-Ola, Russia, for
approximately $3,500,000 in cash. Marbiopharm manufactures, sells and
distributes pharmaceutical products in Russia.
POLFA RZESZOW, S.A. - Effective October 1, 1997, the Company acquired an 80%
interest in Polfa Rzeszow, S.A., ("Polfa") a pharmaceutical company located in
Rzeszow, Poland, for approximately $33,700,000 in cash and approximately 48,000
shares of common stock of the Company valued at $1,709,000. Polfa makes and
distributes a wide range of pharmaceuticals, including anti-depressants,
anti-fungals, anti-infectives, pain relievers, anti-allergy, cardiovasculars and
nutritionals. Under the terms of the agreement, the Company will invest
approximately $20,000,000 over the next two years, primarily for the
construction of a new pharmaceutical production plant, at which time the Company
will own approximately 90% of Polfa.
<PAGE>
Page 40
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
ACQUIRED PRODUCT RIGHTS - Effective July 1, 1997, the Company purchased the
worldwide rights to seven products and the non-U.S. rights to two other products
(with an option to purchase the U.S. rights to these products) from F.
Hoffmann-La Roche Ltd. ("Roche"), for aggregate consideration of $90,000,000.
The consideration was paid in a combination of 2,400,000 shares of the Company's
common stock, valued at $40,000,000, and 2,000 shares of the Company's Series C
Convertible Preferred Stock, valued at $50,000,000 (together, the "Roche
Shares"). Each share of the Company's Series C Convertible Preferred Stock was
convertible into 1,500 shares of the Company's common stock. In conjunction with
the issuance of the Roche Shares, the Company guaranteed Roche a price initially
at $17.17 per common share, increasing at a rate of 6% per year for the
three-year guarantee period. Should Roche sell the common shares at any time
during the guarantee period, the agreement entitled the Company to any of the
proceeds realized by Roche in excess of the guaranteed price. Effective October
1, 1997, as a result of the rise in the per share market price of the Company's
common stock since the initial acquisition from Roche, the Company exercised its
option to acquire the U.S. rights to the two products noted above, plus two
other U.S. product rights, for aggregate consideration of $89,008,000, which was
paid with cash owed to the Company by Roche from the sale of the Roche Shares.
The aggregate cost of the acquired product rights of $183,193,000 (including
acquisition costs) is included in goodwill and intangibles in the accompanying
consolidated balance sheets at December 31, 1997.
The following table presents unaudited consolidated pro forma financial
information for the twelve months ended December 31, 1997 and 1996, as though
the acquisitions made in 1997 had occurred on January 1, 1996 (in thousands).
(Unaudited)
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996
---------- ----------
Net sales $ 896,689 $ 819,978
Income before provision for income taxes
and minority interest $ 148,455 $ 153,520
Net income $ 140,940 $ 121,333
Basic earnings per share $ 2.25 $ 2.21
The unaudited pro forma financial information is presented for information
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions taken place on January 1, 1996. In
addition, the pro forma results are not intended to be a projection of the
future results and do not reflect any synergies that might be achieved from the
combined operations.
All acquisitions have been accounted for as purchases; operations of the
companies and businesses acquired have been included in the accompanying
consolidated financial statements from their respective dates of acquisition.
The excess of the purchase price over the fair value of net assets acquired is
included in goodwill and intangibles and is being amortized on a straight-line
basis over 10 to 20 years based upon the nature of the business or products
acquired.
A summary of the purchase price allocation of the 1997 acquisitions is as
follows (in thousands):
Current assets (excluding cash of $1,250) $ 62,980
Property, plant and equipment 52,664
Other non-current assets 1,607
Goodwill and intangibles 194,967
Current liabilities (38,898)
Long-term liabilities (20,399)
Minority interest (24,357)
-----------
Total purchase price $ 228,564
===========
<PAGE>
Page 41
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
The purchase price allocations are preliminary, pending completion of the
Company's evaluation of the fair values of the net assets acquired.
HUMACAO PLANT - The Company also purchased from Roche a GMP-standard
manufacturing plant in Humacao, Puerto Rico (the "Plant") for $55,000,000. The
purchase of the Plant is under a sale/leaseback arrangement, whereby Roche will
lease the Plant from the Company under a two year lease with lease payments
totaling $4,000,000 annually. Approximately $6,000,000 of the purchase price was
offset against amounts due from Roche under the lease and related agreements,
and the remainder was paid in cash. Roche will continue to use the Plant for the
manufacture of pharmaceutical products during the term of the lease. The Company
also entered into a toll manufacturing agreement under which it will produce
pharmaceutical products for Roche for a one-year period after the expiration of
the lease.
VELEFARM - In October 1997, the Company acquired a 42.6% interest in Velefarm, a
major distributor of pharmaceutical products located in Belgrade, Yugoslavia,
for an investment of approximately $13,224,000. Under the terms of the
agreement, the Company exchanged accounts receivable due from Velefarm (as agent
for the Yugoslavian government) for the 42.6% interest. ICN Yugoslavia recorded
sales to Velefarm of approximately $140,700,000 and $44,800,000 for the years
ended December 31, 1997 and 1996, respectively, of which approximately
$30,200,000 of 1997 sales were subsequent to the Company's investment. The
Company's investment in Velefarm has been recorded under the equity method of
accounting.
4. RELATED PARTY TRANSACTIONS
In August 1996, the Company loaned the Chairman and CEO $428,000 in regards to
tax matters relating to the exercise of stock options. This loan along with
accrued interest was repaid in November 1996. In June 1996, the Company made a
short-term loan to the Chairman and CEO in the amount of $3,500,000 for certain
personal obligations. During August 1996, this amount was repaid to the Company.
In connection with this transaction, the Company guaranteed $3,600,000 of debt
of the Chairman with a third party bank. In addition to the guarantee, the
Company deposited $3,600,000 with this bank as collateral to the Chairman's
debt. This deposit is recorded as a long-term asset on the consolidated balance
sheet. The Chairman has provided collateral to the Company's guarantee in the
form of a right to the proceeds of the exercise of stock options in the amount
of 150,000 options with an exercise price of $15.17 and the rights to a
$4,000,000 life insurance policy provided by the Company. In the event of any
default on the debt to the bank, the Company has recourse that is limited to the
collateral described above. Both the transaction and the sufficiency of the
collateral for the guarantee were approved by the Board of Directors.
In 1997, the Company made a short-term advance of $327,000 to the Chairman and
CEO, which was repaid, with interest, in 1997.
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially expose the Company to concentrations of
credit risk, as defined by SFAS No. 105, consist primarily of cash deposits and
marketable securities. The Company places its cash and cash equivalents with
respected financial institutions and limits the amount of credit exposure to any
one financial institution. (See also Note 14.) At December 31, 1997, the
Company's cash and cash equivalents include $178,536,000 held in time deposits,
money market funds, and municipal debt securities through seven major financial
institutions.
<PAGE>
Page 42
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
6. INCOME TAXES
Pretax income (loss) from continuing operations before minority interest for
each of the years ended December 31, consists of the following (in thousands):
1997 1996 1995
---- ---- ----
Domestic $ (21,886) $ 5,039 $ 7,145
Foreign 127,457 94,013 79,104
----------- ---------- -----------
$ 105,571 $ 99,052 $ 86,249
=========== ========== ===========
The income tax (benefit) provision for each of the years ended December 31,
consists of the following (in thousands):
1997 1996 1995
---- ---- ----
Current
Federal $ -- $ (9,469) $ --
State 200 68 425
Foreign 7,440 2,228 4,392
----------- ---------- -----------
7,640 (7,173) 4,817
Deferred
Federal (31,375) -- (1,820)
Foreign (4,001) 358 --
------------ ---------- -----------
(35,376) 358 (1,820)
------------ ---------- -----------
$ (27,736) $ (6,815) $ 2,997
============ ========== ===========
The current federal tax provision has not been reduced for the tax benefit
associated with the exercise of employee stock options of $-0-, $1,600,000, and
$1,300,000 in 1997, 1996 and 1995, respectively, which were credited directly to
additional capital.
In connection with the Merger, the Company acquired approximately $226,000,000
of net operating loss carryforwards ("NOLs"). Included in the total acquired
NOLs were $191,000,000 of domestic NOLs and $35,000,000 of foreign NOLs.
Internal Revenue Service Code Section 382 imposes an annual limitation on the
availability of NOLs that can be used to reduce taxable income after certain
substantial ownership changes of a corporation. Consequently, the Company's
annual limitation on utilization of the acquired domestic NOLs is approximately
$33,000,000 per year.
In addition to the utilization of the NOLs described above, the Company
recognized during 1995 a $27,000,000 tax benefit of an additional $76,000,000 of
acquired NOLs and other deferred tax assets through a reduction in the Company's
deferred tax asset valuation allowance. This reduction resulted in a $24,000,000
reduction in goodwill and intangibles acquired in connection with the Merger and
a $3,000,000 reduction in deferred income tax expense. In 1997, the provision
for income taxes reflects a deferred tax benefit of $35,376,000 resulting from
the recognition of certain deferred tax assets and the reduction of the related
valuation allowance. During 1997, the Company acquired certain product rights
from Roche, and in early 1998 it acquired certain products from SmithKline
Beecham plc. These new products are expected to generate future taxable income
that provided a basis for reducing the Company's valuation allowance for
deferred tax assets in 1997. Ultimate realization of the deferred tax assets is
dependent upon the Company generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized. The amount of the deferred tax assets considered realizable,
however, could be reduced in the future if estimates of future taxable income
during the carryforward period are reduced.
<PAGE>
page 43
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
At December 31, 1997, the Company has domestic and foreign NOLs of approximately
$209,000,000 and $25,000,000, respectively, expiring in varying amounts from
1998 to 2012.
The primary components of the Company's net deferred tax asset at December 31,
1997 and 1996 are as follows (in thousands):
1997 1996
----------- -----------
Deferred tax assets:
NOL carryforward $ 78,356 $ 71,019
Inventory and other reserves 6,605 11,011
Tax credit carryover 1,226 554
Deferred income 4,415 4,848
Long-term debt 4,984 4,745
Other 781 855
Valuation allowance (23,077) (55,769)
------------ -----------
Total deferred tax asset 73,290 37,263
Deferred tax liabilities:
Property, plant and equipment (196) (223)
Inventory (1,770) (1,770)
Other (1,614) (936)
----------- ------------
Total deferred tax liability (3,580) (2,929)
----------- -----------
Net deferred tax asset $ 69,710 $ 34,334
=========== ===========
The Company's effective tax rate differs from the applicable U.S. statutory
federal income tax rate due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
Foreign source income taxed at
lower effective rates (28) (31) (24)
Utilization of foreign NOL -- -- (1)
Recognition of fully reserved deferred tax assets (33) -- (4)
Favorable audit settlement -- (5) (2)
State income taxes, net of federal income taxes benefit -- -- (1)
Domestic NOL loss carryback -- (5) --
Other, net -- (1) --
------ ------- -----
Effective rate (26)% (7)% 3%
======= ======= =====
</TABLE>
During 1996, no U.S. income or foreign withholding taxes were provided on the
undistributed earnings of the Company's foreign subsidiaries with the exception
of the Company's Panamanian subsidiary, Alpha Pharmaceuticals, since management
intends to reinvest those undistributed earnings in the foreign operations.
Included in consolidated retained earnings at December 31, 1997, is
approximately $290,000,000 of accumulated earnings of foreign operations that
would be subject to U.S. income or foreign withholding taxes, if and when
repatriated.
The Internal Revenue Service has concluded its examination of the Company's tax
years ended November 30, 1991, 1990, 1989 and 1988, which resulted in a
reduction in net operating loss carryforwards of $13,000,000 (pretax) and a
corresponding decrease in the pretax valuation allowance.
<PAGE>
Page 44
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Income:
<S> <C> <C> <C>
Net income $ 113,924 $ 86,928 $ 67,337
Dividends and accretion on preferred stock (5,651) (2,199) --
---------- --------- ---------
Numerator for basic earnings per share--
income available to common stockholders 108,273 84,729 67,337
Effect of dilutive securities:
8-1/2% Convertible Subordinated Notes 9,328 7,520 10,759
5-5/8% Swiss Franc Exchangeable Certificates 123 (738) --
5-1/2% Swiss Franc Exchangeable Certificates 37 (345) --
Other dilutive securities -- 21 201
---------- --------- ---------
Numerator for diluted earnings per share--
income available to common stockholders
after assumed conversions $ 117,761 $ 91,187 $ 78,297
========== ========= ==========
Shares:
Denominator for basic earnings per share--
weighted-average shares outstanding 55,965 48,341 44,562
Effect of dilutive securities:
Employee stock options 3,033 1,596 1,373
Series C Preferred Stock 1,266 -- --
8-1/2% Convertible Subordinated Notes 6,744 7,800 7,800
5-5/8% Swiss Franc Exchangeable Certificates 1,811 1,377 --
5-1/2% Swiss Franc Exchangeable Certificates 831 831 --
Other dilutive securities -- 252 649
---------- --------- ---------
Dilutive potential common shares 13,685 11,856 9,822
---------- --------- ---------
Denominator for diluted earnings per share--
adjusted weighted-average shares and
assumed conversions 69,650 60,197 54,384
---------- --------- ---------
Basic earnings per share $ 1.93 $ 1.75 $ 1.51
========== ========= =========
Diluted earnings per share $ 1.69 $ 1.51 $ 1.44
========== ========= =========
</TABLE>
All common share and per common share amounts have been adjusted to reflect the
three for two stock split which became effective March 16, 1998.
<PAGE>
Page 45
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
Income available to common stockholders, for purposes of computing basic
earnings per share, reflects adjustments for cumulative preferred dividends and
an embedded dividend arising from the discounted conversion terms of the Series
B Preferred Stock. The Company's Series B Convertible preferred stock is not
reflected in the computation of diluted earnings per share as such securities
are antidilutive. As of December 31, 1997 the 2,249 outstanding shares of Series
B Preferred Stock are convertible into approximately 82,500 shares of the
Company's common stock. All shares of the Company's Series C Convertible
Preferred Stock, issued in July 1997, were converted into common stock during
1997 and the adjustment to the number of shares outstanding represents the
additional shares that would have been outstanding had the Series C Preferred
Stock been converted to common stock at the time of issuance.
8. DETAIL OF CERTAIN ACCOUNTS
(in thousands)
1997 1996
---- ----
RECEIVABLES, NET:
Trade accounts receivable $ 254,376 $ 257,619
Other receivables 18,118 9,782
---------- ----------
272,494 267,401
Allowance for doubtful accounts (11,999) (8,870)
---------- ----------
$ 260,495 $ 258,531
========== ==========
INVENTORIES, NET:
Raw materials and supplies $ 65,937 $ 48,656
Work-in-process 16,745 14,625
Finished goods 75,782 67,845
---------- ----------
158,464 131,126
Allowance for inventory obsolescence (11,476) (10,153)
---------- ----------
$ 146,988 $ 120,973
========== ==========
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Advances to inventory suppliers $ 16,415 $ 14,335
Tax receivable -- 6,100
Other 6,977 4,544
---------- ----------
$ 23,392 $ 24,979
========== ==========
PROPERTY, PLANT AND EQUIPMENT, NET:
Land $ 20,531 $ 17,708
Buildings 127,577 84,054
Machinery and equipment 145,640 91,602
Furniture and fixtures 20,273 18,819
Leasehold improvements 3,426 3,019
---------- ----------
317,447 215,202
Accumulated depreciation and amortization (53,112) (46,420)
Construction in progress 96,378 65,427
---------- ----------
$ 360,713 $ 234,209
========== ==========
<PAGE>
Page 46
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
During the third quarter of 1994, ICN Yugoslavia commenced a construction and
modernization program at its pharmaceutical complex outside Belgrade,
Yugoslavia. At December 31, 1997 and 1996, construction in progress primarily
relates to costs incurred to date for these facilities and includes capitalized
interest of $5,419,000 in 1997 and $3,770,000 in 1996.
(in thousands)
1997 1996
---- ----
ACCRUED LIABILITIES:
Payroll and related items $ 16,423 $ 18,149
Interest 11,683 3,687
Legal settlement -- 10,000
Other 39,777 23,547
----------- ----------
$ 67,883 $ 55,383
=========== ==========
9. DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
1997 1996
---- ----
Convertible debt:
<S> <C> <C>
8-1/2% Convertible Subordinated Notes due 1999, converted
in 1997 $ -- $ 114,980
Swiss Franc Subordinated Bonds due 1988-2001, converted
in 1997 -- 11,149
Swiss Franc Guaranteed Bonds with an effective
interest rate of 8.5%, maturing in 2002 (net of unamortized
discount of $88 and $261 in 1997 and 1996, respectively) 6,056 7,536
--------- ---------
6,056 133,665
Other Debt:
9-1/4% Senior Notes due 2005 275,000 --
Hungarian mortgages, with interest at rates ranging from
LIBOR + 0.9% to LIBOR + 1.0%;interest and principal due
in varying amounts through 2001 5,258 6,625
U.S. mortgages with variable interest at rates ranging from 7.1%
to 8.9% interest and principal payable monthly through 2022 11,925 13,098
Polish mortgage note with interest at a variable rate (effectively
26% at December 31, 1997); interest and principal payable
monthly through December 2002 8,604 --
U.S. capital leases with interest at rates ranging from 4.9%
to 6.1% payable monthly through 2000 1,651 2,589
Hungarian loans in U.S. dollars and various foreign currencies,
with interest at rates ranging from LIBOR +0.5% to 21.6%,
maturing at various dates through 2002 24,563 24,328
Other long-term debt due in U.S. dollars and various foreign
currencies, with interest at rates ranging from 5.5% to 9.4% 1,390 2,145
--------- ---------
334,447 182,450
Less current portion 19,359 5,961
--------- ---------
Total long-term debt $ 315,088 $ 176,489
========= =========
</TABLE>
<PAGE>
Page 47
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
In August 1997, the Company completed an underwritten public offering of
$275,000,000 of its 9 1/4% Senior Notes Due 2005 (the "Senior Notes") for net
proceeds of $265,646,000. The Senior Notes are general unsecured obligations of
the Company which rank pari passu in right of payment with all unsecured senior
indebtedness, and are senior to all subordinated indebtedness of the Company.
The Senior Notes mature on August 15, 2005, and are redeemable in cash at the
option of the Company, in whole or in part, on or after August 15, 2001, at
specified redemption prices. Upon a change of control (as defined in the related
indenture), the Company will be required to offer to repurchase the Senior Notes
at a purchase price equal to 101% of the principal amount thereof, plus accrued
interest thereon to the date of repurchase. Interest on the Senior Notes is
payable semi-annually. The indenture governing the Senior Notes includes certain
covenants which may restrict the incurrence of additional indebtedness, the
payment of dividends and other restricted payments, the creation of certain
liens, the sale of assets, or the Company's ability to consolidate or merge with
another entity, subject to certain qualifications and exceptions. The fair value
of the Senior Notes was approximately $292,188,000 at December 31, 1997.
In November 1994, the Company completed an underwritten public offering in the
principal amount of $115,000,000 of 8-1/2% Convertible Subordinated Notes Due
1999 (the "Convertible Notes"). During 1997, $114,919,000 of the Convertible
Notes were converted into 7,793,939 shares of the Company's common stock and the
remainder was redeemed for cash.
In October 1986, Xr Capital Holding ("Xr Capital"), a trust established by ICN,
completed an underwritten public offering in Switzerland of Swiss francs
100,000,000 principal amount of 5-5/8% Swiss Franc Exchangeable Certificates
(the "Xr Certificates"). The net proceeds of the offering were used by Xr
Capital to purchase Swiss Franc Subordinated Bonds of the Company due 1988-2001
and SFr. 45,700,000 principal amount of cumulative 5.4% Italian Electrical
Agency Bonds ("Agency Bonds") due 2001. During 1997, SFr. 66,510,000 of the Xr
Certificates were exchanged for 2,246,868 shares of the Company's common stock
and the remainder, SFr. 180,000, was redeemed for cash. In addition, Agency
Bonds with a value of approximately $38,779,000, previously held in trust for
the payment of debt service on the Xr Certificates, became available to the
Company and were sold during 1997.
In 1987, Bio Capital Holding ("Bio Capital"), a trust established by ICN and
Biomedicals, completed a public offering in Switzerland of SFr. 70,000,000
principal amount of 5-1/2% Swiss Franc Exchangeable Certificates ("Old
Certificates"). The Bio Capital debt is senior, uncollateralized indebtedness of
the Company. At the option of the certificate holder, the Old Certificates are
exchangeable into shares of the Company's common stock. Net proceeds were used
by Bio Capital to purchase SFr. 70,000,000 face amount of zero coupon Swiss
Franc Debt Notes due 2002 of the Kingdom of Denmark (the "Danish Bonds") for
SFr. 33,772,000 and 15 series of zero coupon Swiss Franc Guaranteed Bonds of the
Company (the "Zero Coupon Guaranteed Bonds") for SFr. 32,440,000 which are
guaranteed by the Company. Each series of the Zero Coupon Guaranteed Bonds are
in an aggregate principal amount of SFr. 3,850,000 maturing February of each
year through 2002. The Company has no obligation with respect to the payment of
the principal amount of the Old Certificates since they will be paid upon
maturity by the Danish bonds. During 1990, Biomedicals offered to exchange, to
all certificate holders, the Old Certificates for newly issued certificates
("New Certificates"), the terms of which remain the same except that 106.48
shares per SFr. 5,000 principal certificate can be exchanged at $31.43 using a
fixed exchange rate of SFr. 1.49 to U.S. $1.00. Substantially all of the
outstanding Old Certificates were exchanged for New Certificates (together
referred to as "Bio Certificates"). Currently, the face value of the outstanding
Bio Certificates, SFr. 39,615,000, is convertible into approximately 827,000
shares of the Company's common stock at the exchange prices of $31.43 and $54.17
using fixed exchange rates of SFr. 1.49 and SFr. 1.54 to U.S. $1.00 for New and
Old Certificates, respectively. The fair value of the Zero Coupon Guaranteed
Bonds was approximately $6,143,000 at December 31, 1997.
<PAGE>
Page 48
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
The Company has the option to redeem the Bio Certificates in the event that the
market price of the Company's common stock meets certain conditions. In March
1998, the Company met the conditions for redemption of the New Certificates and
announced its intent to redeem all of the New Certificates for cash at a
redemption price of 100% plus accrued interest. The holders of the New
Certificates may elect to exchange the New Certificates for shares of the
Company's common stock until April 9, 1998, at which time any New Certificates
not exchanged will be redeemed for cash. Through March 5, 1998, holders of SFr.
2,400,000 principal amount of the New Certificates elected to exchange the
certificates for 51,104 shares of the Company's common stock. Upon completion of
the exchange or redemption of the New Certificates, the Danish Bonds become
available to the Company.
The Company has mortgage notes payable totaling $26,663,000 payable in U.S.
dollars, Deutsche marks, Dutch guilders and Hungarian forints, collateralized by
certain real property of the Company, having a net book value of $36,968,000 at
December 31, 1997. The Company also has Hungarian loans totaling $12,144,000
payable in U.S. dollars, Deutsche marks, and Hungarian forints, collateralized
by certain personal property of the Company (principally inventories) having a
net book value of $18,691,000 at December 31, 1997.
Aggregate annual maturities of long-term debt are as follows (in
thousands):
1998 $ 19,359
1999 13,610
2000 7,398
2001 6,380
2002 2,654
Thereafter 285,046
----------
Total $ 334,447
==========
The fair value of the Company's debt is estimated based on quoted market prices
for the same or similar issues or on the current rates offered to the Company
for debt of the same remaining maturities. The carrying amount of all short-term
and variable interest rate borrowings approximates fair value.
The Company has short and long-term lines of credit, classified in notes
payable, aggregating $32,727,000, under which borrowings of $10,598,000 were
outstanding at December 31, 1997. The lines of credit provide for short-term
borrowings and for the issuance of letters of credit, and bear interest at
variable rates based upon LIBOR or other indices. Certain of the lines of credit
also include covenants restricting the payment of dividends, the issuance of new
indebtedness, and the repurchase of the Company's common stock and requiring the
maintenance of certain financial ratios. In February 1998, the aggregate amount
of the lines of credit was increased to approximately $46,027,000.
10. PREFERRED STOCK
In October 1996, the Company issued 50,000 shares of Series B Convertible
Preferred Stock, for net proceeds of $47,392,000, in a private placement. The
Series B Convertible Preferred Stock has a liquidation preference of $1,000 per
share and is convertible at the option of the holder into common stock based on
a conversion price calculated using the average daily low for the five trading
days preceding the conversion date and applying a discount of 13%. The Series B
Convertible Preferred Stock has a 6% annual dividend that is cumulative and
payable quarterly. The Company has the option to pay the dividend in either cash
or common stock of the Company. The Series B Convertible Preferred Stock is
mandatorily convertible into common stock on the fifth anniversary of its
issuance. However, this provision is subject to extension under certain
circumstances. Dividends paid in common stock are based on the fair value of
common stock at the time of declaration. During 1997, 47,951 shares of the
Series B Convertible Preferred Stock were converted into a total of 2,797,820
shares of the Company's common stock.
<PAGE>
Page 49
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
In August 1997, the Company issued 2,000 shares of its Series C Convertible
Preferred Stock, having a value of $50,000,000, to Roche in connection with the
acquisition of the rights to certain products. The Series C Preferred Stock has
no dividend rights, but has a liquidation preference of $25,000 per share. Each
share was convertible at the option of the holder, initially into 1,500 shares
of the Company's common stock (subject to certain antidilution adjustments).
During 1997, all of the Series C Convertible Preferred Stock was converted into
3,000,000 shares of the Company's common stock.
11. COMMON STOCK
Prior to the Merger, each of the Predecessor Companies had their own stock
option plans. Upon consummation of the Merger, the Company assumed all options
outstanding under the existing stock option plans. The existing stock option
plans were exchanged for shares of the Company. Each option of SPI common stock,
ICN common stock, Viratek common stock and Biomedicals common stock was
exchanged for 1.5, 0.768, 0.749 and 0.296 options of the Company common stock,
respectively. Subsequent to the Merger, no new grants are being issued under
these Plans.
The 1994 Stock Option Plan was adopted on January 26, 1995 and subsequently
approved by shareholders. This plan provides for the granting of options to
purchase a maximum of 4,854,000 shares of the Company's common stock. Under the
plan each nonemployee director is granted 22,500 options on the day following
the annual meeting of stockholders.
Under the terms of all stock option plans, the option price may not be less than
the fair market value at the date of the grant and may not have a term exceeding
10 years. Option grants vest ratably over a four year period from the date of
the grant. The options granted are reserved for issuance to officers, directors,
key employees, scientific advisors and consultants. The Company has adopted the
disclosure only provisions of SFAS No. 123. Accordingly, no compensation cost
has been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 1997, 1996 and 1995 consistent with the provisions of
SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per share
data):
1997 1996 1995
---------- ---------- ----------
Net income $ 110,426 $ 85,035 $ 66,467
Earnings per share - basic 1.87 1.71 1.49
Earnings per share - diluted 1.64 1.48 1.42
The schedule below reflects the number of outstanding and exercisable shares as
of December 31, 1997 segregated by price range (in thousands, except per share
data):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE AVERAGE
RANGE OF OF EXERCISE OF EXERCISE REMAINING
EXERCISE PRICES SHARES PRICE SHARES PRICE LIFE (YEARS)
---------------- ------ ----- ------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
$2.53 to $ 11.31 3,375 $ 8.52 2,755 $ 8.13 5.2
$11.36 to $14.75 3,074 13.33 1,000 12.67 8.4
$14.83 to $29.09 2,471 17.55 1,888 18.18 5.2
-------- ------
8,920 5,643
======== ======
</TABLE>
<PAGE>
Page 50
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Weighted-average expected life (years) 5.0 6.5 6.5
Expected volatility 46% 60% 60%
Annual dividend per share $ 0.24 $ 0.21 $ 0.21
Risk-free interest rate 6.33% 6.25% 6.25%
Weighted-average fair value of options granted $ 6.00 $ 9.49 $ 6.84
</TABLE>
Because the determination of the fair value of all options granted includes the
factors described in the preceding paragraph and, because additional option
grants are expected to be made each year, the above pro forma disclosures are
not likely to be representative of the pro forma effect on reported net income
for future years.
The following table sets forth information relating to stock option plans during
the years ended December 31, 1997, 1996 and 1995 (in thousands, except per share
data):
WEIGHTED
NUMBER AVERAGE
OF OPTION
SHARES PRICE
------ -----
Shares under option, December 31, 1994 9,498 $ 11.77
Granted 932
Exercised (773) $ 5.35
Canceled (288)
--------
Shares under option, December 31, 1995 9,369 $ 11.24
Granted 798
Exercised (1,302) $ 8.01
Canceled (150)
--------
Shares under option, December 31, 1996 8,715 $ 12.09
Granted 2,267
Exercised (1,870) $ 11.03
Canceled (192)
--------
Shares under option, December 31, 1997 8,920 $ 12.68
========
Exercisable at December 31, 1995 5,222
========
Exercisable at December 31, 1996 5,660
========
Exercisable at December 31, 1997 5,643
========
Options available for grant at December 31, 1996 2,576
========
Options available for grant at December 31, 1997 500
========
In 1997, long-term debt of the Company having an aggregate carrying value of
$124,060,000 was converted into 10,052,000 shares of the Company's common stock.
In addition, the Company issued 812,000 shares of its common stock, having a
value of $10,000,000, in settlement of litigation. The Company also issued
129,665 shares of its common stock, having a value of $1,875,000, in payment of
a portion of the 6% annual dividend on the Series B Convertible Preferred Stock.
In January 1996, the Company sold approximately 600,000 shares of its common
stock to a foreign bank for net proceeds of $6,000,000. The proceeds were used
by the Company for the acquisition of GlyDerm, a Michigan based skin care
company, and several smaller acquisitions.
<PAGE>
Page 51
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
In 1996, the Company acquired the net assets of the Siemens Dosimetry Service
Division of Siemens Medical Systems, Inc. ("Siemens'), for 1,447,250 shares of
the Company's common stock (the "Siemens Shares") plus other consideration. On
December 23, 1996 Siemens sold the Siemens Shares to certain accounts over which
an investment company exercises investment authority (collectively, the
"Purchasers"), for $13.00 per share. In conjunction with and conditioned upon
the consummation of the sale of the Siemens Shares, the Company entered into an
agreement (the "Put Agreement") with the Purchasers pursuant to which the
Company sold 150,000 additional shares of common stock for $1,950,000 (together
with the Siemens shares, the "Purchaser Shares") and sold the Purchasers, for
$3,200,000, the right to put (the "Put Right") 1,597,250 shares of common stock,
valued at $23,120,000 at December 31, 1996, to the Company at $20 per share on
January 10, 2000. The Put Agreement also entitled the Company to a portion of
any proceeds from the sale of the Purchaser shares in excess of the $20 per
share put price. In 1997 the Purchaser sold substantially all shares subject to
the Put Right and the Put Right expired entirely; the $23,120,000 value of the
Purchaser Shares was added to the Company's stockholders' equity. In addition,
the Company received a cash payment from the Purchasers, which was also added to
stockholders' equity.
In connection with the Merger, the Company adopted a Stockholder Rights Plan to
protect stockholders' rights in the event of a proposed or actual acquisition of
15% or more of the outstanding shares of the Company's common stock. As part of
this plan, each share of the Company's common stock carries a right to purchase
one one-hundredth (1/100) of a share of Series A Preferred Stock (the "Rights"),
par value $.01 per share, of the Company at a price of $125 per one
one-hundredth of a share, subject to adjustment, which becomes exercisable only
upon the occurrence of certain events. The Rights are subject to redemption at
the option of the Board of Directors at a price of $.01 per right until the
occurrence of certain events. The Rights expire on November 1, 2004.
12. COMMITMENTS AND CONTINGENCIES
LITIGATION: In a Consolidated Amended Class Action Complaint for Violations of
Federal Securities Laws (the "Securities Complaint") (the "1995 Actions"),
plaintiffs allege that Defendants made various deceptive and untrue statements
of material fact and omitted material facts regarding the Company's 1994
hepatitis C NDA in connection with: (i) the Merger of ICN, SPI, Viratek and
Biomedicals in November 1994 and the issuance of convertible debentures in
connection therewith; and (ii) information provided to the public. Plaintiffs
also allege that the Chairman of the Company traded on inside information
relating to the 1994 hepatitis C NDA. The Securities Complaint asserts claims
for alleged violations of Sections 11 and 15 of the Securities Act of 1933,
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. Plaintiffs motion seeking the certification of (i) a
class of persons who purchased ICN securities from November 10, 1994 through
February 17, 1995; and (ii) a subclass consisting of persons who owned SPI
and/or Biomedicals common stock prior to the Merger was granted. On July 23,
1997, plaintiffs and defendants entered into a Memorandum of Agreement to Settle
Action, whereby the parties agreed to settle the 1995 Actions for $15,000,000 in
cash. The settlement was approved by the Court on February 24, 1998 and the case
is now at an end.
Four lawsuits have been filed with respect to the Merger in the Court of
Chancery in the State of Delaware (the "1994 Actions"). Three of these lawsuits
were filed by stockholders of SPI and, in one lawsuit, of Viratek against ICN,
SPI, Viratek (in the one lawsuit) and certain directors and officers of ICN, SPI
and/or Viratek (including the Chairman) and purport to be class actions on
behalf of all persons who held shares of SPI and Viratek common stock. The
fourth lawsuit was filed by a stockholder of Viratek against ICN, Viratek and
certain directors and officers of ICN, SPI and Viratek (including the Chairman)
and purports to be a class action on behalf of all persons who held shares of
Viratek common stock. These suits allege that the consideration provided to the
public stockholders of SPI and/or Viratek in the Merger was unfair and
inadequate, and that the defendants breached their fiduciary duties in approving
the Merger and otherwise. The 1994 Actions have been dormant since their
commencement, and it is expected that they will be dismissed as a result of the
settlement of the 1995 Actions.
<PAGE>
Page 52
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
INVESTIGATIONS: Pursuant to an Order Directing Private Investigation and
Designating Officers to Take Testimony, entitled In the Matter of ICN
Pharmaceuticals, Inc., (P-177) (the "Order"), a private investigation is being
conducted by the SEC with respect to certain matters pertaining to the status
and disposition of the 1994 hepatitis C NDA. As set forth in the Order, the
investigation concerns whether, during the period June 1994 through February
1995, the Company, persons or entities associated with it and others, in the
offer and sale or in connection with the purchase and sale of Company
securities, engaged in possible violations of Section 17(a) of the Securities
Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder, by having possibly: (i) made false or misleading statements or
omitted material facts with respect to the status and disposition of the 1994
hepatitis C NDA; or (ii) purchased or sold ICN common stock while in possession
of material, non-public information concerning the status and disposition of the
1994 hepatitis C NDA; or (iii) conveyed material, non-public information
concerning the status and disposition of the 1994 hepatitis C NDA, to other
persons who may have purchased or sold ICN stock. The Company has cooperated
with the Commission in its investigation. On January 13, 1998, the Company
received a letter from the SEC's Philadelphia Office (the "District Office")
stating the District Office's intention to recommend to the Commission that it
authorize the institution of a civil action against the Company and Milan Panic.
As set forth in the letter, the District Office seeks the authority to commence
a civil action to enjoin the Company from future violations of Section 10(b) of
the Exchange Act and Rule 10b-5 thereunder and to impose a civil penalty of up
to $500,000 on the Company. In regard to Mr. Panic, the District Office seeks
the authority to begin a civil action (i) to enjoin Mr. Panic from future
violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder; (ii) for disgorgement of approximately $390,000;
(iii) for prejudgment interest; (iv) for a civil penalty pursuant to Section 21A
of the Exchange Act that cannot exceed three times any amount disgorged and (v)
for an officer and director bar pursuant to Section 21 of the Exchange Act. On
January 30, 1998, the Company and Mr. Panic filed submissions with the
Commission urging that it reject the District Office's request.
The Company has received Subpoenas (the "Subpoenas") from a Grand Jury in the
United States District Court, Central District of California requesting the
production of documents covering a broad range of matters over various time
periods. In March 1998, the Company was advised that the office of the United
States Attorney for the Central District of California, is considering the
Company, Mr. Panic and a former officer of the Company targets of the
investigation. The Company was also advised that certain current and former
officers of the Company are considered subjects of the investigation. The
Company has and continues to cooperate in the Grand Jury investigation. A number
of current and former employees of the Company have been interviewed by the
government in connection with the investigation.
The Company is a party to a number of other pending or threatened lawsuits. In
the opinion of management, the ultimate resolution of these other matters will
not have a material effect on the Company's consolidated financial position,
results of operations, or liquidity.
PRODUCT LIABILITY INSURANCE: The Company could be exposed to possible claims for
personal injury resulting from allegedly defective products. While to date no
material adverse claim for personal injury resulting from allegedly defective
products has been successfully maintained against the Company, a substantial
claim, if successful, could have a material adverse effect on the Company.
BENEFITS PLANS: The Company has a defined contribution plan that provides all
U.S. employees the opportunity to defer a portion of their compensation for
payout at a subsequent date. The Company can voluntarily make matching
contributions on behalf of participating and eligible employees. The Company's
expense related to such defined contribution plan was not material in 1997, 1996
and 1995.
<PAGE>
Page 53
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
In connection with the Merger, the Company assumed deferred compensation
agreements with certain officers and certain key employees of the Predecessor
Companies, with benefits commencing at death or retirement. As of December 31,
1997, the present value of the deferred compensation benefits to be paid has
been accrued in the amount of $2,894,000. Interest accrues on the outstanding
balance at rates ranging from 9.4% to 12.6%. No new contributions are being
made; however, interest continues to accrue on the present value of the benefits
expected to be paid.
ENVIRONMENTAL ISSUES IN HUNGARY: In connection with the acquisition of
Alkaloida, an environmental remediation fund (the "Fund") of approximately
$7,200,000 was established by the government from the proceeds that the Company
tendered. This Fund will be used to remediate a waste disposal site adjacent to
Alkaloida, contaminated by past plant operations, by 1998. In 1997, ownership of
waste disposal site was transferred to the Hungarian government and the Company
was released from all future liability associated with the site.
OTHER: Milan Panic, the Company's Chairman of the Board and Chief Executive
Officer, is employed under a contract expiring December 31, 1998 that provides
for, among other things, certain health and retirement benefits. The contract is
automatically extended at the end of each year for successive one year periods
unless either the Company or Mr. Panic terminates the contract upon six months
prior written notice. Mr. Panic, at his option, may provide consulting services
upon his retirement for $120,000 per year for life, subject to annual
cost-of-living adjustments from the base year of 1967, and will be entitled when
serving as a consultant to participate in the Company's medical and dental
plans. Including such cost-of-living adjustments, the annual cost of such
consulting services is currently estimated to be in excess of $535,000. The
consulting fee shall not at any time exceed the annual compensation as adjusted,
paid to Mr. Panic. Upon Mr. Panic's retirement, the consulting fee shall not be
subject to further cost of living adjustments.
The Company has employment agreements with six key executives which contain
"change in control" benefits. Upon a "change in control" of the Company as
defined in the contract, the employee shall receive severance benefits equal to
three times salary and other benefits.
13. BUSINESS SEGMENTS AND GEOGRAPHIC DATA
The Company is a multinational pharmaceutical company that develops,
manufactures, distributes and sells pharmaceutical, research, and diagnostic
products and provides radiation monitoring services. The Company operates in two
business segments: the Pharmaceutical group and the Biomedical group. The
Pharmaceutical group produces and markets pharmaceutical products principally in
the United States, Mexico, Canada and Europe. The Biomedical group markets
research products and related services, immunodiagnostic reagents and
instrumentation, and provides radiation monitoring services.
The Company's largest selling product, Virazole(R), accounts for approximately
3% of total Company sales for 1997 and is sold principally in the United States
for the treatment of respiratory syncytial virus ("RSV") in infants. In July
1995, the Company entered into a licensing agreement with a subsidiary of
Schering-Plough Corporation ("Schering-Plough") to license Virazole(R) as a
treatment for chronic hepatitis C in combination with alpha interferon. Under an
agreement, Schering-Plough is responsible for all clinical developments
worldwide.
The principal markets for the Company's products are Yugoslavia, the United
States, and Russia, which represented approximately 30%, 22%, and 18% of the
Company's net sales for 1997. Operations in Yugoslavia are subject to business
risks described in Note 14. Approximately 78%, 80%, and 75% of the Company's net
sales for the years ended December 31, 1997, 1996, and 1995 were generated from
operations outside the U.S. Foreign operations are subject to certain risks
inherent in conducting business abroad, including possible nationalization or
expropriation, price and exchange controls, limitations on foreign participation
in local enterprises, health-care regulation and other restrictive governmental
actions. Changes in the relative values of currencies take place from time to
time and may materially affect the Company's results of operations. Their
effects on the Company's future operations are not predictable. The Company does
not currently provide a hedge on its foreign currency exposure and, in certain
countries in which the Company operates, no effective hedging program is
available. At December 31, 1997 the Company had net monetary asset positions in
Yugoslavia, Russia, and Mexico of approximately $60,000,000, $28,475,000, and
$6,719,000 which would be subject to a loss if a devaluation were to occur.
<PAGE>
Page 54
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
The following tables set forth certain information of the Company by business
segment and geographic areas for 1997, 1996 and
1995 (in thousands):
BUSINESS SEGMENTS
1997 1996 1995
----------- ----------- -----------
NET SALES
Pharmaceutical $ 681,287 $ 549,753 $ 446,566
Biomedical 70,915 64,327 61,339
----------- ----------- -----------
Total $ 752,202 $ 614,080 $ 507,905
=========== =========== ===========
OPERATING INCOME (LOSS):
Pharmaceutical $ 181,710 $ 155,344 $ 129,753
Biomedical 5,148 4,985 5,707
Corporate (61,560) (46,216) (42,294)
----------- ----------- -----------
Total $ 125,298 $ 114,113 $ 93,166
=========== =========== ===========
IDENTIFIABLE ASSETS:
Pharmaceutical $ 1,133,943 $ 600,019 $ 373,027
Biomedical 74,334 78,095 51,407
Corporate 283,468 100,537 93,864
----------- ----------- -----------
Total $ 1,491,745 $ 778,651 $ 518,298
=========== =========== ===========
DEPRECIATION AND AMORTIZATION:
Pharmaceutical $ 18,772 $ 11,305 $ 9,549
Biomedical 4,535 2,718 2,221
Corporate 5,446 3,913 2,044
----------- ----------- -----------
Total $ 28,753 $ 17,936 $ 13,814
=========== =========== ===========
CAPITAL EXPENDITURES (1):
Pharmaceutical $ 96,635 $ 15,785 $ 56,363
Biomedical 3,160 5,230 2,680
Corporate 6,602 8,317 450
----------- ----------- -----------
Total $ 106,397 $ 29,332 $ 59,493
=========== =========== ===========
(1) Includes noncash capital expenditures of $6,000, $3,116, and $9,808 for
1997, 1996, and 1995, respectively.
<PAGE>
Page 55
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
GEOGRAPHIC DATA
1997 1996 1995
---------- ----------- ----------
NET SALES:
United States $ 162,610 $ 121,782 $ 124,865
Canada 20,824 18,953 18,765
---------- ----------- ----------
North America 183,434 140,735 143,630
Latin America
(principally Mexico) 61,869 49,444 43,684
Western Europe 52,413 59,294 58,170
Yugoslavia 225,530 267,166 234,661
Russia 134,688 66,788 20,300
Hungary 59,980 21,461 --
Poland 13,070 -- --
----------- ----------- ----------
Eastern Europe 433,268 355,415 254,961
Asia, Africa, and Australia 21,218 9,192 7,460
---------- ----------- ----------
Total $ 752,202 $ 614,080 $ 507,905
========== =========== ==========
OPERATING INCOME (LOSS):
United States $ 60,188 $ 52,461 $ 64,810
Canada 7,423 1,399 4,501
---------- ----------- ----------
North America 67,611 53,860 69,311
Latin America
(principally Mexico) 16,167 11,246 8,757
Western Europe 1,761 607 4,712
Yugoslavia 60,235 70,616 46,296
Russia 28,982 22,021 6,179
Hungary 10,256 1,964 --
Poland 2,695 -- --
---------- ----------- ----------
Eastern Europe 102,168 94,601 52,475
Asia, Africa, and Australia (849) 15 205
Corporate (61,560) (46,216) (42,294)
----------- ----------- ----------
Total $ 125,298 $ 114,113 $ 93,166
=========== =========== ==========
<PAGE>
Page 56
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
1997 1996 1995
----------- ---------- ---------
IDENTIFIABLE ASSETS:
United States $ 377,315 $ 105,670 $ 57,070
Canada 11,282 7,433 8,865
----------- ---------- ---------
North America 388,597 113,103 65,935
Latin America
(principally Mexico) 30,191 30,691 23,823
Western Europe 48,086 56,578 57,950
Yugoslavia 421,731 342,983 262,272
Russia 145,162 54,990 12,668
Hungary 79,632 77,245 --
Poland 68,066 -- --
----------- ---------- ---------
Eastern Europe 714,591 475,218 274,940
Asia, Africa, and Australia 26,812 2,524 1,786
Corporate 283,468 100,537 93,864
----------- ---------- ---------
Total $ 1,491,745 $ 778,651 $ 518,298
=========== ========== =========
14. ICN YUGOSLAVIA
The summary balance sheets of ICN Yugoslavia as of December 31, 1997 and 1996,
and the summary statements of income before provision for income taxes and
minority interest for the years ended December 31, 1997, 1996 and 1995, are
presented below.
ICN YUGOSLAVIA SUMMARY BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(in thousands)
1997 1996
---- ----
Cash $ 31,701 $ 27,074
Accounts receivable, net 73,115 158,292
Notes receivable 145,431 --
Inventories, net 43,549 53,016
Other current assets 11,255 11,452
Other long-term assets 126,424 104,983
---------- ----------
$ 431,475 $ 354,817
========== ==========
Current liabilities $ 55,070 $ 38,386
Minority interest and long-term liabilities 94,455 76,344
Stockholders' equity 281,950 240,087
---------- ----------
$ 431,475 $ 354,817
========== ==========
<PAGE>
Page 57
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
ICN YUGOSLAVIA SUMMARY STATEMENTS OF INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
1997 1996 1995
---- ---- ----
Net sales $ 225,530 $ 267,166 $ 234,661
Cost of sales 117,210 157,981 116,748
--------- --------- ---------
Gross profit 108,320 109,185 117,913
Operating expenses 48,085 38,569 71,617
--------- --------- ---------
Income from operations 60,235 70,616 46,296
Interest income (10,893) (2,132) (4,087)
Interest expense 107 1,478 3,610
Translation and exchange (gains) losses, net 12,602 4,290 (12,063)
--------- --------- ---------
Income before provision for income
taxes and minority interest $ 58,419 $ 66,980 $ 58,836
========= ========= =========
BUSINESS ENVIRONMENT: ICN Yugoslavia, a 75% owned subsidiary, operates in a
business environment that is subject to significant economic volatility and
political instability. The current trend in Yugoslavia is toward unfavorable
economic conditions that include continuing liquidity problems, inflationary
pressures, unemployment, a weakened banking system and a high trade deficit. The
future of the economic and political environment of Yugoslavia is uncertain and
could deteriorate to the point that a material adverse impact on the Company's
financial position and results of operations could occur.
LIQUIDITY PROBLEMS: In an effort by the Central Bank of Yugoslavia to control
inflation through tight monetary controls, Yugoslavia is now experiencing severe
liquidity problems. This has resulted in longer collection periods for ICN
Yugoslavia's receivables. Most of ICN Yugoslavia's customers are slow to pay due
to delays of health care payments by the government. This has also resulted in
ICN Yugoslavia being unable to make timely payments on its payables. Under the
current credit terms with the Yugoslavian government, discussed below, the
government is obligated to pay a minimum of $9,500,000 per month on its
outstanding obligations to the Company. The credit arrangement also limits the
total receivable from the government to $200,000,000 which could limit sales in
the future to an amount equal to cash collections from the government. ICN
Yugoslavia holds approximately U.S. $19,731,000 of cash in a bank outside of
Yugoslavia, originally intended to be used for future plant expansion in
Yugoslavia. These funds may be available for working capital purposes if
necessary.
INFLATION AND MONETARY EXPOSURE: ICN Yugoslavia operates in a highly
inflationary economy and uses the dollar as the functional currency rather than
the Yugoslavian dinar. Before the enactment of an economic stabilization program
in January 1994, the rate of inflation in Yugoslavia was over one billion
percent per year. The rate of inflation was dramatically reduced when, on
January 24, 1994, the Yugoslavian government enacted a "Stabilization Program"
designed to strengthen its currency. Throughout 1994, this program was
successful in reducing inflation to approximately 5% per year, increasing the
availability of hard currency, stabilizing the exchange rate of the dinar, and
improving the overall economy in Yugoslavia.
Throughout 1995, the effectiveness of the Stabilization Program weakened and ICN
Yugoslavia began experiencing a decline in the availability of hard currency and
inflation levels accelerated to an approximate annual rate of 90% by the end of
the year. In expectation of a devaluation late in 1995, ICN Yugoslavia took
action early in the fourth quarter of 1995 to reduce its monetary exposure by
shortening the payment terms on its receivables, reducing sales levels,
accelerating the purchase of inventory and accelerating the purchase of building
materials for its plant expansion. On November 24, 1995, the dinar devalued from
a rate of 1.4 dinars per U.S. $1 to a rate of 4.7 dinars per U.S. $1. On this
date, ICN Yugoslavia had a net monetary liability position that resulted in a
gain of $8,724,000.
<PAGE>
Page 58
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
Throughout 1996, the level of inflation in Yugoslavia was relatively stable,
with a Yugoslavian government reported inflation rate of 60%. During that time
the government exercised restraint on the amount of dinars in circulation. The
net monetary asset position of ICN Yugoslavia increased during 1996 due to
rising accounts receivable balances resulting from higher sales and a
lengthening of the accounts receivable collection period. From a beginning
balance of $7,396,000 at December 31, 1995, the net monetary asset position of
ICN Yugoslavia rose to $134,000,000 at December 31, 1996.
During 1997, the Company reduced its monetary exposure by converting certain
dinar-denominated accounts receivable into notes receivable payable in dinars,
but fixed in dollar amounts. Additionally, the Company established credit terms
with the government whereby future receivables would be interest bearing with
one-year terms and would be payable in dinars, but fixed in dollar amounts. As
of December 31, 1997, ICN Yugoslavia had a net monetary asset position of
$60,000,000 which would be subject to foreign exchange loss if a devaluation of
the dinar were to occur.
As required by generally accepted accounting principles ("GAAP"), the Company
translates ICN Yugoslavia financial results at the dividend payment rate
established by the National Bank of Yugoslavia. To the extent that changes in
this rate lag behind the level of inflation, sales and expenses will, at times,
tend to be inflated. Future sales and expenses can increase substantially if the
timing of future devaluations falls significantly behind the level of inflation.
POTENTIAL DEVALUATION: The potential loss arising from a devaluation will depend
on the size of the devaluation and the magnitude of the net monetary asset
position at the time of the devaluation. The timing and the size of a
devaluation are strongly influenced by the amount of inflation and length of
time from the last devaluation. Since the last devaluation on November 24, 1995,
the cumulative level of inflation has been estimated at approximately 70%. If a
devaluation were to occur based on this level of inflation, and assuming the
Company's net monetary exposure of $60,000,000 at December 31, 1997, the Company
could incur a foreign exchange loss of approximately $24,000,000. The risk of
devaluation increases as time passes and inflation continues. However, the
Company is unable to predict either the exact magnitude or the timing of any
future devaluation.
CREDIT RISK: ICN Yugoslavia is subject to credit risk in that approximately 80%
or $162,200,000 of 1997 Yugoslavian domestic sales are to the government or
government funded entities. During 1997, other than the customer discussed below
there were no other customers that represented more than 10% of total sales or
accounts receivable.
During 1997, the Company reduced its monetary exposure by converting dinar
denominated accounts receivable from various distributors into notes receivable
from the Yugoslavian government payable in dinars, but fixed in dollar amounts.
The first agreement was made early in the first quarter of 1997 with $50,000,000
accounts receivable converted into a one year note bearing interest at LIBOR
plus 1%. Approximately $47,000,000 from this first note was refinanced in early
1998, with full payment including interest at LIBOR plus 1% scheduled for 1998.
A second agreement was arranged at the end of the first quarter of 1997 whereby
the Yugoslavian government agreed to purchase $50,000,000 of drugs. The sales
under this agreement were recorded as notes receivable bearing interest at LIBOR
plus 1% on the outstanding balance which have payment guarantees fixed in dollar
amounts. The second agreement also allows the Company to offset certain payroll
tax obligations against outstanding accounts receivable balances. Subsequent to
these two agreements, the Company negotiated an arrangement with the Yugoslavian
government under which ICN Yugoslavia would commit to continue to provide
products, in dollar denominated sales, in an amount up to $50,000,000 per
calendar quarter for one year, and the government would pay a minimum of
$9,500,000 per month towards outstanding accounts receivable. However, at no
point in time can the amount due to ICN Yugoslavia from the government exceed
$200,000,000, including both accounts and notes receivable. Receivables that
arise from this agreement are interest bearing with interest at LIBOR plus 1%.
As of December 31, 1997, ICN Yugoslavia has approximately $145,431,000 of notes
receivable from the Yugoslavian government under these credit terms.
Additionally, sales of approximately $140,700,000 under the above agreements
were made to Velefarm, an affiliated entity, acting as agent for the Yugoslavian
government.
SANCTIONS AND POLITICS: In December 1995, the United Nations Security Council
adopted a resolution that suspended economic sanctions that had been imposed on
the Federal Republic of Yugoslavia since May 1992. A substantial majority of ICN
Yugoslavia's business is conducted in the Federal Republic of Yugoslavia.
<PAGE>
Page 59
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
Sanctions had contributed to an overall deteriorating business environment in
which ICN Yugoslavia operated. Sanctions also created restrictions on ICN
Yugoslavia's overseas investments and imposed administrative burdens in
obtaining raw materials outside of Yugoslavia.
The Company believes the suspension of sanctions continues to provide a more
favorable business environment; however, the beneficial effects of the
suspension will not take place immediately as the economy needs to adjust to new
opportunities. Additionally, Yugoslavia has not fully recovered the
international status it held before sanctions. The Yugoslavian government is
still negotiating to regain membership in the International Monetary Fund and
the World Bank.
Yugoslavia is subject to political instability. The elections that took place in
1997 have not resulted in a change of political leadership that would provide
for a foundation of significant economic reforms. The Federal Republic of
Yugoslavia is comprised of two states, Serbia and the much smaller state of
Montenegro. Within Yugoslavia there exists significant political dissension and
unrest. The state of Montenegro has been active in seeking greater autonomy from
Serbia. Additionally, recent social unrest in the Serbian province of Kosovo
could lead to increased instability in the Balkans. United States diplomats have
warned that the Serbian actions and policies in Kosovo could lead to
reinstatement of economic sanctions on Yugoslavia.
PRICE CONTROLS: ICN Yugoslavia is subject to price controls in Yugoslavia. The
size and frequency of government approved price increases is influenced by local
inflation, devaluations, cost of imported raw materials and demand for ICN
Yugoslavia products. During 1997 and 1996, ICN Yugoslavia received no price
increases due to relatively lower levels of inflation. As inflation rises, the
size and frequency of price increases are expected to increase. During the third
quarter of 1995, ICN Yugoslavia received a 30% price increase on its
pharmaceutical products. This was the first price increase the government had
allowed since the start of the Stabilization Program. Subsequent to the
devaluation on November 24, 1995, ICN Yugoslavia received an 80% price increase
on its pharmaceutical products. Price increases obtained by ICN Yugoslavia are
based on economic events preceding the price increase and not on expectations of
ongoing inflation. This lag in permitted price increases creates downward
pressure on the gross margins that ICN Yugoslavia receives on its products. When
necessary, ICN Yugoslavia will limit sales of products that have poor margins
until an acceptable price increase is received. The impact of an inability to
obtain adequate price increases in the future could have an adverse impact on
the Company as a result of declining gross profit margins or declining sales in
an effort to maintain existing gross margin levels.
DIVIDENDS: In 1992, ICN Yugoslavia paid a $10,000,000 dividend of which the
Company received 75% or $7,500,000. Yugoslavian law allows free distribution of
earnings whether to domestic (Yugoslavian) or international investors. Under
this law a dividend must be declared and paid immediately after year end.
Earnings that are not immediately paid as a dividend cannot be used for future
dividends. Additionally, ICN Yugoslavia is allowed to pay dividends out of
earnings calculated under local statutory tax basis rules, not earnings
calculated under GAAP. ICN Yugoslavia dividends are payable in dinars which must
be exchanged for dollars before the dividend is repatriated. During high levels
of inflation the dinar denominated dividend could devalue substantially by the
time the dividend is exchanged for dollars. Under GAAP, ICN Yugoslavia had
accumulated earnings, which are not available for distributions, of
approximately $207,384,000 at December 31, 1997. However, additional
repatriation of cash could be declared from contributed capital for Yugoslavian
purposes of $360,000,000 at December 31, 1997, as provided for in the original
purchase agreement. In 1992, the Company made the decision to no longer
repatriate the earnings of ICN Yugoslavia and instead will use these earnings
for local operations, plant expansion, reduction of debt and additional
investment in Eastern Europe.
<PAGE>
Page 60
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
15. AGREEMENT WITH SCHERING-PLOUGH CORPORATION
On July 28, 1995, the Company entered into an Exclusive License and Supply
Agreement (the "Agreement") and a Stock Purchase Agreement with a subsidiary of
Schering-Plough to license the Company's proprietary antiviral drug ribavirin as
a treatment for chronic hepatitis C in combination with Schering-Plough's alpha
interferon. The Agreement provided the Company an initial non-refundable payment
by Schering-Plough of $23,000,000 and future royalty payments to the Company for
marketing of the drug, including certain minimum royalty rates. Schering-Plough
will have exclusive marketing rights for ribavirin for hepatitis C worldwide,
except that the Company will retain the right to co-market in the countries of
the European Economic Community. In addition, Schering-Plough will purchase up
to $42,000,000 in common stock of the Company upon the achievement of certain
regulatory milestones. Under the Agreement, Schering-Plough is responsible for
all clinical developments worldwide.
The $23,000,000 non-refundable payment has been recorded by the Company as
prepaid royalty income of $10,000,000, a license fee of $8,000,000 and a
liability to Schering-Plough for certain cost sharing agreements of $5,000,000.
The prepaid royalty will be amortized to income based upon future sales of the
product and the license fee will be amortized on a straight-line basis to income
over the fifteen year exclusive period of the Agreement. At December 31, 1997,
the unamortized portion of these balances totals $12,614,000.
16. SUPPLEMENTAL CASH FLOWS DISCLOSURES
During 1997, noncash transactions included the conversion of $124,060,000 of
long-term debt to 10,052,000 shares of common stock, the issuance of 5,400,00
shares of common stock valued at $179,008,000 in connection with the acquisition
of product rights from Roche, and the issuance of 812,000 shares of common stock
valued at $10,000,000 in settlement of litigation. In addition, the Company
received a 42.6% interest in Velefarm, a Yugoslavian distributor of
pharmaceutical products, in exchange for outstanding accounts receivable of
$13,224,000.
During 1996, a principal amount of SFr. 4,952,000 of the 3-1/4% Subordinated
Double Convertible Bonds due 1997 was converted into 6,190 shares of Ciba-Geigy
Ltd. common stock, reducing long term debt by $4,240,000 and other assets by
$3,988,000. In March 1996, the Company sold its instrument business division to
Titertek Instruments, Inc. ("Titertek"), an Alabama corporation, in exchange for
a $4,400,000 note receivable from Titertek, resulting in a deferred gain of
$2,000,000 (of which approximately $989,000 has been recognized at December 31,
1997). Noncash transactions for 1996 also included the issuance of common stock
for the acquisition of the Siemens dosimetry business (1,447,250 shares), the
Cappel Division of Organon Teknika Corporation (320,078 shares), and the
GlyDerm, Inc. dermatological business (216,000 shares). In addition, during 1996
the Company entered into capital leases of approximately $2,973,000 for the
purchase of computer equipment.
During 1995, the Company issued common stock dividends and distributions of
$29,187,000. There were none issued in 1996. Also during 1995, ICN Yugoslavia
exchanged, in a non-recourse transaction, accounts receivable for $10,900,000 of
inventories and $9,800,000 for construction materials for its plant expansion.
The following table sets forth the amounts of interest and income taxes paid
during 1997, 1996 and 1995 (in thousands):
1997 1996 1995
---- ---- ----
Interest paid (net of amounts capitalized
of $5,419, $3,770 and $1,978 in
1997, 1996, and 1995, respectively) $ 11,750 $ 20,477 $ 21,330
======== ======== ========
Income taxes paid $ 4,543 $ 6,845 $ 6,915
======== ======== ========
<PAGE>
Page 61
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1997
17. SUBSEQUENT EVENT
In February 1998, the Company acquired from SmithKline Beecham plc ("SKB") the
Asian, Australian and African rights to 39 prescription and over-the-counter
pharmaceutical products, including Actal, Breacol, Coracten, Eskornade, Fefol,
Gyno-Pevaryl, Maxolan, Nyal, Pevaryl, Ulcerin and Vylcim. The Company received
the product rights in exchange for $45,000,000 payable in a combination of
$22,500,000 in cash and 821 shares of the Company's Series D Convertible
Preferred Stock. Each share of the Series D Convertible Preferred Stock is
initially convertible into 750 shares of the Company's common stock (together,
the "SKB Shares"), subject to certain antidilution adjustments. Except under
certain circumstances, SKB has agreed not to sell the SKB Shares until November
4, 1999. The Company has agreed to pay SKB an additional amount in cash (or,
under certain circumstances, in shares of common stock) to the extent proceeds
received by SKB from the sale of the SKB Shares during a specified period ending
in December, 1999 and the then market value of the unsold SKB Shares do not
provide SKB with an average value of $46.00 per common share (including any
dividend paid on the SKB Shares). Alternatively, SKB is required to pay the
Company an amount, in cash or shares of the Company's common stock, to the
extent that such proceeds and market value provide SKB with an average per share
value in excess of $46.00 per common share (including any dividend paid on the
SKB Shares). The Company has also granted SKB certain registration rights
covering the common shares issuable upon conversion of the Series D Preferred
Stock.
<PAGE>
Page 62
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
--------- -------- -------- ---------- ---------
YEAR ENDED DECEMBER 31, 1997
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 8,870 $ 4,021 $ 1,901(2) $ (2,793) $ 11,999
======== ========= ========= ========== ========
Reserve for inventory obsolescence $ 10,153 $ 3,342 $ 600(2) $ (2,619) $ 11,476
======== ========= ========= ========== ========
Deferred tax asset valuation allowance $ 55,769 $ (32,692) $ -- $ -- $ 23,077
======== ========= ========= ========== ========
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ 8,070 $ 4,345 $ 557 $ (4,102) $ 8,870
======== ========= ========= ========== ========
Reserve for inventory obsolescence $ 12,709 $ 106 $ -- $ (2,662) $ 10,153
======== ========= ========= ========== ========
Deferred tax asset valuation allowance $54,181 $ -- $ 1,588 $ -- $ 55,769
======== ========= ========= ========== ========
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ 10,036 $ (1,262) $ (197) $ (507) $ 8,070
======== ========= ========= ========== ========
Reserve for inventory obsolescence $ 15,390 $ (2,310) $ 550 $ (921) $ 12,709
======== ========= ========= ========== ========
Deferred tax asset valuation allowance $ 86,492 $ -- $ (29,123)(1) $ (3,188) $ 54,181
======== ========= ========= ========== ========
</TABLE>
(1) The credit to other accounts represents the reduction of goodwill and
intangible assets for the utilization and reevaluation of the ultimate
realization of acquired net operating losses and other deferred tax assets,
as a result of the Merger, and the settlement of an IRS examination for
1989 and 1988 (see Note 6 of Notes to the Consolidated Financial
Statements).
(2) These amounts represent acquisition-date balances of allowances for
doubtful receivables and reserves for inventory obsolescence of acquired
companies.
<PAGE>
Page 63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
<PAGE>
Page 64
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed in connection with the
Company's 1997 annual meeting of stockholders. Reference is made to that portion
of the Proxy Statement entitled "Information Concerning Nominees and Directors"
and "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed in connection with the
Company's 1997 annual meeting of stockholders. Reference is made to that portion
of the Proxy Statement entitled "Executive Compensation and Related Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
That information required under this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed in connection with the
Company's 1997 annual meeting of stockholders. Reference is made to that portion
of the Proxy Statement entitled "Ownership of the Company's Securities."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
That information required under this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed in connection with the
Company's 1997 annual meeting of stockholders. Reference is made to that portion
of the Proxy Statement entitled "Executive Compensation and Related Matters" and
"Certain Transactions."
<PAGE>
Page 65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
Financial Statements of the Registrant are listed in the index to Consolidated
Financial Statements and filed under Item 8, "Financial Statements and
Supplementary Data", included elsewhere in this Form 10-K.
2. FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule of the Registrant is listed in the index to
Consolidated Financial Statements and filed under Item 8, "Financial Statements
and Supplementary Data," included elsewhere in this Form 10-K.
3. EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of Registrant,
previously filed as Exhibit 3.1 to Registration Statement 33-83952
on Form S-1, which is incorporated herein by reference, as amended
by the Certificate of Merger, dated November 10, 1994, of ICN
Pharmaceuticals, Inc., SPI Pharmaceuticals, Inc. and Viratek, Inc.
with and into ICN Merger Corp. previously filed as Exhibit 4.1 to
Registration Statement No. 333-08179 on Form S-3, which is
incorporated herein by reference.
3.2 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of the Registrant previously filed as
Exhibit 4.4 to Registration Statement No. 333-16409 on Form S-3,
which is incorporated herein by reference.
3.3 Bylaws of the Registrant previously filed as Exhibit 3.2 to
Registration Statement No. 33-83952 on Form S-1, which is
incorporated herein by reference.
3.4 Form of Rights Agreement, dated as of November 2, 1994, between
the Registrant and American Stock Transfer & Trust Company, as
trustee, previously filed as Exhibit 4.3 to the Company's
Registration Statement on Form 8-A, dated November 10, 1994, which
is incorporated herein by reference.
3.5 Certificate of Designation of Rights and Preferences of Series D
Convertible Preferred Stock of the Registrant, filed herewith.
10.1 Indenture, dated as of August 14, 1997, by and among ICN and
United States Trust Company of New York, relating to $275,000,000
9-1/4% Senior Notes due 2005, previously filed as Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, which is incorporated herein by reference.*
10.2 Application for Registration, Foundation Agreement, Joint Venture
- ICN Oktyabr previously filed as Exhibit 10.46 to ICN
Pharmaceuticals, Inc. Annual Report on Form 10-K for the year
ended December 31, 1992, which is incorporated herein by
reference.
* None of the other indebtedness of the Registrant exceeds 10% of
its total consolidated assets. The Registrant will furnish copies
of the instruments relating to such other indebtedness upon
request.
<PAGE>
Page 66
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
continued
10.3 Charter of the Joint Stock Company - ICN Oktyabr previously filed
as Exhibit 10.47 to ICN Pharmaceuticals, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1992, which is
incorporated herein by reference.
10.4 Agreement between ICN Pharmaceuticals, Inc. and Milan Panic, dated
October 1, 1988 previously filed as Exhibit 10.51 to ICN
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended November 30, 1989, which is incorporated herein by
reference.
10.5 Amendment to Employment Contract between ICN Pharmaceuticals,
Inc., and Milan Panic, dated September 6, 1995 previously filed as
Exhibit 10.29 to ICN Pharmaceutical, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1995, which is incorporated
herein by reference.
10.6 Agreement among ICN Pharmaceuticals, Inc., SPI Pharmaceuticals,
Inc. and Adam Jerney, dated March 18, 1993 previously filed as
Exhibit 10.49 to SPI Pharmaceuticals, Inc.'s Amendment No. 2 to
the Annual Report on Form 10-K for the year ended on December 31,
1992, which is incorporated herein by reference.
10.7 Agreement among ICN Pharmaceuticals, Inc., Viratek, Inc. and John
Giordani, dated March 18, 1993 previously filed as Exhibit 10.3 to
Registration Statement No. 33-84534 on Form S-4 dated September
28, 1994, which is incorporated herein by reference.
10.8 Agreement among ICN Pharmaceuticals, Inc., ICN Biomedicals, Inc.,
SPI Pharmaceuticals, Inc. and Bill MacDonald, dated March 18, 1993
previously filed as Exhibit 10.4 to Registration Statement No.
33-84534 on Form S-4 dated September 28, 1994, which is
incorporated herein by reference.
10.9 Agreement among ICN Pharmaceuticals, Inc., SPI Pharmaceuticals,
Inc. and Jack Sholl dated March 18, 1993, previously filed as
Exhibit 10.49 to ICN Pharmaceuticals, Inc.'s Amendment No. 2 to
the Annual Report on Form 10-K for the year ended December 31,
1992, which is incorporated herein by reference.
10.10 Agreement between ICN Pharmaceuticals, Inc. and John Julian, dated
May 2, 1995, previously filed as Exhibit 10.11 to ICN
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, which is incorporated herein by
reference.
10.11 Agreement between ICN Pharmaceuticals, Inc. and Devron Averett,
dated June 14, 1996, previously filed as Exhibit 10.12 to ICN
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, which is incorporated herein by
reference.
10.12 Agreement among ICN Pharmaceuticals, Inc., SPI Pharmaceuticals,
Inc. and David Watt dated March 18, 1993, previously filed as
Exhibit 10.49 to SPI Pharmaceuticals, Inc.'s Amendment No. 2 to
the Annual Report on Form 10-K for the year ended December 31,
1992, which is incorporated herein by reference.
10.13 ICN Pharmaceuticals, Inc. 1992 Employee Incentive Stock Option
Plan, previously filed as Exhibit 10.56 to ICN Pharmaceuticals,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1992, which is incorporated herein by reference.
10.14 ICN Pharmaceuticals, Inc. 1992 Non-Qualified Stock Plan,
previously filed as Exhibit 10.57 to ICN Pharmaceuticals, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1992,
which is incorporated herein by reference.
<PAGE>
Page 67
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
continued
10.15 ICN Pharmaceuticals, Inc. 1994 Stock Option Plan previously filed
as Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, which is incorporated herein
by reference.
10.16 Exclusive License and Supply Agreement between ICN
Pharmaceuticals, Inc. and Schering-Plough Ltd. dated July 28, 1995
previously filed as Exhibit 10 to ICN Parmaceuticals, Inc.'s
Amendment 3 to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, which is incorporated herein by
reference.
10.17 Collateral Agreement between Milan Panic and the Registrant, dated
August 14, 1996, previously filed as Exhibit 10.32 to ICN
Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, which is incorporated herein by
reference.
10.18 Agreement dated December 23, 1996 by and among the Registrant and
those persons identified as purchasers on Schedule A thereto,
previously filed as Exhibit 4 (c) (1) to the Registrant's Current
Report on Form 8-K dated December 24, 1996, which is incorporated
herein by reference.
10.19 Form of Asset Purchase Agreement by and between Hoffman-La Roche
Inc., a New Jersey corporation, and ICN Pharmaceuticals, Inc., a
Delaware corporation, dated as of October 30, 1997, previously
filed as Exhibit 10.1 to ICN Pharmaceuticals, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997,
which is incorporated herein by reference.
10.20 Form of Asset Purchase Agreement by and between Roche Products
Inc., a Panamanian corporation, and ICN Pharmaceuticals, Inc., a
Delaware corporation, dated as of October 30, 1997, previously
filed as Exhibit 10.2 to ICN Pharmaceuticals, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997,
which is incorporated herein by reference.
10.21 Form of Asset Purchase Agreement by and between Syntex (F.P.)
Inc., a Delaware corporation, Syntex (U.S.A.), a Delaware
corporation, and ICN Pharmaceuticals, Inc., a Delaware
corporation, dated as of October 30, 1997, previously filed as
Exhibit 10.3 to ICN Pharmaceuticals, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997, which is
incorporated herein by reference.
10.22 Agreement for the Sale and Purchase of a Portfolio of
Pharmaceutical, OTC and Consumer Healthcare Products between
SmithKline Beecham plc and ICN Pharmaceuticals, Inc., filed
herewith.
10.23 Credit Agreement dated as of March 31, 1997 by and between Banque
Nationale de Paris and ICN Pharmaceuticals, Inc., filed herewith.
10.24 Second Amendment to Credit Agreement dated as of March 31, 1997 by
and between Banque Nationale de Paris and ICN Pharmaceuticals, Inc.,
filed herewith.
10.25 ICN Pharmaceuticals, Inc. Executive Long-Term Incentive Plan, to be
filed by amendment.
<PAGE>
Page 68
21. Subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand L.L.P. Independent Accountants.
27. Financial Data Schedule for the year ended December 31, 1997.
27. Financial Data Schedule for the year ended December 31, 1996.
27. Financial Data Schedule for the year ended December 31, 1995.
27. Financial Data Schedule for the three months ended March 31, 1997
27. Financial Data Schedule for the six months ended June 30, 1997.
27. Financial Data Schedule for the nine months ended September 30, 1997.
27. Financial Data Schedule for the three months ended March 31, 1996.
27. Financial Data Schedule for the six months ended June 30, 1996.
27. Financial Data Schedule for the nine months ended September 30, 1996.
(b) Reports on Form 8-K
The Company filed the following report on Form 8-K during the quarter
ended December 31, 1997:
Form 8-K dated December 8, 1997, as amended, reporting the acquisition
of certain assets from F. Hoffmann-La Roche Ltd., including the following
financial statements:
Special Purpose Financial Statement of F. Hoffman-La Roche Ltd.,
Hoffmann-La Roche Inc., and Roche Products Inc. for the year ended
December 31, 1996.
Unaudited Interim Special-Purpose Financial Stateents of F. Hoffman-
La Roche Ltd., Hoffman-la Roche Inc., and Roche Products Inc. for the
six months ended June 30, 1997.
Unaudited Interim Special-Purpose Financial Statements of Hoffman-La
Roche Inc. and Roche Products Inc. for the three months ended
September 30, 1997.
<PAGE>
Page 69
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.
ICN PHARMACEUTICALS, INC.
Date: March 30, 1998
By: /S/ MILAN PANIC
------------------------------------------------
Milan Panic,
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/S/ MILAN PANIC Date: March 30, 1998
- ----------------------------------------------------
Milan Panic
Chairman of the Board and Chief Executive Officer
/S/ JOHN E. GIORDANI Date: March 30, 1998
- ----------------------------------------------------
John E. Giordani
Executive Vice President, Chief Financial Officer
and Corporate Controller
/S/ NORMAN BARKER, JR. Date: March 30, 1998
- ----------------------------------------------------
Norman Barker, Jr., Director
/S/ BIRCH BAYH Date: March 30, 1998
- ----------------------------------------------------
Senator Birch Bayh, Director
/S/ ALAN F. CHARLES Date: March 30, 1998
- ----------------------------------------------------
Alan F. Charles, Director
/S/ ROGER GUILLEMIN Date: March 30, 1998
- ----------------------------------------------------
Roger Guillemin, M.D., Ph.D., Director
/S/ ADAM JERNEY Date: March 30, 1998
- ----------------------------------------------------
Adam Jerney, President, Chief Operating Officer,
Director
/S/ DALE M. HANSON Date: March 30, 1998
- ----------------------------------------------------
Dale M. Hanson, Director
<PAGE>
Page 70
SIGNATURES - continued
/S/ WELDON B. JOLLEY Date: March 30, 1998
- ----------------------------------------------------
Weldon B. Jolley, Ph. D., Director
/S/ ANDREI V. KOZYREV Date: March 30, 1998
- ----------------------------------------------------
Andrei V. Kozyrev, Director
/S/ JEAN-FRANCOIS KURZ Date: March 30, 1998
- ----------------------------------------------------
Jean-Francois Kurz, Director
/S/ THOMAS LENAGH Date: March 30, 1998
- ----------------------------------------------------
Thomas Lenagh, Director
/S/ CHARLES T. MANATT Date: March 30, 1998
- ----------------------------------------------------
Charles T. Manatt, Director
/S/ STEPHEN MOSES Date: March 30, 1998
- ----------------------------------------------------
Stephen Moses, Director
/S/ MICHAEL SMITH Date: March 30, 1998
- ----------------------------------------------------
Michael Smith, Ph.D., Director
/S/ ROBERTS A. SMITH Date: March 30, 1998
- ----------------------------------------------------
Roberts A. Smith, Ph.D., Director
/S/ RICHARD W. STARR Date: March 30, 1998
- ----------------------------------------------------
Richard W. Starr, Director
<PAGE>
Page 71
EXHIBIT INDEX
EXHIBIT PAGE NO.
3.5 Certificate of Designation of Rights and Preferences of Series
D Convertible Preferred Stock of ICN Pharmaceuticals Inc.
10.22 Agreement for the Sale and Purchase of a Portfolio of Pharma-
ceutical, OTC and Consumer Healthcare Products between SmithKline
Beecham plc and ICN Pharmaceuticals, Inc.
10.23 Credit Agreement dated as of March 31, 1997 by and between Banque
Nationale de Paris and ICN Pharmaceuticals, Inc.
10.24 Second Amendment to Credit Agreement dated as of March 31, 1997 by
and between Banque Nationale de Paris and ICN Pharmaceuticals, Inc.
21. Subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand L.L.P. Independent Accountants.
27. Financial Data Schedule for the year ended December 31, 1997.
27. Financial Data Schedule for the year ended December 31, 1996.
27. Financial Data Schedule for the year ended December 31, 1995.
27. Financial Data Schedule for the three months ended March 31, 1997
27. Financial Data Schedule for the six months ended June 30, 1997.
27. Financial Data Schedule for the nine months ended September 30, 1997.
27. Financial Data Schedule for the three months ended March 31, 1996.
27. Financial Data Schedule for the six months ended June 30, 1996.
27. Financial Data Schedule for the nine months ended September 30, 1996.
CERTIFICATE OF DESIGNATION OF RIGHTS
AND PREFERENCES OF SERIES D CONVERTIBLE
PREFERRED STOCK OF ICN PHARMACEUTICALS, INC.
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
The undersigned, Bill A. MacDonald, Executive Vice President of ICN
Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), hereby
certifies that pursuant to the authority conferred upon the Board of Directors
of the Corporation (the "Board of Directors") by the Restated Certificate of
Incorporation of the Corporation and pursuant to the provisions of the General
Corporation Law of the State of Delaware, the Board of Directors duly adopted
the following resolution:
RESOLVED that pursuant to Article 4 of the Restated Certificate of
Incorporation which authorizes the issuance of 10,000,000 shares of preferred
stock, par value $0.01 per share ("Preferred Stock"), the Board of Directors
hereby fixes the powers, designations, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of a series of Preferred Stock as follows:
1. DESIGNATION. The series of Preferred Stock shall be designated and
known as Series D Convertible Preferred Stock (the "Series D Preferred Stock").
The number of shares constituting such series shall be 3,000.
2. CONVERSION. The holders of the Series D Preferred Stock ("Holders"
and individually, a "Holder") shall have conversion rights (the "Conversion
Rights") as follows:
(a) RIGHT TO CONVERT. Each share of Series D Preferred Stock
shall be convertible ("Conversion"), without the payment of any additional
consideration by any Holder, at any time, and from time to time, at the office
of the Corporation or any transfer agent for the Series D Preferred Stock, into
such number of fully paid and nonassessable shares ("Conversion Shares") of the
common stock, par value $0.01 per share, of the Corporation (the "Common Stock")
as is determined by dividing $28,000 by the Conversion Price, determined as
hereinafter provided, in effect at the time of the Conversion (the "Conversion
Ratio"). The Conversion Price at which Conversion Shares shall be deliverable
upon Conversion without the payment of any additional consideration by the
Holders (the "Conversion Price") shall initially be $56.05 per Conversion Share.
Such initial Conversion Price shall be subject to adjustment in order to adjust
the number of Conversion Shares into which the Series D Preferred Stock is
convertible, as hereinafter provided.
(b) MECHANICS OF CONVERSION.
(i) If any Conversion would create a fractional Conversion Share, such
fractional share shall be disregarded and the number of Conversion Shares
issuable upon such Conversion, in the aggregate, shall be rounded up or down to
the nearest whole number of Conversion Shares.
(ii) Before any Holder shall be entitled to convert any share of
Series D Preferred Stock into full Conversion Shares, such Holder shall
surrender ("Surrender") the certificate or certificates representing such shares
of Series D Preferred Stock, duly endorsed, at the office of the Corporation or
of any transfer agent for the Series D Preferred Stock, and shall give written
notice to the Corporation at such office that such Holder elects to convert the
same and shall state therein the Holder's name or the name or names of the
Holder's nominees in which such Holder wishes the certificate or certificates
for such Conversion Shares to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such Holder, or to
such Holder's nominee or nominees, a certificate or certificates for the number
of Conversion Shares to which such Holder shall be entitled as aforesaid. Such
Conversion shall be deemed to have been made immediately prior to the close of
business on the date of such Surrender, and the person or persons entitled to
receive the Conversion Shares issuable upon Conversion shall be treated for all
purposes as the record holder or holders of such Conversion Shares as of such
date.
(iii) In the event that the Corporation fails for any reason to
deliver to any Holder the number of Conversion Shares issuable upon Surrender
and Conversion (a "Conversion Default"), and such Conversion Default continues
for longer than five (5) business days, the Corporation shall pay to such Holder
cash payments in the amount of (x) (N/365) multiplied by (y) the Liquidation
Preference (as defined in Section 3 below) of the shares of Series D Preferred
Stock representing the Conversion Shares which remain the subject of such
Conversion Default, multiplied by (z) the lower of twenty-four percent (24%) and
the maximum rate permitted by applicable law, where "N" equals the number of
days elapsed between the date of Surrender and the date on which all of such
Conversion Shares are issued and delivered to such Holder. Cash amounts payable
hereunder shall be paid on or before the fifth (5th) business day of the
calendar month following the calendar month in which such amount has accrued.
Nothing herein shall limit any Holder's right to pursue actual damages for the
Corporation's failure to issue and deliver Conversion Shares on the day of
Surrender (including, without limitation, damages relating to any purchase of
shares of Common Stock by such Holder to make delivery on a sale effected in
anticipation of receiving such Conversion Shares), and such Holder shall have a
right to pursue all remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or injunctive relief).
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) In the event that, prior to the Conversion of all the shares of
Series D Preferred Stock, the number of outstanding shares of Common Stock is
increased by the Corporation issuing additional shares of Common Stock pursuant
to a stock dividend, stock distribution, stock subdivision or otherwise, the
Conversion Price in effect immediately prior to such stock dividend, stock
distribution or stock subdivision shall, concurrently with the effectiveness of
such stock dividend, stock distribution or subdivision, be proportionately
decreased.
(ii) In the event that the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, the Conversion Price in effect immediately prior to
such combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(iii) In case the Corporation shall issue or sell any shares of Common
Stock (other than Common Stock issued: (A) upon conversion of Biocapital Holding
Swiss Franc Exchangeable Convertible Debt Certificates, (B) Series B Convertible
Preferred Stock of the Corporation outstanding as of February 16, 1998 ("Senior
Securities") (C) pursuant to the Corporation's stock option plans or pursuant to
any other Common Stock related employee compensation plan of the Corporation
approved by the Corporation's Board of Directors, or (D) upon exercise or
conversion of any security the issuance of which caused an adjustment under
paragraphs (iv) or (v) hereof) without consideration or for a consideration per
share less than the then Conversion Price Per Common Share (as defined in
paragraph (vii) hereof), the Conversion Ratio to be in effect after such
issuance or sale shall be determined by multiplying the Conversion Ratio in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which shall be the product of the aggregate number of shares of Common Stock
outstanding immediately after such issuance or sale and the Current Valuation
Per Common Share (as defined in paragraph (vii) hereof) immediately prior to
such issuance or sale and the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to the time of
such issuance or sale multiplied by the Current Valuation Per Common Share
immediately prior to such issuance or sale and (y) the aggregate consideration,
if any, to be received by the Corporation upon such issuance and sale. In case
any portion of the consideration to be received by the Corporation shall be in a
form other than cash, the fair market value of such noncash consideration shall
be utilized in the foregoing computation. Such fair market value shall be
determined by the Board of Directors; PROVIDED that if Holders of 25% or more of
the outstanding shares of Series D Preferred Stock shall object to any such
determination, the Board of Directors shall retain, at the Corporation's
expense, an independent appraiser reasonably satisfactory to such Holders to
determine such fair market value. The Holders shall be notified promptly of any
consideration other than cash received by the Corporation and furnished with a
description of the consideration and the fair market value thereof, as initially
determined by the Board of Directors.
(iv) In case the Corporation shall fix a record date for the issuance
of rights, options or warrants to the holders of its Common Stock or other
securities entitling such holders to subscribe for or purchase shares of Common
Stock (or securities convertible into shares of Common Stock) at a price per
share of Common Stock (or having a conversion price per share of Common Stock,
if a security convertible into shares of Common Stock) less than the then
Conversion Price Per Common Share (as defined in subsection (c)(vii) hereof), on
such record date, the maximum number of shares of Common Stock issuable upon
exercise of such rights, options or warrants (or conversion of such convertible
securities) shall be deemed to have been issued and outstanding as of such
record date and the Conversion Ratio shall be adjusted pursuant to paragraph
(iii) hereof, as though such maximum number of shares of Common Stock had been
so issued for an aggregate consideration payable by the holders of such rights,
options, warrants or convertible securities prior to their receipt of such
shares of Common Stock. In case all or any portion of such consideration shall
be in a form other than cash, the fair market value of such noncash
consideration shall be determined by the Board of Directors; PROVIDED that if
Holders of 25% or more of the outstanding shares of Series D Preferred Stock
shall object to any such determination, the Board of Directors shall retain, at
the Corporation's expense, an independent appraiser reasonably satisfactory to
such Holders to determine such fair market value. Such adjustments shall be made
successively whenever such a record date is fixed; and, in the event that such
rights, options or warrants are not so issued or expire unexercised, or in the
event of a change in the number of shares of Common Stock to which the holders
of such rights, options or warrants are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this subsection
(c)), the Conversion Ratio shall again be adjusted to be the Conversion Ratio
which would then be in effect if such record date had not been fixed, in the
former event, or the Conversion Ratio which would then be in effect if such
holder had initially been entitled to such changed number of shares of Common
Stock, in the latter event.
(v) In case the Corporation shall issue rights, options (other than
options issued pursuant to a plan described in subparagraph (iii)(B) hereof) or
warrants entitling the holders thereof to subscribe for or purchase shares of
Common Stock (or securities convertible into shares of Common Stock) or shall
issue securities, convertible into shares of Common Stock and the price per
share of Common Stock of such rights, options, warrants or convertible
securities (including, in the case of rights, options or warrants, the price at
which they may be exercised) is less than the then Conversion Price Per Common
Share (as defined in subsection (c)(vii) hereof), the maximum number of shares
of Common Stock issuable upon exercise of such rights, options or warrants or
upon conversion of such convertible securities shall be deemed to have been
issued and outstanding as of the date of such sale or issuance, and the
Conversion Ratio shall be adjusted pursuant to paragraph (iii) hereof as though
such maximum number of shares of Common Stock had been so issued for an
aggregate consideration equal to the aggregate consideration paid for such
rights, options, warrants or convertible securities and the aggregate
consideration payable by the holders of such rights, options, warrants or
convertible securities prior to their receipt of such shares of Common Stock. In
case any portion of such consideration shall be in a form other than cash, the
fair market value of such noncash consideration shall be determined as set forth
in paragraph (iii) below. Such adjustments shall be made successively whenever
such rights, options or warrants expire unexercised, or in the event of a change
in the number of shares of Common Stock to which the holders of such rights,
options, warrants or convertible securities are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this subsection
(c)), the Conversion Ratio shall again be adjusted to be the Conversion Ratio
which would then be in effect if such rights, options, warrants or convertible
securities had not been issued, in the former event, or the Conversion Ratio
which would then be in effect if such holders had initially been entitled to
such changed number of shares of Common Stock, in the latter event. No
adjustment of the Conversion Ratio shall be made pursuant to this paragraph (v)
to the extent that the Conversion Ratio shall have been adjusted pursuant to
paragraph (iv) hereof upon the setting of any record date relating to such
rights, options, warrants or convertible securities and such adjustment fully
reflects the number of shares of Common Stock to which the holders of such
rights, options, warrants or Convertible Securities are entitled and the price
payable therefor.
(vi) In case the Corporation shall fix the record date for the making
of a distribution to holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Corporation is
the continuing corporation) of evidences of indebtedness, assets or other
property (other than dividends payable in Common Stock or rights, options or
warrants referred to in, and for which an adjustment is made pursuant to,
paragraph (iv) hereof), the Conversion Ratio to be in effect after such record
date shall be determined by multiplying the Conversion Ratio in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the Current Valuation Per Common Share (as defined in subsection
(c)(vii) hereof), on such record date, and the denominator of which shall be the
Current Valuation Per Common Share (as defined in subsection (c)(vii) hereof),
on such record date, less the fair market value (determined as set forth in
paragraph (iii) hereof) of the portion of the assets, other property or
evidences of indebtedness so to be distributed which is applicable to one share
of Common Stock. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made,
the Conversion Ratio shall again be adjusted to be the Conversion Ratio which
would then be in effect if such record date had not been fixed.
(vii) For the purpose of any computation under this subsection (c), on
any determination date, the "CURRENT VALUATION PER COMMON SHARE" shall be the
greater of the Current Market Price Per Common Share and the Conversion Price
Per Common Share (each as defined below), the "CURRENT MARKET PRICE PER COMMON
SHARE" for any determination date shall be deemed to be the average (weighted by
daily trading volume) of the Daily Prices (as defined below) per share of the
applicable class of Common Stock for the 20 consecutive trading days immediately
prior to such date, the "CONVERSION PRICE PER COMMON SHARE" shall be deemed to
be the amount in dollars which is equal to $28,000 divided by the Conversion
Ratio immediately prior to such adjustment, and "DAILY PRICE" means for any day
(w) if the shares of such class of Common Stock then are listed and traded on
the New York Stock Exchange, Inc. ("NYSE"), the closing price on such day as
reported on the NYSE Composite Transactions Tape; (x) if the shares of such
class of Common Stock are not then listed and traded on the NYSE, the closing
price on such day as reported by the principal national securities exchange on
which the shares are listed and traded; (y) if the shares of such class of
Common Stock are not then listed and traded on any such securities exchange, the
last reported sale price on such day on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ");
or (z) if the shares of such class of Common Stock are not then quoted and
traded on the NASDAQ National Market, the average of the highest reported bid
and lowest reported asked price on such day as reported by NASDAQ. For purposes
of any computation under this subsection (c), the number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation.
(viii) No adjustment to the Conversion Ratio shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
Conversion Ratio; PROVIDED, that any adjustments which by reason of this
paragraph are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this subsection (c)
shall be made to the nearest four decimal points.
(ix) In the event that, as a result of the provisions of paragraph (x)
hereof, the Holders shall become entitled at any time upon subsequent
Conversion, to receive any shares of capital stock of the Corporation other than
shares of Common Stock, the number of such other shares so receivable upon
Conversion of the Series D Preferred Stock shall thereafter be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained herein.
(x) (A) In the case of any consolidation or merger of the Corporation
with or into another corporation or the conveyance of all or substantially all
the assets of the Corporation to another corporation, each share of Series D
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon Conversion of such Series D
Preferred Stock would have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the Holders, to
the end that the provisions set forth herein (including provisions with respect
to changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as they may reasonably be, in relation to any shares of
stock or other property thereafter deliverable upon the Conversion of the Series
D Preferred Stock. (B) Notwithstanding sub-paragraph (A) above, in the event
that: (x) any Person or group (within the meaning of Section 13(d) and 14(d) of
the Securities Exchange Act of 1934) has acquired, directly or indirectly, the
majority of the outstanding shares of Common Stock for cash; (y) the Corporation
sells, transfers or leases to any Person or group all or substantially all of
its assets for cash; or (z) the Corporation merges or consolidates with or into
another Person or any Person consolidates with or merges into the Corporation,
in any such event pursuant to a transaction whereby the holders of the majority
of shares of Common Stock receive cash for their shares, then, immediately prior
to any such event, all shares of Series D Preferred Stock shall be converted
into Conversion Shares at the Conversion Ratio then in effect.
(xi) The Corporation will not, by amendment of its Restated
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holders of the
Series D Preferred Stock against impairment.
(xii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 2, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to the Holders a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any Holder, furnish or cause to be furnished to such
Holder a like certificate setting forth (A) such adjustments and readjustments,
(B) the Conversion Price at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon conversion of Series D Preferred Stock.
(xiii) The Corporation shall reserve and keep free from any preemptive
rights, available at all times out of its authorized but unissued shares of
Common Stock such number of shares of Common Stock as shall from time to time be
sufficient to effect Conversion of all of the then outstanding Series D
Preferred Stock.
3. LIQUIDATION RIGHTS. The Series D Preferred Stock shall have the
following liquidation rights and preferences:
(a) LIQUIDATION PRICE. Upon the occurrence of (A) any insolvency or
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, commenced by the Corporation
or by its creditors, as such, or relating to its assets or (B) the dissolution
or other winding up of the Corporation whether total or partial, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
proceedings, or (C) any assignment for the benefit of creditors or any
marshaling of the material assets or material liabilities of the Corporation
(each, a "Liquidation Event"), distribution of the Corporation's assets shall
first be made to holders of Senior Securities, and thereafter no distribution
shall be made to the holders of any shares of Common Stock or any other capital
stock of the Corporation, unless and until each Holder shall have received from
the Corporation an amount with respect to such Liquidation Event (the
"Liquidation Preference") with respect to each share of Series D Preferred Stock
then held by such Holder equal to $28,000 plus an amount equal to all accrued
and unpaid dividends thereon to and including the date full payment shall be
tendered to each Holder.
(b) PRIORITY OVER COMMON STOCK. The aggregate Liquidation Preference
to be paid to all Holders under this Section 3 shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of the Corporation to, the holders of shares of
Common Stock or holders of any other class of shares of capital stock of the
Corporation except for holders of Senior Securities in connection with such
Liquidation Event. After the payment to holders of Senior Securities of any
preferential amounts owed to such holders, and payment to Holders of the
aggregate Liquidation Preference so payable to them, and any preferential
amounts payable to the holders of preferred stock ranking as to liquidation
junior to the Series D Preferred Stock, the holders of other classes of shares
of capital stock and holders of shares of Common Stock shall be entitled to
receive all remaining assets of the Corporation.
(c) INSUFFICIENCY. If the assets or surplus funds thus distributed to
the Holders are insufficient to permit the payment to the Holders of their full
aggregate Liquidation Preference, then the entire assets and surplus funds of
the Corporation legally available for distribution shall be distributed ratably
among the Holders in proportion to the full Liquidation Preference each such
Holder is otherwise entitled to receive.
4. VOTING RIGHTS. Each share of Series D Preferred Stock shall entitle
the Holder thereof, as of the record date for determination of stockholders
entitled to vote, to that number of votes as shall be equal to the aggregate
number of votes which a holder of the number of shares of Common Stock into
which such share of Series D Preferred Stock is then convertible would be
entitled to have for any matter to be submitted to a vote of stockholders of the
Corporation. For purposes of calculation of such number of votes, all shares of
Series D Preferred Stock then outstanding shall be considered immediately
convertible as of such record date. Except as otherwise provided by law or in
Section 6 hereof, the Holders and holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
5. DIVIDEND RIGHTS. The Holders of outstanding shares of Series D
Preferred Stock shall not be entitled to receive dividends in respect of shares
of Series D Preferred Stock.
6. COVENANTS. So long as any shares of Series D Preferred Stock shall
be outstanding (as adjusted for all subdivisions and combinations), the
Corporation shall not, without first obtaining the affirmative vote or written
consent of holders of not less than sixty percent (60%) of such outstanding
shares of Series D Preferred Stock, amend or repeal any provision of, or add any
provision to, the Corporation's Restated Certificate of Incorporation or By-laws
if such action would directly or indirectly, (i) alter or change (x) the
preferences, rights, privileges or powers of, or the restrictions provided, for
the benefit of, the Series D Preferred Stock or (y) any other class of shares of
capital stock of the Corporation so as to affect adversely the Series D
Preferred Stock, or (ii) create any new class or series of capital stock having
a preference over or making PARI PASSU with the Series D Preferred Stock as to
distribution of assets upon a Liquidation Event.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designation of Rights and Preferences of Series D Convertible Preferred Stock as
of this 23rd day of February, 1998.
ICN PHARMACEUTICALS, INC.
By: /s/ Bill A. MacDonald
----------------------------------
Bill A. MacDonald,
Executive Vice President
DATE: February 24, 1998
---------------------------------
(1) SMITHKLINE BEECHAM p.l.c.
and
(2) ICN PHARMACEUTICALS, INC.
AGREEMENT FOR THE SALE AND PURCHASE
OF A PORTFOLIO OF PHARMACEUTICAL, OTC AND
CONSUMER HEALTHCARE PRODUCTS
<PAGE>
2
TABLE OF CONTENTS
CLAUSE SUBJECT PAGE
1. DEFINITIONS...................................................... 1
2. INTERPRETATION................................................... 6
3. SALE AND PURCHASE................................................ 6
4. RESERVED RIGHTS.................................................. 8
5. CONSIDERATION.................................................... 8
6. COMPLETION....................................................... 19
7. TRADE MARKS...................................................... 23
8. STOCK............................................................ 24
9. BUSINESS CONTRACTS............................................... 25
10. PRODUCT REGISTRATIONS............................................ 25
11. MACHINERY........................................................ 28
12. REPRESENTATIONS AND WARRANTIES OF SB............................. 29
13. REPRESENTATIONS AND WARRANTIES OF ICN............................ 34
14. COVENANTS BY SB.................................................. 37
15. COVENANTS BY ICN................................................. 39
16. COVENANTS BY ICN AND SB.......................................... 40
17. CONFIDENTIALITY.................................................. 42
18. COSTS............................................................ 42
19. LIMITATIONS OF LIABILITY......................................... 42
20. THIRD PARTY CLAIMS............................................... 45
21. COUNTERPARTS..................................................... 46
22. FURTHER ASSISTANCE............................................... 46
23. GENERAL.......................................................... 46
24. ASSIGNMENT....................................................... 47
25. NOTICES.......................................................... 47
26. GOVERNING LAW AND JURISDICTION................................... 48
INDEX OF SCHEDULES
SCHEDULE ONE - PRODUCTS AND TERRITORIES.....................................
SCHEDULE TWO - PRODUCT LICENCES.............................................
SCHEDULE THREE - TRADE MARKS................................................
SCHEDULE FOUR - BUSINESS CONTRACTS..........................................
SCHEDULE FIVE - MASTER TRANSITION DISTRIBUTION AGREEMENT....................
SCHEDULE SIX - MASTER TRANSITION MANUFACTURING AGREEMENT....................
SCHEDULE SEVEN - MASTER TRADEMARK ASSIGNMENT................................
SCHEDULE EIGHT - STANDARD FORM ASSIGNMENT DOCUMENTS.........................
SCHEDULE NINE - CUSTOMER LETTERS............................................
SCHEDULE TEN - LETTER OF CROSS REFERRAL.....................................
SCHEDULE ELEVEN - CONTACT LISTS.............................................
SCHEDULE TWELVE - REGISTRATION RIGHTS AGREEMENT.............................
SCHEDULE THIRTEEN - CERTIFICATE OF DESIGNATION..............................
SCHEDULE FOURTEEN - SALES AND GROSS MARGIN STATEMENT........................
SCHEDULE FIFTEEN - APPORTIONMENT OF CONSIDERATION...........................
<PAGE>
1
<PAGE>
THIS AGREEMENT is made on 1998
BETWEEN:
(1) SMITHKLINE BEECHAM p.l.c., a company incorporated in England and Wales
whose registered office is at One New Horizons Court, Brentford, Middlesex
TW8 9EP ("SB"); and
(2) ICN PHARMACEUTICALS, INC., a company incorporated under the laws of the
State of Delaware in The United States of America whose registered office
is at 3300 Hyland Avenue, Costa Mesa, California 92626, U.S.A. ("ICN").
WHEREAS:
(A) SB or an Affiliate of SB holds each of the Exploited Product Licences for
the Products in the Territories.
(B) SB or an Affiliate of SB owns each of the Exploited Trade Marks to be
assigned to ICN.
(C) ICN wishes to purchase from SB the right to manufacture, sell, distribute
and market the Products in the Territories (and in addition to purchase the
Warranted CEE Trade Marks, the Warranted CEE Product Licences, the
Additional Trade Marks and the Additional Product Licences) and SB has
agreed to procure the transfer, licence and assignment to ICN of such
rights relating to the Products upon the following terms and conditions.
(D) SB and ICN intend that the sale and purchase contemplated hereby shall have
economic effect as of the Effective Date, such that the profits, losses and
other normal business risks of the Business after the Effective Date shall,
subject to the representations, warranties and indemnities contained
herein, be the responsibility of ICN, and that the Assets and Business be
held in trust by SB for the account of ICN from the Effective Date until
Completion.
IT IS AGREED as follows:
1. DEFINITIONS
In this Agreement, the following words and expressions shall have the
following meanings, unless the context otherwise requires:
"Additional Product Licences" means the Product Licences presently held
by SB, its Affiliates or distributors in respect of the Products in the
Global Disposal Area which are not Warranted CEE Product Licences and
with respect to which neither SB nor any Affiliate has marketed or sold
the subject Product in the relevant geographical area since 1 January
1997. The Additional Product Licences are listed in Part A of Schedule
Two (without a "#" symbol).
"Additional Trade Marks" means the registered trade marks and
applications for trade marks, details of which are set out in Part C of
Schedule Three, together with any unregistered trade marks used
exclusively in relation to any Product within the Global Disposal Area
but which are not Exploited Trade Marks.
"Affiliate" means, in relation to each party to this Agreement, any
organisation directly or indirectly controlled by that party, any
organisation which directly or indirectly controls that party or any
organisation directly or indirectly controlled by the same person as
that party. For the purpose of this definition, "control" shall mean in
relation to any entity the ability of another entity to ensure, whether
through ownership of shares or otherwise that the affairs of the first
entity are conducted in accordance with the wishes of that other
entity.
"Assets" means the assets agreed to be sold and purchased under this
Agreement pursuant to Clause 3 below.
"Authority" means the Ministry of Health or equivalent regulatory body
in any country within the Global Disposal Area.
"Business" means the business of manufacturing, selling, distributing
and marketing each Product in its respective Territory.
"Business Contracts" means all supply, distribution, manufacturing,
intellectual property licences and other contracts between third
parties and SB or an Affiliate of SB (the "SB Contracting Party" in
respect of the relevant Business Contract) relating to the Business
including, but not limited to, the contracts listed in Schedule Four,
and "Business Contract" means any one of them.
"Business Day" means a day (other than a Saturday or Sunday) on which
clearing banks are open for business in London.
"Certificate of Designation" means a certificate of designation of
rights and preferences of Series D Convertible Preferred Stock of ICN
substantially in the form set out in Schedule Thirteen.
"Common Stock" means the shares of common stock, par value US$0.01 of
ICN.
"Completion" means the completion of the sale and purchase of the
Assets in accordance with this Agreement.
"Completion Date" means 24 February 1998 or such later date as the
parties may agree.
"Contact List" means, for each of ICN and SB, the list contained in
Schedule Eleven comprising named contacts within ICN and SB
respectively who shall be primarily responsible for implementing the
sale of Products contemplated by this Agreement, as such list may be
amended from time to time.
"Customer Lists" means the documents or lists containing (i) the names
and addresses of SB's current customers for the Products in the
Territories and (ii) such details of the sales to customers of the
Products in the Territories for the calendar years 1996 and 1997 as are
in the possession of SB.
"Disclosure Schedule" means the disclosure schedule delivered on or
prior to the Completion Date to ICN by SB in connection with this
Agreement. The sections of the Disclosure Schedule correspond to the
Clauses of this Agreement, but information disclosed in any section of
the Disclosure Schedule shall be deemed to be disclosed as to all
relevant Clauses hereof.
"Effective Date" means 23 February 1998.
"Existing Product Licence Information" means the information dossiers,
data, results of clinical and other trials and investigations and the
like submitted as part of any application for any approval, consent or
licence prepared or used in respect of the Exploited Product Licences.
"Exploited Product Licences " means the Product Licences concerning
the marketing, distribution and sale of each Product in its respective
Territory. The Exploited Product Licences are listed in Part A of
Schedule Two, marked with a "#" symbol.
"Exploited Trade Marks" means the registered trade marks and
applications for trade marks, details of which are set out in Part A of
Schedule Three, together with any unregistered trade marks used
exclusively in relation to each Product within its respective
Territory.
"Global Disposal Area" means the countries listed in Part B of Schedule
One.
"Goodwill" means the goodwill of the Business excluding Trade Mark
Goodwill.
"ICN Claim" means any claim or cause of action (including but not
limited to any claim in contract, in tort and/or under statute) made by
ICN under or in relation to this Agreement, the sale of the Assets, any
aspect of the Assets or the Business or the negotiation and
communications in relation thereto.
"Know How" means all the information (including packaging and
production information, formulations (including without prejudice to
the generality of the foregoing Product Formulae), processes,
specifications, techniques and methods of quality control) owned by SB,
which is used by SB in connection with the Business.
"Master Transition Distribution Agreement" means a master agreement for
the transitional distribution of the Products in the Territories in
substantially the same form as the draft set out in Schedule Five. The
parties or their Affiliates may in addition enter into further
distribution agreements ("Distribution Agreements") in relation to
specific geographical areas within the Territories, where required.
"Master Transition Manufacturing Agreement" means a master agreement
for the transitional manufacture by SB or its Affiliates of the
Products, in substantially the same form as the draft set out in
Schedule Six.
"Master Trademark Assignment" means a master trademark assignment in
substantially the same form as the draft set out in Schedule Seven.
"Material Adverse ICN Effect" means a material adverse effect on the
financial standing of ICN or on ICN's ability to perform its
obligations under this Agreement.
"Material Adverse SB Effect" means a material adverse effect on the
Business and Assets taken as a whole.
"Packaging Rights" means, subject to the exclusions in Clause 4
(Reserved Rights), all intellectual property rights that exist or are
capable of existing in the get up or packaging in which the Products
are currently sold including the artwork and text used exclusively on
the Products in the form sold at the Completion Date.
"Patents" means Australian patents nos. AU 591631 and AU 623694, New
Zealand patent no. 212097 and South African patent no. 8513671
relating to the active ingredient in "Maxolon".
"Person" means a natural person, partnership, company, unincorporated
association, government or political subdivision, agency or
instrumentality of a government.
"Preferred Stock" means shares of Series D Convertible Preferred Stock
U.S. $0.01 par value of ICN.
"Products" means the portfolio of pharmaceutical, OTC and consumer
healthcare products, further details of which are contained in Schedule
One, and "Product" means any one of them.
"Product Formulae" means the formulation of each of the Products to the
extent such formulations are owned by SB or its Affiliates.
"Product Liability Claim" means a claim by one party to this Agreement
against the other in respect of loss (including legal fees) caused to
the first party due to a claim against that party for product liability
in respect of one or more Products.
"Product Licence" means an approval, consent or authorisation issued by
an Authority authorising the marketing and/or distribution of a
pharmaceutical, OTC or consumer healthcare product in a specified area.
"Records" means all records owned by SB or its Affiliates (whether
maintained on paper or electronic media) concerning current
formulations, raw material procurement, manufacture, distribution,
packing, promotion or sale of the Products in the Territories and/ or
concerning the registration or approval of the Products in the
Territories.
"Registration Rights Agreement" means an agreement between SB and ICN
substantially in the form set out in Schedule Twelve.
"Sales and Gross Margin Statement" means the statement of sales of the
Products in the Territories in 1996 and 1997 (including, in the latter
case, such figures restated to reflect currency exchange rates as at 9
January 1998 as detailed therein) and gross margins for such years,
forming Schedule Fourteen to this Agreement.
"SB Product Licences" means the Exploited Product Licences, the
Warranted CEE Product Licences and the Additional Product Licences.
"SEC" means the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
"Stock" means all finished goods (within the meaning specified in UK
GAAP) in respect of Products owned by SB or its Affiliates for sale
within the Territories at the Completion Date.
"Territory" means, in respect of any Product, the group of countries
listed against the Product concerned in Part A of Schedule One.
"Trade Marks" means the Exploited Trade Marks, the Warranted CEE Trade
Marks and the Additional Trade Marks.
"Trade Mark Goodwill" means the goodwill of SB or its Affiliates
attaching to and symbolised solely by the Trade Marks.
"UK GAAP" means UK generally accepted accounting principles.
"Warranted CEE Product Licences" means the Product Licences listed in
Part B of Schedule Two.
"Warranted CEE Trade Marks" means the registered trade marks and
applications for trade marks, details of which are set out in Part B of
Schedule Three.
2. INTERPRETATION
2.1 A reference to a statutory provision includes a reference to:
2.1.1 the statutory provision as modified or re-enacted
or both from time to time before the date of this
Agreement; and
2.1.2 any subordinate legislation made under the
statutory provision before the date of this
Agreement.
2.2 A reference to an agreement or other document is a reference
to that agreement or document as from time to time duly
supplemented or amended in accordance with its terms.
2.3 The headings in this Agreement shall not affect the interpre-
tation of this Agreement.
2.4 References to this Agreement shall include the Recitals
and Schedules hereto.
3. SALE AND PURCHASE
3.1 In accordance with and subject to the provisions of this
Agreement, SB agrees to sell with full title guarantee subject
to matters disclosed in or pursuant to this Agreement
including without limitation the Disclosure Schedule and,
where necessary, to procure the sale on the same basis by the
relevant Affiliate of SB, and ICN agrees to purchase with
effect from the Completion Date (subject to sub-Clauses 9.3 to
9.5), the following (the "Assets"):
3.1.1 the Goodwill
3.1.2 the Know How (other than information at present in
the public domain)
3.1.3 the Exploited Trade Marks, the Warranted CEE
Trademarks and the Trade Mark Goodwill associated
therewith.
3.1.4 the Exploited Product Licences and the Warranted
CEE Product Licences (to the extent such Product
Licences are capable of being transferred to ICN
by SB or its relevant Affiliates)
3.1.5 the Customer Lists
3.1.6 the Packaging Rights (to the extent that such
rights do not include copyright or rights in any
trade mark other than the Trade Marks or in any
packaging used for Products other than the
Products, and save that no guarantee as to title
is given in respect of copyright associated with
packaging materials)
3.1.7 the Records (including, without limitation,
Existing Product Licence Information)
3.1.8 the benefit (subject to the burden) of the
Business Contracts
3.1.9 the Stock
3.1.10 the Patents
3.2 In accordance with and subject to the provisions of this
Agreement, SB in addition agrees to sell to the extent it has
the right to sell and without any guarantee as to or warranty
in respect of title, and where necessary to procure the sale
on the same basis by the relevant Affiliate of SB and ICN
agrees to purchase with effect from the Completion Date the
following:
3.2.1 the Additional Trade Marks
3.2.2 the Additional Product Licences (to the extent
such Product Licences are capable of being
transferred to ICN by SB or its relevant
Affiliates).
3.3 Subject to Clause 17, it is agreed by the parties that any
books, records, information or other data relating in any
manner to this sale and purchase and which are retained by
either party and which are material for the purpose of any
returns for taxation or other necessary purposes shall to the
extent relevant be made available for inspection and copying
by the other parties at all reasonable times and on reasonable
notice by the relevant party.
3.4 The sale and purchase contemplated by sub-Clauses 3.1 and 3.2
shall not include the assumption by ICN of any liabilities in
respect of the Assets arising prior to the Effective Date.
4. RESERVED RIGHTS
4.1 ICN acknowledges that nothing contained in this Agreement
shall give ICN or its Affiliates the right to use the trade
marks, trade names or logos (other than the Trade Marks) owned
by SB or its Affiliates in connection with the Products or
otherwise (except to the extent that the name of SB or any
Affiliate of SB as the holder of any of the Existing Product
Licences is legally required to be marked on the packaging of
the Products).
4.2 Without limiting the generality of sub-Clause 4.1, the
following are specifically excluded from the sale hereunder:
the names "SmithKline" and "Beecham", the "SB" logo and any
material or trademarks (including, without limitation, capsule
colours) not used exclusively in relation to the Products,
provided that ICN shall have the right to sell existing Stock
and Products manufactured by SB pursuant to the provisions of
the Master Transition Manufacturing Agreement.
5. CONSIDERATION
5.1 PAYMENT OF CONSIDERATION. At Completion ICN shall deliver to
SB (or an Affiliate of SB designated by SB) in consideration
of the sale, conveyance, assignment, transfer and delivery of
the Assets (excluding Stock in respect of which ICN shall pay
SB such amount as is calculated under Clause 8): (i) the Cash
Portion of the Purchase Price by wire transfer of immediately
available funds to the bank account or bank accounts
previously specified by SB in a written notice delivered to
ICN; and (ii) that number of shares of Preferred Stock as
shall be convertible into such number of shares of Common
Stock (rounded up to the closest whole share) as shall have a
market value computed at the Original Price equal to the
Equity Portion of the Purchase Price. For the purposes of this
Clause 5, all references to SB shall include any Affiliate of
SB holding any of the Shares.
5.2 INITIAL PRICE GUARANTEE. ICN guarantees to SB that on the
Initial Guarantee Date, the Adjusted Current Market Price as
of the Initial Guarantee Date shall equal or exceed the
Initial Guaranteed Price. In the event that the Adjusted
Current Market Price on the Initial Guarantee Date is less
than the Initial Guaranteed Price, ICN shall pay SB the
Interim Payment. Any Interim Payment due to SB hereunder shall
be paid by ICN in such combination of cash and Additional
Shares (in the form of Preferred Stock) as ICN shall determine
in its sole discretion. For such purposes, each share of
Preferred Stock shall be valued at an amount equal to the
Current Market Price for the Initial Guarantee Date multiplied
by the number of shares of Common Stock issuable upon
conversion of a share of Preferred Stock. The Interim Payment
shall be made not later than 10 Business Days following the
Initial Guarantee Date.
5.3 FINAL SETTLEMENT. No later than November 1, 1999, the Calcul-
ation Agent shall deliver to ICN
5.3.1 A written statement setting forth: (i) the Estimated
Amount, if any, and (ii) the number of shares of
Common Stock as shall have a market value calculated
at the Closing Price on October 28, 1999, equal to
such Estimated Amount. Unless ICN pays the Estimated
Amount to SB in cash in full by November 3, 1999,
ICN shall deliver to SB, on or before November 3,
1999, 110% of the number of shares of Common Stock
referred to in (ii) above less the number of shares
of Common Stock equal in value (based on the October
28, 1999 Closing Price) to any amount delivered in
cash to SB by ICN in partial satisfaction of ICN's
obligation under this Clause 5.3 to deliver the
Estimated Amount to SB.
5.3.2 All the shares of Common Stock delivered by ICN to
SB pursuant to this Clause 5.3 shall be: (i) covered
by a registration statement prepared by ICN and
filed with the SEC in compliance with the Securities
Act which registration statement shall have been
declared effective by the SEC so that such shares
may be publicly offered and sold by SB, (ii) in full
compliance with all state securities and Blue Sky
laws, and (iii) authorized for listing or quotation,
as applicable, on the Principal Market. If any of
the shares of Common Stock due to be delivered to SB
pursuant to Clause 5.3.1 do not comply with the
requirements of (i) to (iii) of the preceding
sentence, ICN shall pay SB in cash, in lieu of
delivering such shares, an amount equal to the
aggregate value of all such shares as calculated
pursuant to Clause 5.3.1(ii).
5.3.3 Not later than November 3, 1999, SB shall convert
all the shares of Preferred Stock then held by SB
into Common Stock and subject to Clause 5.6(ii) may
in its sole discretion during the Settlement Period
sell any or all of such shares of Common Stock and
any shares of Common Stock received by SB from ICN
pursuant to Clause 5.3 in one or more transactions;
provided that SB will only sell Additional Shares as
SB in its reasonable discretion believes would be
required to be sold to realize the full amount due
to SB hereunder.
5.3.4 For the purposes of this Clause 5.3.4, sales of
Common Stock by SB during any Trading Day during the
Settlement Period shall be deemed to be sales of
Remaining Shares until one-twentieth of the
Remaining Shares held by SB at the close of trading
on the Principal Market on the last Trading Day
before the first day of the Settlement Period have
been sold and thereafter to be sales of Additional
Shares. Not later than three Trading Days following
the last day of the Settlement Period, the
Calculation Agent shall deliver to ICN a written
statement setting forth:
(i) the number of -
(A) Remaining Shares held by SB; and
(B) Additional Shares held by SB
in each case, as of the close of trading
on the Principal Market (x) on the last
Trading Day preceding the first day of
the Settlement Period and (y) on the
Final Guarantee Date.
(ii) for each sale of Remaining Shares made by SB
during the Settlement Period -
(A) the number of Remaining Shares
sold;
(B) the net sales proceeds received
from such sale plus the
aggregate gross dividends paid
on such Remaining Shares from
the Completion Date through the
date of such sale;
(C) the product of the number of
Remaining Shares sold and the
Final Guaranteed Price; and
(D) the Proceeds Surplus or
Proceeds Shortfall in respect
of such Remaining Shares, if
any;
(iii) for each sale of Additional Shares made by
SB during the Settlement Period -
(A) the number of Additional Shares
sold; and
(B) the net sales proceeds received
from such sale plus the
aggregate gross dividends paid
on such Additional Shares from
the Completion Date through the
date of such sale.
(iv) the aggregate amount of cash, if any,
paid by ICN to SB pursuant to Clauses
5.2, 5.3 and 5.4.
(v) for any Remaining Shares held by SB at
the close of trading on the Principal
Market on the Final Guarantee Date:
(A) (1) the Current
Market Price for the
Final Guarantee Date
plus the gross
dividends paid per
share on such
Remaining Shares from
the Completion Date
through such date
minus (2) the Final
Guaranteed Price;
(B) the amount determined in (A)
multiplied by the number of
such Remaining Shares.
If the amount determined in Clause (B) is
positive, such amount will be deemed to
be a Proceeds Surplus; if the amount in
Clause (B) is negative, the absolute
value of such amount shall be deemed to
be a Proceeds Shortfall.
(vi) the aggregate of the Proceeds Shortfalls,
if any, minus the aggregate of the
Proceeds Surpluses.
5.3.5 Not later than the second Business Day after
receipt from the Calculation Agent of the
statement provided for in Clause 5.3.4:
(i) if the amount described in (vi) of such
statement is negative, SB shall pay to ICN
the absolute value of such amount in such
combination of cash and delivery of shares of
Original Common Stock as SB shall determine
in its sole discretion. In addition, SB shall
return to ICN all Additional Shares then
owned by SB and any cash proceeds from the
sale of Additional Shares plus the aggregate
gross dividends paid from the Completion Date
through the Final Guarantee Date on such then
owned Additional Shares, and any cash
delivered to SB pursuant to Clauses 5.2, 5.3
and 5.4.
(ii) if the amount described in (vi) of such
statement is positive, the Calculation Agent
shall subtract from such amount the amount
described in Clause 5.3.4(iv) and the
aggregate amounts described in Clause
5.3.4(iii)(B) for all sales of Additional
Shares during the Settlement Period. If such
amount is still positive, ICN shall pay to SB
the difference in cash less the aggregate
gross dividends paid from the Completion Date
through the Final Guarantee Date on
Additional Shares not sold by the end of the
Settlement Period. If such amount is
negative, SB shall return to ICN the absolute
value of such amount in cash. In addition, SB
shall return to ICN all Additional Shares
then owned by SB plus the aggregate gross
dividends paid from the Completion Date
through the Final Guarantee Date on such then
owned Additional Shares.
For purposes of this Clause 5.3.5, any shares of
Original Common Stock delivered by SB to ICN shall
be valued at the Current Market Price for the Final
Guarantee Date.
5.4 LIMITS ON DELIVERY OF ADDITIONAL SHARES. ICN shall not deliver
Additional Shares to SB pursuant to this Agreement to the
extent that such delivery would increase the percentage of
outstanding shares of Common Stock that would be owned by SB
(excluding shares of Common Stock acquired and held by SB
independent of this Agreement) at the time of delivery to more
than 4.9%, assuming for purposes of such calculation,
conversion into Common Stock of all of the Preferred Stock
then held by SB. If ICN would, but for the preceding sentence,
have the option to deliver Additional Shares to SB, ICN shall,
in lieu of such delivery, pay to SB on the date on which
delivery of such Additional Shares is otherwise due, a cash
amount equal to the difference between the payment then due
and the value of the Additional Shares (calculated as provided
in Clause 5.2 and Clause 5.3) that ICN is permitted to deliver
and delivers to SB on such date. Notwithstanding the
prohibition on delivery of Additional Shares contained in the
first sentence of this Clause 5.4, if ICN notifies SB in good
faith that it is financially unable to pay SB all or part of
such cash amount, SB may, in its sole discretion, accept
delivery of all or any of such amount in the form of
Additional Shares.
5.5 SALES PRIOR TO SETTLEMENT PERIOD. In the event that SB shall,
at any time prior to the close of trading on the Principal
Market on the last Trading Day before the Settlement Period,
as permitted by Clause 5.6, sell to any third party, excluding
any Affiliate of SB, ICN or any Affiliate of ICN any Original
Common Stock then:
(i) The Calculation Agent shall determine whether the
aggregate net sales proceeds received from such
sales when added to the aggregate gross dividends
paid on such Shares from the Completion Date
through the date of such sale exceeds the per
share price that is the linear interpolation
(straight line) between the Original Price and the
Final Guaranteed Price for such date of sale
multiplied by the number of Shares sold.
(ii) If an excess exists, on the tenth Business Day
following such sale SB shall pay to ICN such
excess, at the option of SB, either in cash or in
the form of the return of shares of Original
Common Stock, valued at the net price per share of
Common Stock realized by SB in such sale.
5.6 TRANSFER RESTRICTIONS. Except as provided in this Clause 5.6,
prior to November 1, 1999, SB shall not: (i) without ICN's
prior written consent, sell, convey, assign or transfer any of
the Shares unless the net price to be received by SB would
exceed U.S.$75 per share of Common Stock or (ii) effect any
sales of Common Stock on any Trading Day pursuant to this
Clause 5 unless such Sales would have met the condition set
forth in Section (b)(4)(i) of Rule 10b-18 promulgated under
the 1934 Act if such Rule would have been applicable to SB;
provided, that the covenant of SB in (ii) above shall not
apply to sales of Common Stock not in excess of (A) 30,000
shares on any Trading Day, or (B) 50,000 shares on any Trading
Day if the price of the Common Stock on the Principal Market
on the previous Trading Day was less than 50% of the Original
Price.
5.7 ADJUSTMENTS.
5.7.1 In the event that ICN issues additional shares of
Common Stock pursuant to a stock dividend, stock
distribution or subdivision, the Initial Guaranteed
Price and the Final Guaranteed Price shall,
concurrently with the effectiveness of such stock
dividend, stock distribution or subdivision, be
proportionately reduced, as if the Preferred Stock
was converted into Common Stock and in the event the
outstanding shares of Common Stock of ICN shall be
combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common
Stock, the Initial Guaranteed Price and the Final
Guaranteed Price shall, concurrently with the
effectiveness of such combination or consolidation,
be proportionately increased. If any of the events
described in the preceding sentence occurs, all
references in this Clause 5 to number, percentage,
value or amount of any Shares or any calculation
relating thereto shall be adjusted as appropriate as
of the day of such event.
5.7.2 All references contained herein to share prices,
trading volumes and the like are to such numbers
prior to the ex-date for the stock split for holders
of record of the Common Stock on February 17, 1998.
5.7.3 In the event of the occurrence of any other event
which would give rise to an adjustment of the
Conversion Ratio of the Series D Convertible
Preferred Stock pursuant to the terms of the
Certificate of Designation, the Initial Guaranteed
Price and the Final Guaranteed Price shall be
increased or decreased, as applicable, to take
effect of any adjustments made pursuant to the
adjustment provisions set forth in Section 2(c) of
the Certificate of Designation so that the
Guaranteed Value shall remain unchanged as a result
of such adjustments. For the avoidance of doubt, the
Initial Guaranteed Price and the Final Guaranteed
Price shall remain unchanged if any of the
adjustments under this Section 5.7.3 were already
accounted for under Section 5.7.1.
5.8 LIMITS ON INCREASE OF SB'S HOLDING PERCENTAGE. ICN shall not
directly or indirectly redeem, repurchase or otherwise acquire
any shares of Common Stock or any other class of capital stock
of ICN or take any other action affecting such shares (other
than such action taken at the request of SB or unless SB shall
have waived in writing its rights under this Clause 5.8), if
such action would increase the percentage of outstanding
shares of Common Stock owned by SB (excluding shares of Common
Stock acquired and held by SB independent of this Agreement),
assuming conversion of the Preferred Stock held by SB, to
greater than 4.9%.
For the purposes of this Clause 5.8, in the event SB shall
have transferred any shares of Common Stock to any of its
Affiliates, "SB" shall mean SB and the Affiliates of SB to
which any shares of Common Stock shall have been transferred.
5.9 CHANGE OF CONTROL. The day on which a Change of Control of ICN
becomes effective shall be deemed to be the first day of the
Settlement Period and the provisions of Clause 5.3 shall apply
except that: (i) the Estimated Amount shall be payable to SB
in cash only, and (ii) all relevant dates shall be accelerated
as appropriate.
5.10 ACCELERATION OF SETTLEMENT PERIOD. If: (i) ICN fails to: (a)
perform, in any material respects, any of its obligations
under this Clause 5, including, without limitation to deliver
any of the Additional Shares or pay any cash to SB when such
delivery or payment becomes due; (b) make any payment of
interest, principal or other amount in respect of any of its
Indebtedness or Indebtedness guaranteed by it as and when that
Indebtedness becomes payable; (c) perform or observe any
covenant or agreement to be performed or observed by it
contained in any other agreement or in any instrument
evidencing any of its Indebtedness or Indebtedness guaranteed
by it and, as a result of its failure under (b) or (c) above,
any other party to that agreement or instrument has
accelerated the maturity of such Indebtedness; or (d) maintain
its shares of Common Stock listed and traded on a nationally
recognized securities exchange or a nationally recognized
securities market; or (ii) a Liquidation Event occurs, then
the date of such failure shall be deemed to be the first day
of the Settlement Period and the provisions of Clause 5.3
shall apply except that: (a) the Estimated Amount shall be
payable to SB in cash only, (b) ICN shall indemnify SB in full
for any loss suffered by SB as a result of such acceleration
of the Settlement Period and (c) all relevant dates shall be
accelerated as appropriate. Notwithstanding the foregoing, if
ICN notifies SB in good faith that it is financially unable to
pay SB all or part of the Estimated Amount in cash, SB may, in
its sole discretion, accept delivery of all or any such cash
amount in the form of Additional Shares.
5.11 CALCULATION AGENT. All determinations, calculations and
adjustments hereunder shall be made by the Calculation Agent
in its reasonable judgment and, absent manifest error, shall
be binding on the parties hereto. The Calculation Agent shall
provide reasonable detail of any determination, calculation or
adjustment upon request.
5.12 VOTING RIGHTS. Except for voting on the matters which may have
adverse effect, directly or indirectly, on the Preferred
Stock, or the rights attached thereto, individually or as a
class, on any matter submitted to the vote of shareholders of
ICN holders of shares of Preferred Stock shall vote such
shares in the same proportion and in the same manner as all
other shares of ICN having voting rights which are actually
voted on such matter. The foregoing provision shall not apply
if any of the events specified in Clause 5.10 shall have
occurred and be continuing.
5.13 The consideration payable pursuant to this Clause 5 will be
apportioned between the individual Assets in accordance with
Schedule Fifteen.
5.14 DEFINITIONS.Capitalised terms used in this Clause 5 and not
defined in Clause 1 of this Agreement, shall have the meanings
set out below.
"ACTUAL VALUE" means the sum of (i) the product of (a) the
Current Market Price for a Guarantee Date and (b) the
Remaining Shares plus the Additional Shares (assuming
conversion of Preferred Stock into Common Stock), and (ii) the
aggregate gross dividends paid from Completion Date to such
Guarantee Date on such Remaining Shares and such Additional
Shares.
"ADDITIONAL SHARES" means shares of Preferred Stock other than
Original Preferred Stock and any shares of Common Stock other
than Original Common Stock issued by ICN to SB after the
Completion Date.
"ADJUSTED CURRENT MARKET PRICE" means the Current Market Price
as of a Guarantee Date (assuming conversion of any Preferred
Stock) plus the aggregate gross dividends per Remaining Share
paid since the Completion Date.
"CALCULATION AGENT" means SB.
"CASH PORTION OF THE PURCHASE PRICE" means U.S.$22,500,000.
"CHANGE OF CONTROL" means such time as either: (i) any Person
or group (within the meaning of Section 13(d) or 14(d) of the
1934 Act) has acquired, directly or indirectly, for cash, the
beneficial ownership, by way of merger, consolidation or
otherwise of the majority of the voting power of ICN on a
fully-diluted basis; (ii) the sale, lease or transfer for cash
of all or substantially all of the assets of ICN to any Person
or group; or (iii) the consolidation or merger of ICN with or
into another Person or any Person consolidates with, or merges
with or into ICN, in any such event pursuant to a transaction
in which the majority of holders of Common Stock receive cash
for their shares.
"CLOSING PRICE" means the price of one share of the Common
Stock on the Principal Market at the close of trading on the
Principal Market.
"CURRENT MARKET PRICE" means for a Guarantee Date the average
of the Closing Prices for the five consecutive Valuation Dates
immediately prior to such Guarantee Date.
"EQUITY PORTION OF THE PURCHASE PRICE" means U.S$23,000,000.
"ESTIMATED AMOUNT" means an amount equal to the amount, if
any, by which the Guaranteed Value on the Final Guarantee Date
would exceed the Actual Value as of the Final Guarantee Date
assuming that the Current Market Price on the Final Guarantee
Date is equal to the Closing Price on October 28, 1999.
"FINAL GUARANTEE DATE" means the last Valuation Date of the
Settlement Period.
"FINAL GUARANTEED PRICE" means U.S.$69.00 per share.
"GUARANTEE DATE" means the Initial Guarantee Date or the Final
Guarantee Date.
"GUARANTEED VALUE" means (i) for the Initial Guarantee Date
the product of (x) the Initial Guaranteed Price and (y) the
Remaining Shares held by SB on the Initial Guarantee Date and
(ii) for the Final Guarantee Date the product of (x) the Final
Guaranteed Price and (y) the Remaining Shares held by SB at
the close of trading on the Principal Market on the Trading
Date immediately preceding the first day of the Settlement
Period.
"INDEBTEDNESS" means an amount in excess of U.S.$10,000,000
(or its foreign currency equivalent based on the foreign
exchange rate on the first date of such Indebtedness) payable
or guaranteed by ICN as debtor, borrower, issuer or guarantor
pursuant to any (i) judgments, decrees or orders for payment
of money; or (ii) agreement or instrument involving or
evidencing money borrowed or received, an extension or credit,
a conditional sale or a transfer with recourse or with an
obligation to repurchase.
"INITIAL GUARANTEE DATE" means December 31, 1998.
"INITIAL GUARANTEED PRICE" means U.S.$62.16 per share.
"INTERIM PAYMENT" means the amount, if any, by which the
Guaranteed Value exceeds the Actual Value on the Initial
Guarantee Date.
"LIQUIDATION EVENT" means, in respect of ICN, any of the
following events: (i) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization
or other similar proceedings in connection therewith,
commenced by ICN or by its creditors, as such, or relating to
its assets or (y) the dissolution or other winding up of ICN
whether total or partial, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any
marshaling of the material assets or material liabilities of
ICN.
"ORIGINAL COMMON STOCK" means the number of shares of Common
Stock into which the Original Preferred Stock may be
converted.
"ORIGINAL PREFERRED STOCK" means the shares of Preferred Stock
delivered by ICN to SB at Completion.
"ORIGINAL PRICE" means U.S.$56.05 per share.
"PRINCIPAL MARKET" means the principal exchange on which the
Common Stock is traded or the principal market on which the
Common Stock is quoted.
"PROCEEDS SHORTFALL" means (i) with respect to any sale of
Remaining Shares, the amount by which (A) the product of the
number of Remaining Shares sold and the Final Guaranteed Price
exceeds (B) the aggregate net sales proceeds received from
such sale plus the aggregate gross dividends paid on such
Remaining Shares from the Completion Date through the date of
such sale and (ii) with respect to any Remaining Shares held
by SB at the close of trading on the Principal Market on the
Final Guarantee Date, the amount computed as provided in
Clause 5.3.4.(v).
"PROCEEDS SURPLUS" means (i) with respect to any sale of
Remaining Shares, the amount, if any, by which (A) the net
sales proceeds received from such sale plus the aggregate
gross dividends paid on such Remaining Shares from the
Completion Date through the date of such sale exceeds (B) the
Final Guaranteed Price and (ii) with respect to any Remaining
Shares held by SB at the close of trading on the Principal
Market on the Final Guarantee Date, the amount computed as
provided in Clause 5.3.4(v).
"PURCHASE PRICE" means U.S.$45,500,000.
"REMAINING SHARES" means, as of any date of determination, the
number of shares of Common Stock into which shares of Original
Preferred Stock owned by SB on a Guarantee Date are then
convertible and shares of Original Common Stock then held by
SB.
"SETTLEMENT PERIOD" means the period of twenty Valuation Dates
from and including November 4, 1999.
"SHARES" means the Preferred Stock and the Common Stock.
"STOCK MARKET DISRUPTION EVENT" means the occurrence or
existence on any Trading Day of any of the following events:
The suspension or material limitation of trading in (i) the
Common Stock on the Principal Market, (ii) securities
generally on the Principal Market, or (iii) options contracts
related to the Common Stock traded on the relevant option
exchange.
For the purposes of this definition (a) a limitation on the
hours and number of days of trading will not constitute a
Stock Market Disruption Event if it results from an announced
change in the regular business hours of the relevant exchange
and (b) a material limitation on trading imposed during the
course of a day by reason of movements in price exceeding
levels permitted by the relevant exchange will constitute a
Stock Market Disruption Event.
The Calculation Agent shall as soon as practicable notify SB
and ICN of the existence or occurrence of a Stock Market
Disruption Event on any day that but for the occurrence or
existence of a Stock Market Disruption Event would have been a
Valuation Date.
"TRADING DAY" means a day that is a trading day on the
Principal Market and Chicago Board Options Exchange (in each
case other than a day on which trading on such exchange is
scheduled to close prior to its regular closing time).
"VALUATION DATE" means a Trading Day on which no Stock Market
Disruption Event has occurred or exists.
6. COMPLETION
6.1 COMPLETION VENUE: Completion of this Agreement will take place
at the offices of Coudert Brothers in New York, New York, USA
on the Completion Date.
6.2 ICN CONDITIONS PRECEDENT: The obligation of ICN to complete
the transaction contemplated hereby is subject to the
satisfaction on or prior to the Completion Date of the
following conditions (all or any of which may be waived in
whole or in part by ICN):
6.2.1 REPRESENTATIONS AND WARRANTIES: The
representations and warranties made by SB in this
Agreement shall have been true and correct in all
respects as of the Completion Date with the same
force and effect as though said representations
and warranties had been made on the Completion
Date (except for representations and warranties
made as of a specified date, which will be true
and correct in all respects as of the specified
date).
6.2.2 PERFORMANCE: SB shall have performed and complied
in all material respects with all agreements,
obligations and conditions required by this
Agreement to be so performed or complied with by
it prior to or at Completion.
6.2.3 GOVERNMENT APPROVALS: All approvals of competent
authorities required for the consummation of the
transactions contemplated by this Agreement, if
any, have been obtained and all waiting periods
under applicable laws, if any, shall have expired
or been terminated.
6.2.4 CERTIFICATE OF DESIGNATION: The Certificate of
Designation shall have been accepted for filing by
the Secretary of State of the State of Delaware.
6.2.5 LISTING OF UNDERLYING STOCK: The shares of Common
Stock into which the Preferred Stock is
convertible shall have been authorised for listing
upon official notice of issuance on the New York
Stock Exchange.
6.2.6 LITIGATION: No investigation, suit, action, or
other proceeding shall be threatened or pending
before any court or governmental agency that seeks
the restraint, prohibition, damages, or other
relief in connection with this Agreement or the
consummation of the transactions contemplated by
this Agreement unless such action would not have a
Material Adverse SB Effect.
6.2.7 NO ADVERSE CHANGE: During the period from 1
October 1997 to the Completion Date there shall
not have occurred or been discovered, and there
shall not exist on the Completion Date except for
that which has been otherwise disclosed elsewhere
in this Agreement or in the Disclosure Schedule,
any condition or fact that would have a Material
Adverse SB Effect.
6.3 SB CONDITIONS PRECEDENT: The obligation of SB to complete the
transaction contemplated hereby is subject to the satisfaction
on or prior to the Completion Date of the following conditions
(all or any of which may be waived in whole or in part by SB):
6.3.1 REPRESENTATIONS AND WARRANTIES: The
representations and warranties made by ICN in this
Agreement shall have been true and correct in all
respects as of the Completion Date with the same
force and effect as though said representations
and warranties had been made on the Completion
Date (except for representations and warranties
made as of a specified date, which will be true
and correct in all respects as of the specified
date).
6.3.2 PERFORMANCE: ICN shall have performed and complied
in all material respects with all agreements,
obligations and conditions required by this
Agreement to be so performed or complied with by
it prior to or at Completion.
6.3.3 GOVERNMENT APPROVALS: All approvals of competent
authorities required for the consummation of the
transactions contemplated by this Agreement, if
any, have been obtained and all waiting periods
under applicable laws, if any, shall have expired
or been terminated.
6.3.4 LITIGATION: No investigation, suit, action, or
other proceeding shall be threatened or pending
before any court or governmental agency that seeks
the restraint, prohibition, damages, or other
relief in connection with this Agreement or the
consummation of the transactions contemplated by
this Agreement unless such action would not have a
Material Adverse ICN Effect.
6.3.5 NO ADVERSE CHANGE: During the period from 1
January 1997 to the Completion Date there shall
not have occurred or been discovered, and there
shall not exist on the Completion Date except for
that which has been otherwise disclosed elsewhere
in this Agreement, any condition or fact that
would have a Material Adverse ICN Effect.
6.3.6 CERTIFICATE OF DESIGNATION. The Certificate of
Designation shall have been accepted for filing by
the Secretary of State of the State of Delaware.
6.3.7 LISTING OF UNDERLYING STOCK: The shares of Common
Stock into which the Preferred Stock is
convertible shall have been authorised for listing
upon official notice of issuance on the New York
Stock Exchange.
6.3.8 LETTER OF CREDIT. ICN shall have procured at its
own expense an irrevocable standby letter of
credit (the "Standby Letter of Credit") from
Banque Nationale de Paris in favour of, and in a
form acceptable to, SB for an amount of
$28,300,000 expiring not earlier than December 25,
1999.
6.4 SB DELIVERIES: At Completion, SB shall:
6.4.1 Execute and deliver to ICN the Master Trade Mark
Assignment.
6.4.2 Execute and deliver to ICN assignments of Goodwill
and Packaging Rights, such documents being in the
form set out in Schedule 8.
6.4.3 Execute and deliver to ICN the Master Transition
Distribution Agreement.
6.4.4 Execute and deliver to ICN the Master Transition
Manufacturing Agreement.
6.4.5 Execute and deliver to ICN an assignment of the
Patents in the form set out in Schedule 8.
6.4.6 Execute and deliver to ICN the Registration Rights
Agreement.
6.5 ICN DELIVERIES:
At Completion, ICN shall:
6.5.1 Deliver to SB a duly executed stock certificate in
respect of the shares of Preferred Stock in form
and denomination acceptable to SB.
6.5.2 Deliver to SB a copy of the Certificate of
Designation as filed with the Secretary of State
of the State of Delaware and proof of acceptance
of such filing by the Secretary of State of
Delaware.
6.5.3 Execute and deliver to SB the documents listed
in sub-Clauses 6.4.1 to 6.4.6.
6.5.4 Deliver to SB the Standby Letter of Credit
6.6 TERMINATION:
This Agreement and the transactions contemplated hereby may be
terminated at any time prior to the Completion Date:
6.6.1 By the mutual written consent of SB and ICN;
6.6.2 By either SB or ICN if Completion shall not have
occurred on or before June 30, 1998;
6.6.3 By either SB or ICN if consummation of the
transactions contemplated hereby shall violate any
non-appealable final order, decree or judgement of
any court or governmental body having competent
jurisdiction; or
6.6.4 By either SB or ICN if there has been a material
violation or breach by the other party of any of
the agreements, representations or warranties
contained in this Agreement that has not been
waived in writing, or if there has been a material
failure of satisfaction of a condition to the
obligations of the other party that has not been
waived in writing, and such violation, breach, or
failure has not been cured within sixty (60) days
of written notice to the other party.
6.7 EFFECT OF TERMINATION: If this Agreement is terminated
pursuant to sub-Clause 6.6, all further obligations of SB and
ICN under this Agreement shall terminate without further
liability of SB or ICN except (a) for the obligations of ICN
and SB under Clauses 16.2 (Press Releases), 17
(Confidentiality), 18 (Costs) and 26 (Governing Law &
Jurisdiction) and (b) that such termination shall not
constitute a waiver by any party of any claim it may have for
damages caused by reason of a breach by the other party of a
representation, warranty, covenant or agreement.
7. TRADE MARKS
7.1 SB shall assign the Trade Marks to ICN and, where SB is not
the registered proprietor, SB shall procure the assignment of
the Trade Marks by the registered proprietor of such Trade
Marks.
7.2 SB hereby agrees on its own behalf and on behalf of its
relevant Affiliates, in addition to executing the Master Trade
Mark Assignment, to execute such additional trade mark
assignments as ICN may reasonably request to give effect to
Clause 7.1. The form of the additional assignments to be
executed pursuant to this Clause 7.2 is set out in Schedule
Eight. It is acknowledged by the parties that this form may
need to be amended to the extent necessary to comply with the
requirements of local law.
7.3 In the event that it is not possible or, in the reasonable
opinion of SB, not practicable, to assign any of the Trade
Marks then at the option and cost of ICN, SB shall, or shall
procure that the registered proprietor shall, either:
7.3.1 cancel such of the Trade Marks as cannot be
assigned, or
7.3.2 grant to ICN an irrevocable, exclusive, royalty
free licence in respect of such Trade Marks in
such form as the parties to this Agreement shall
be reasonably advised to be effective by local
trade mark agents of repute.
7.4 ICN shall prepare at its own expense all Trade Mark
assignments or licences to be executed pursuant to this Clause
7.
7.5 All records of assignments and licences of the Trade Marks
shall be undertaken by ICN at its expense.
7.6 Subject to the representations set forth in Clause 12.16,
title to and risk in the Trade Marks shall pass to ICN with
effect from Completion. Neither SB nor its Affiliates shall
have any responsibility for maintaining registrations of or
defending the Trade Marks after Completion but shall use
reasonable efforts to provide at ICN's expense such assistance
with maintaining registrations or defending the Trade Marks as
ICN may reasonably request.
8. STOCK
8.1 As soon as reasonably practicable after Completion, SB shall
calculate the price to be paid for the Stock by ICN. In
accordance with the principles of UK GAAP, the price for the
Stock will be stated at the lower of cost (excluding
intercompany profit) and net realisable value.
8.2 The quantities and descriptions of the Stock and the cost and
net realisable value of the Stock shall be determined by
reference to a stock-taking to be taken within one month after
the Completion Date in each Territory by a representative
appointed by SB, working jointly with a representative
appointed by ICN if ICN so requests in respect of particular
countries.
8.3 SB and ICN shall give to the other such assistance as may be
reasonably required to enable the price of the Stock to be
calculated and SB shall procure that proper access to the
books of account and accounting records of the Business is
given to ICN at reasonable times and on reasonable notice for
this purpose.
8.4 8.4.1 For Stock levels of less than one hundred and
eighty (180) days ICN shall pay SB for all such
Stock within thirty (30) days of receipt of invoice
from SB.
8.4.2 Should the levels of Stock exceed one hundred and
eighty (180) days ("Excess Stock"):
(i) ICN shall pay SB the value of the first
one hundred and eighty (180) days' Stock
within thirty (30) days of receipt of
invoice from SB.
(ii) ICN shall pay SB the value of the Excess
Stock within two hundred and ten (210)
days after the Completion Date or within
thirty (30) days of receipt of the
relevant invoice from SB, if later.
8.5 Payments pursuant to sub-Clause 8.4 shall be made in cash in
accordance with sub-Clause 23.9, and shall be in addition to
ICN's payment obligations pursuant to Clause 5 hereof.
8.6 Any dispute concerning the price of the Stock shall be
referred to an independent chartered accountant to be
appointed by the parties or (in default of agreement) by the
President of the Institute of Chartered Accountants in England
and Wales. The decision of such chartered accountant (who
shall be deemed to act as an expert and not as an arbitrator)
shall be final and binding on the parties and the cost of such
reference shall be paid by the parties in equal shares.
9. BUSINESS CONTRACTS
9.1 Subject to sub-Clause 9.2, ICN shall from the Completion Date:
9.1.1 assume the obligations of and become entitled to
the benefits of the SB Contracting Party under
each Business Contract; and
9.1.2 carry out and perform all the obligations under
the Business Contracts in accordance with the
terms contained therein.
9.2 Insofar as the benefit or burden of any Business Contract
cannot be effectively assigned to or assumed by ICN except
with the agreement or consent of any other party to it, SB and
ICN shall comply with the terms of Clauses 14.2 and 15.1
respectively in relation to obtaining such consents.
9.3 Subject to sub-Clause 9.5 and the other provisions of this
Agreement, all profits, receipts, losses, liabilities and
outgoings arising from the conduct of the Business prior to
the Effective Date shall belong to and be paid, borne and
discharged by SB. All profits, receipts, losses, liabilities
and outgoings arising from the conduct of the Business on or
after the Effective Date shall belong to and be paid, borne
and discharged by ICN.
9.4 Subject to sub-Clause 9.5, SB shall indemnify ICN against any
and all losses and liabilities incurred by ICN arising from
the conduct of the Business prior to the Effective Date. ICN
shall indemnify SB against any and all losses and liabilities
incurred by SB arising from the conduct of the Business on or
after the Effective Date.
9.5 Sub-Clauses 9.3 and 9.4 shall not come into effect unless and
until Completion takes place.
10. PRODUCT REGISTRATIONS
10.1 ICN shall, as soon as reasonably practicable following the
Completion Date, apply to the appropriate Authorities in the
Territories for the grant to ICN of new Product Licences in
respect of the Products corresponding with the SB Product
Licences in the respective Territory ("Marketing Authorisation
Transfer"). Further subject to the provisions of the Master
Transition Distribution Agreement and the Master Transition
Manufacturing Agreement, SB shall, or shall procure that the
relevant Affiliates shall, request of the relevant Authorities
that the SB Product Licences be varied to include ICN as the
company responsible for warehousing, marketing, distributing
and selling the Products.
10.2 In such countries as may be appropriate, the application for
the grant of such new Product Licences under Clause 10.1 shall
be by way of an abridged application ("Cross Referral") and SB
shall, or shall procure that its Affiliates shall, provide to
ICN letters in the form set out in Schedule Ten and all such
other assistance as may be reasonably necessary for the grant
of such Product Licences.
10.3 Subject to sub-clause 10.4, the costs and expenses incurred in
connection with obtaining new Product Licences and amending
the existing SB Product Licences in accordance with
sub-clauses 10.1 and 10.2 (including any official fees to be
paid to any Authority) shall be borne equally by SB and ICN,
up to an aggregate of US$500,000 in fees and expenses. To the
extent such fees and expenses in aggregate exceed US$500,000,
ICN alone shall bear such excess.
10.4 ICN and SB shall within 45 days after Completion prepare a
plan of work to be carried out by the directors, officers or
employees of SB or its Affiliates after Completion to enable
SB or its Affiliates to comply with sub-clauses 10.1 and 10.2
or otherwise to assist ICN with Marketing Authorisation
Transfer. All such work carried out shall be notionally valued
at US$100 per man-hour, and any liability of SB to pay fees
and expenses pursuant to sub-clause 10.3 shall be reduced by
the total notional value of all such work carried out.
10.5 SB shall not be required to generate new or additional data or
information or carry out any tests or trials except that the
provisional results from any ongoing stability trials as at
the Completion Date relating to the Products will be provided
to ICN. In addition SB shall use its reasonable efforts to
complete any stability trials which it is carrying out at the
date hereof in respect of the Products in the Territories and
shall pass on to ICN the results of such trials when
completed.
10.6 For each SB Product Licence, prior to Marketing Authorisation
Transfer, SB shall hold that SB Product Licence as nominee and
trustee for and on behalf of ICN and shall, at ICN's expense
and subject to ICN approving such expenditure, maintain the
same in full force and effect and will use its reasonable
endeavours to procure any modification of or addition to such
SB Product Licence as ICN may require.
10.7 Prior to Marketing Authorisation Transfer (and in respect of
any Products subject to a Distribution Agreement, during the
term of such agreement) SB and/or its Affiliates shall
continue to discharge their obligations under the law and
regulations applicable to each SB Product Licence. ICN shall
conduct the marketing of the Products during such period so as
to be consistent with SB and/or its Affiliates meeting their
obligations and shall satisfy the terms of the SB Product
Licences. Further, ICN shall fully co-operate with SB and its
Affiliates in the discharge of its relevant obligations
including (without limitation):
10.7.1 the expeditious recording and reporting of any
adverse events in accordance with laws and
regulations applicable to the SB Product Licences
provided that serious adverse events shall be
reported to SB by ICN by telephone, facsimile or
other instantaneous form of communication in each
case confirmed in writing by first class post
immediately upon ICN becoming aware of the same;
10.7.2 obtaining the prior written approval of SB for all
promotional materials relating to the Products,
such approval not to be unreasonably delayed by
SB; and
10.7.3 complying in all respects with any applicable
local codes of practice or regulations.
For the purposes of this clause a serious adverse event means
a serious adverse clinical experience which is fatal, life
threatening, disabling/incapacitating or which results in
hospitalisation.
10.8 Full Economic Results
10.8.1 Notwithstanding any matter disclosed to ICN by SB in
or pursuant to the Disclosure Schedule, provided ICN
has filed the relevant application for a Product
Licence within one year after the Completion Date,
if an Authority refuses, through no fault of ICN, to
grant a Product Licence (whether by assigning an SB
Product Licence or otherwise) within three (3) years
following the Completion Date, such that ICN is
unable to market a Product in a certain country
within the relevant Territory, SB shall pay ICN in
cash within thirty (30) days from the later of (a)
the date falling three years after the Completion
Date and (b) receipt of notice from ICN of the
relevant refusal by the regulatory authority an
amount equal to 1.5 times the 1997 sales of that
Product in that country based on 9 January 1998
exchange rates as shown in Column A of the Sales and
Gross Margin Statement. If SB identifies an
appropriate pharmaceutical, OTC or consumer
healthcare product or products and ICN in its sole
discretion agrees to the transfer, SB shall instead
of such payment transfer to ICN all its rights in
and to such other product(s) as the parties agree is
or are of equivalent value to such sum.
10.8.2 Notwithstanding any matter disclosed to ICN by SB in
or pursuant to the Disclosure Schedule, in the event
that a Product Licence is held by a third party or
is subject to third party rights and SB is unable,
through no fault of ICN either (i) to procure the
assignment of the Business Contract in respect of
such third party to ICN or (ii) effect a novation or
other similar transfer mechanism to enable ICN to
realise the economic results of the Product in the
country on equivalent terms enjoyed by SB at
Completion, in each case prior to 31 December 1999,
SB shall pay within 30 days of demand to ICN in cash
an amount equal to 1.5 times the 1997 sales of that
Product in that country based on 9 January 1998
exchange rates as shown in Column A of the Sales and
Gross Margin Statement. If SB identifies an
appropriate pharmaceutical, OTC or consumer
healthcare product or products and ICN in its sole
discretion agrees to the transfer, SB shall instead
of such payment transfer to ICN all its rights in
and to such other product(s) as the parties agree is
or are of equivalent value to such sum.
10.8.3 Pending the payment or transfer (if any) referred to
in sub-Clauses 10.8.1 and 10.8.2, the full economic
results of the relevant Product in respect of the
relevant country shall vest in ICN with effect from
the Effective Date.
10.8.4 In the event of payment by SB to ICN pursuant to
sub-Clauses 10.8.1 or 10.8.2 with respect to any
Product in any country, all rights with respect to
such Product in such country shall revert to SB as
of the date of such payment.
11. MACHINERY
Where as a result of the sale of the Products pursuant to this
Agreement, an item or items of machinery ("Machinery") owned by SB or
its Affiliates becomes redundant, SB shall give ICN or procure that ICN
is given a right of first refusal to purchase the Machinery on terms
mutually acceptable to the parties.
12. REPRESENTATIONS AND WARRANTIES OF SB
12.1 ORGANISATION: SB is a corporation duly organised, validly
existing and in good standing under the laws of England, with
full corporate power and authority to consummate the
transactions contemplated hereby.
12.2 AUTHORITY: The execution and delivery of this Agreement by SB
and the consummation and performance of the transactions
contemplated hereby, have been duly and validly authorised by
all necessary corporate and other proceedings, and this
Agreement has been duly authorised, executed, and delivered by
SB and, assuming enforceability against ICN, constitutes the
legal, valid and binding obligation of SB, enforceable in
accordance with its terms.
12.3 TITLE TO ASSETS: Except as set forth in Schedule 12.3 of the
Disclosure Schedule, SB or an Affiliate of SB has good and
marketable title to all the Assets and will convey good and
marketable title at Completion, free and clear of any and all
liens, encumbrances, charges, claims, restrictions, pledges,
security interest, or impositions of any kind (including those
of secured parties). SB or an Affiliate of SB is the
beneficial owner of all the Assets. None of the Assets is
leased, rented, licensed, or otherwise not owned by SB or an
Affiliate of SB.
12.4 NO VIOLATION OR CONFLICT: The execution and delivery of this
Agreement by SB and the performance of this Agreement (and the
transactions contemplated herein) by SB (a) do not and will
not conflict with, violate or constitute or result in a
default under any law, judgement, order, decree, the
Memorandum and Articles of Association of SB or any contract
or agreement to which SB is a party or by which SB is bound
and (b) will not result in the creation or imposition of any
lien, charge, mortgage, claim, pledge, security interest,
restriction or encumbrance of any kind on, or liability with
respect to, the Assets except as otherwise provided herein or
otherwise disclosed on the Disclosure Schedule.
12.5 PATENTS: Except for the Patents and except as set forth in
Schedule 12.5 of the Disclosure Schedule, SB does not own any
patents with respect to the active ingredients for the
Products or the Products themselves or the manufacturing of
the Products in the Territories.
12.6 REGISTRATIONS: To the best knowledge of SB, the SB Product
Licences constitute all Product Licences held by SB or its
Affiliates in the Global Disposal Area. In the event
additional Product Licences are discovered at any time, they
will be transferred forthwith to ICN in accordance with Clause
10. Such transfer shall constitute ICN's only and final remedy
for a breach of the above warranty. Except as set forth on
Schedule 12.6 of the Disclosure Schedule, the Exploited
Product Licences:
12.6.1 are in the name of SB or an Affiliate of SB or,
where local regulations dictate, in the name of a
local distributor being a party to a Business
Contract;
12.6.2 constitute all licences, permits, approvals,
qualifications, and governmental specifications,
authorisations or requirements which SB or its
Affiliates have in connection with the marketing
and sale of the Products in the Territories, and
12.6.3 to the best knowledge of SB after due inquiry
made, constitute all such licences, permits,
approvals, qualifications, and governmental
specifications, authorisations, and requirements
necessary for the marketing and sale of the
Products in the Territories as currently conducted
by SB and its Affiliates and distributors.
All Exploited Product Licences and Warranted CEE Product
Licences are in full force and effect. SB has complied with
all of its obligations under the Exploited Product Licences
and all applicable laws and regulations relating to the
marketing, distribution and sale of the Products in their
respective Territories. To SB's knowledge, except as set forth
in Schedule 12.6 of the Disclosure Schedule, no Exploited
Product Licence is likely to be suspended, cancelled or
revoked or is likely not to qualify for assignment to ICN
provided ICN makes best efforts to obtain the authorities'
consent to such an assignment. SB does not warrant the
possibility of continuation of any Product Licence in the name
of ICN in the event ICN decides to have Products manufactured
by an entity other than the company which is actually
manufacturing that Product as of the Completion Date, and SB
does not warrant any continuation of price approval or price
reimbursement for the Products by social security institutions
following the transfer of the Product Licences to ICN.
12.7 STOCK: As of Completion, each Product comprising the Stock
shall meet the specifications therefor as set forth in the
manufacturing documentation and Product Licences for such
Product with the competent authority in the country concerned
of the relevant Territory. The Stock will be in good
condition, properly stored and in compliance with applicable
laws, usable and saleable in the ordinary course of business.
The Stock of each Product with individual country sales of
more than ,40,000 in 1997 as set forth in Column A of the
Sales and Gross Margin Statement shall be sufficient to
maintain a running business for 90 days based on annual sales
in 1997. For Products with individual country sales not
exceeding ,40,000 in 1997, SB represents and warrants that
since 1 October 1997 it has maintained Stock levels in a
manner consistent with previous practice. SB represents and
warrants that since 1 October 1997 it has not made or
instituted any unusual or novel method of sale in the conduct
of the Business inconsistent with past practices.
12.8 TAXES: As of the date hereof, there are no liens for taxes
upon the Assets except for liens for current taxes not yet due
and payable.
12.9 ABSENCE OF CERTAIN CHANGES: As of the date hereof and as of
the Completion Date and except as otherwise disclosed on the
Disclosure Schedule, there has not since 1 October 1997 been
any event causing a Material Adverse SB Effect and SB is not
aware of any facts, circumstances, or proposed or contemplated
events that would have a Material Adverse SB Effect after
Completion.
12.10 VIOLATIONS OF LAW: Except as set forth in Schedule 12.10 of
the Disclosure Schedule, to the best of SB's knowledge after
due inquiry made, the operation of the Business by SB (i) does
not violate or conflict with any law, governmental
specification, authorisation, or requirement, or any decree,
judgement, order, or similar restriction in any material
respect, and (ii) has not been the subject of an investigation
or inquiry by any governmental agency or authority regarding
violations or alleged violations, or found by any such agency
or authority to be in violation, of any law, other than
investigations, inquiries or findings that have not had, or
are reasonably likely not to have, a Material Adverse SB
Effect.
12.11 SB SALES STATEMENTS. The sales and gross margin figures given
in the Sales and Gross Margin Statement are accurate and
complete in all material respects, reflect only actual bona
fide transactions net of intercompany profit, and were
prepared in accordance with UK GAAP consistently applied. SB
makes no warranty or representation as to the future financial
performance of the Business or the Assets.
12.12 NO GOVERNMENT RESTRICTIONS: Except as set forth on Schedule
12.12 of the Disclosure Schedule or for consents the failure
of which to obtain would not have a Material Adverse SB
Effect, no consent, approval, order or authorisation of, or
registration, declaration or filing with, any governmental
agency is required to be obtained or made by or with respect
to SB in connection with the execution and delivery of this
Agreement by SB or the consummation by it of the transactions
contemplated hereby to be consummated by it.
12.13 LITIGATION: Except as set forth on Schedule 12.13 of the
Disclosure Schedule or for adverse drug reports annexed to the
Disclosure Schedule, the Assets are not the subject of (i) any
outstanding judgement, order, writ, injunction or decree of
any arbitrator or administrative or governmental authority or
agency, limiting, restricting or affecting the Assets in a way
that would have a Material Adverse SB Effect and (ii) any
pending or, to the best of SB's knowledge, after due inquiry
made, threatened claim, suit, proceeding, charge, inquiry,
investigation or action of any kind that would have a Material
Adverse SB Effect. To the best knowledge of SB, there are no
claims, actions, suits, proceedings or investigations pending
or threatened by or against SB with respect to the
transactions contemplated hereby, at law or in equity or
before or by any supranational, federal, state, municipal or
other governmental department, commission, board, agency,
instrumentality or authority.
12.14 BUSINESS CONTRACTS: To the best of SB's knowledge, the
Business Contracts listed in Schedule Four to this Agreement
constitute all the supply, distribution, manufacturing,
intellectual property licences and other contracts between SB
or its Affiliates and third parties material to the Business
save for short-term purchase, advertising and other
commitments entered into by SB in the ordinary course of its
business not reduced to formal written contracts. Except as
disclosed to ICN, SB and its Affiliates and, to the best
knowledge of SB, each other party to each Business Contract
has performed in all material respects each term, covenant and
condition of each Business Contract which is to be performed
by them at or before the date hereof. Each of the Business
Contracts is in full force and effect and constitutes the
legal and binding obligation of SB or its Affiliate and, to
the best knowledge of SB, the other parties thereto.
12.15 MANUFACTURING TECHNOLOGY AND KNOW HOW: The Know How and the
Product Formulae will be sufficient to enable ICN to
manufacture the Products to the same standard as currently
enjoyed. However, SB does not warrant that ICN has or at any
time will have the ability to manufacture such Products to
such standard. The Product Formulae fully conform with the
pertaining Registrations approved by the competent government
authorities in the Territories.
12.16 TRADE MARKS: Except as set forth in Schedule 12.16 of the
Disclosure Schedule, SB or an Affiliate of SB owns the
Exploited Trade Marks and the Warranted CEE Trade Marks set
forth in Parts A and B of Schedule Three which are formally
registered or applied for. All Trade Mark registrations set
forth in Parts A and B of Schedule Three have been duly
granted and have not been cancelled, abandoned or otherwise
terminated to the best knowledge of SB. All Trade Mark
applications set forth in Parts A and B of Schedule Three have
been duly filed and maintained to the best knowledge of SB.
12.17 NO INFRINGEMENT OF THIRD PARTY RIGHTS: Except as set forth
herein or in the Disclosure Schedule, the use of the Assets by
SB in the Territory does not to the best knowledge of SB
infringe any third party rights in a way which results in a
Material Adverse SB Effect.
12.18 INVESTMENT REPRESENTATIONS:
12.18.1 SB understands that neither the shares of Original
Preferred Stock (as defined in sub-Clause 5.13
hereof) nor the shares of Common Stock into which
such shares may be converted (the "Conversion
Shares" and collectively with the Original
Preferred Stock the "Securities") are being
registered under the Securities Act of 1933, as
amended, (the "Securities Act") and are being sold
to SB in a transaction that is exempt from the
registration requirements of the Securities Act.
12.18.2 SB has such knowledge and experience in financial
and business matters as to be capable of
evaluating the merits and risks of an investment
in the Original Preferred Stock, and is able to
bear the economic risk of investment in the
Original Preferred Stock.
12.18.3 SB is acquiring the Original Preferred Stock for
its own account and not with a view to any
distribution of the Original Preferred Stock,
subject, nevertheless, to the understanding that
the disposition of its property will at all times
be and remain within its control.
12.18.4 SB understands that: (a) the Original Preferred
Stock will be in unregistered form only and that
any certificates delivered to it in respect of the
Original Preferred Stock will bear a legend
substantially the following form:
"This Security has not been registered under the Securities
Act of 1933, as amended, (the "Securities Act") or any state
securities law and, accordingly, may not be offered, sold or
otherwise transferred other than in a transaction exempt from,
or not subject to, the registration requirements of the
Securities Act. The transfer of this security is subject to a
sale and purchase agreement dated February 24, 1998, between
SmithKline Beecham p.l.c. and ICN Pharmaceuticals, Inc.",
and (b) ICN has agreed to reissue such certificates without
the foregoing legend in the event of a disposition of the
Securities in accordance with the provisions of clause 12.18.5
below (provided, in the case of a disposition of the
Securities in accordance with clause 12.18.5(f) below, that
the legal opinion referred to in such paragraph so permits),
or at its request at such time as it would be permitted to
dispose of them in accordance with clause 12.18.5(a) below.
12.18.5 SB agrees that in the event that at some future
time it wishes to dispose of any of the
Securities, it will not do so unless such
disposition is made in accordance with any
applicable securities laws of any state of the
United States and:
(a) such Securities are sold in compliance
with Rule 144(k) under the Securities
Act; or
(b) such Securities are sold in compliance
with Rule 144A under the Securities
Act; or
(c) such Securities are sold in compliance
with Rule 904 of Regulation S under
the Securities Act; or
(d) such Securities are sold pursuant to an
effective registration statement
under the Securities Act; or
(e) such Securities are sold to ICN; or
(f) such Securities are disposed of in any
other transaction that does not require
registration under the Securities Act,
and SB theretofore has furnished to ICN
or its designee an opinion of counsel
experienced in securities law matters to
such effect or such other documentation
as ICN or its designee may reasonably
request.
12.18.6 SB is acquiring the Securities solely for the
purpose of investment and not for any other
purpose and has no intent to affect or otherwise
influence the management of ICN or the composition
of its Board of Directors.
13. REPRESENTATIONS AND WARRANTIES OF ICN
13.1 ORGANISATION: ICN is a corporation duly organised, validly
existing and in good standing under the laws of the state of
Delaware, with full corporate power and authority to
consummate the transactions contemplated hereby.
13.2 AUTHORITY: The execution and delivery of this Agreement and
all other Agreements to be executed in connection with this
Agreement by ICN, and the consummation and performance of the
transactions contemplated hereby and thereby, including,
without limitation, the issuance of the shares of Preferred
Stock, have been duly and validly authorised by all necessary
corporate and other proceedings, and this Agreement and all
other Agreements to be executed in connection with this
Agreement have been duly authorised, executed, and delivered
by ICN and, assuming the enforceability against SB,
constitutes the legal, valid and binding obligation of ICN
respectively, enforceable in accordance with its terms.
13.3 NO VIOLATION OR CONFLICT: The execution and delivery of this
Agreement and all other Agreements to be executed in
connection with this Agreement by ICN and the performance of
this Agreement and all other Agreements to be executed in
connection with this Agreement (and the transactions
contemplated herein and thereby) and the issuance of the
Preferred Stock by ICN do not and will not conflict with,
violate or constitute or result in a default under any law,
judgement, order, decree, the certificate of incorporation or
bylaws of ICN, or any contract or agreement to which ICN is a
party or by which ICN is bound.
13.4 NO GOVERNMENT RESTRICTIONS: Except as set forth on Schedule
13.4 of the Disclosure Schedule and for consents the failure
of which to obtain would not have a Material Adverse SB
Effect, no consent, approval, order or authorisation of, or
registration, declaration or filing with, any governmental
agency is required to be obtained or made by or with respect
to ICN in connection with the execution and delivery of this
Agreement and all other Agreements to be executed in
connection with this Agreement or the issuance of the
Preferred Stock.
13.5 LITIGATION: There are no claims, actions, suits, proceedings
or investigations pending or, to the best of ICN's knowledge,
threatened by or against ICN with respect to the transactions
contemplated hereby, at law or in equity or before or by any
supranational, federal, state, municipal or other governmental
department, commission, board, agency, instrumentality or
authority.
13.6 CAPITALISATION. The authorised capital stock of ICN consists
of 100,000,000 authorised shares of Common Stock, $.01 par
value, and 10,000,000 authorised shares of preferred stock,
$.01 par value. As of January 31, 1998, there were outstanding
47,488,487 shares of Common Stock, as of February 3, 1998,
2,249 shares of Series B Convertible Preferred Stock, and as
of December 31, 1997, employee stock options to purchase an
aggregate of 5,946,818 shares of ICN Common Stock (of which
options to purchase an aggregate of 3,761,714 shares of ICN
Common Stock were exercisable). As of February 3, 1998, a
total of 50,861 shares of Common Stock were issuable upon
conversion of ICN's Series B Convertible Preferred Stock, and
a total of 551,595 shares of Common Stock were issuable upon
the conversion of Biocapital Holding Swiss Franc Exchangeable
Certificates convertible debt securities of ICN. All
outstanding shares of capital stock of ICN have been duly
authorised and validly issued and are fully paid and
non-assessable. Except as set forth in this Clause and this
Agreement and except for changes since December 31, 1997
resulting from the exercise of employee stock options
outstanding on such date, there are outstanding (a) no shares
of capital stock or other voting securities of ICN, (b) no
securities of ICN convertible into or exchangeable for shares
of capital stock or voting securities of ICN, and no options
or other rights to acquire from ICN and (c) no obligation of
ICN to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock
or voting securities of ICN (the items in clauses (a), (b) and
(c) being referred to collectively as "Company Securities").
There are no outstanding obligations of ICN or any of its
subsidiaries to repurchase, redeem or otherwise acquire any
Company Securities.
13.7 PREFERRED STOCK. All shares of Preferred Stock of ICN to be
issued to SB upon the consummation of the transactions
contemplated hereby or at any time thereafter, will have been
validly issued, fully paid and non-assessable and will be free
and clear of any lien, charge or other encumbrance or claim
and the issuance thereof will not be subject to any preemptive
or similar rights. Upon the consummation of the transactions
contemplated hereby and at any time thereafter, the shares of
Common Stock issuable upon conversion of the shares of
Preferred Stock to be issued to SB will have been duly
authorised and reserved for issuance upon the conversion of
the Preferred Stock, or when otherwise issued to SB and when
issued upon such conversion or otherwise, will be validly
issued, fully paid and non-assessable, and will be free and
clear of any lien, charge or other encumbrance or claim and
the issuance of such shares is not and will not be subject to
any preemptive or similar rights.
13.8 SEC FILINGS. ICN has made available to SB the annual reports
on Form 10-K for its fiscal years ended December 31, 1996 and
1995, its quarterly reports on Form 10-Q for its fiscal
quarter-ended March 31, 1997, June 30, 1997 and September 30,
1997, its proxy or information statements relating to meetings
of, or actions taken without a meeting by, the stockholders of
ICN held since December 31, 1995, and all of its other
reports, statements, schedules and registration statements
filed with the SEC since December 31, 1996. ICN will make a
timely filing of its Form 10-K for its fiscal year ended
December 31, 1997 and will make such Form 10-K available to SB
at that time.
13.9 FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial
statements of ICN included in its annual reports on Form 10-K
and the quarterly reports on Form 10-Q referred to in Clause
13.8 fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis (except as
may be indicated in the notes thereto), the consolidated
financial position of ICN and its consolidated subsidiaries as
of the dates thereof and their consolidated results of
operations and changes in financial position for the periods
then ended (subject to normal year-end adjustments in the case
of any unaudited interim financial statements). For purposes
of this Agreement, "Balance Sheet" means the consolidated
balance sheet of ICN as of December 31, 1996 set forth in ICN
10-K and "Balance Sheet Date" means December 31, 1996.
13.10 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, ICN
and its Affiliates have conducted their business in the
ordinary course consistent with past practice and there has
not been any event, occurrence or development of a state of
circumstances or facts which has had or reasonably could be
expected to have a Material Adverse ICN Effect on ICN.
13.11 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities
of ICN or any of its subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be
expected to result in such a liability, other than: (i)
liabilities disclosed or provided for in the Balance Sheet;
(ii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date,
which in the aggregate are not material to ICN and its
subsidiaries, taken as a whole; and (iii) liabilities under
this Agreement.
13.12 STOCK OPTIONS. ICN represents that there are no existing
employee stock options or any other stock options which were
granted at less than the fair market value of such stock at
the time of such grant and ICN covenants that it shall not
grant prior to December 31, 1999 any employee stock options or
any other stock options at less than the fair market value at
the time of such grant.
13.13 NO KNOWLEDGE: ICN has no actual knowledge of any matter as of
the Completion Date which has not been disclosed by SB in or
pursuant to the Disclosure Schedule which would constitute a
breach by SB of any representations or warranties given by SB
in this Agreement.
14. COVENANTS BY SB
14.1 MAINTENANCE OF ASSETS: SB agrees from the date hereof until
the Completion Date that, except as specifically disclosed in
Schedule 14.1 or unless otherwise consented to by ICN in
writing, SB shall:
14.1.1 except as disclosed on the Disclosure Schedule,
maintain the Assets in good status and condition
and not sell or dispose of any of the Assets
except in the ordinary course of business;
14.1.2 continue the Business in the ordinary course of
business and not make or institute any unusual or
novel methods of purchase, sale, management,
operation, or other business practice in the
conduct of the Business inconsistent with past
practices;
14.1.3 not enter into any material contract or
commitment, engage in any transaction, extend
credit or incur any obligation with respect to the
Assets or the Business, in each case not in the
usual and ordinary course of business and
consistent with normal business practices; and
14.1.4 promptly inform ICN of any change in the Assets
that could have a Material Adverse SB Effect.
14.2 CONSENTS: SB shall use all reasonable efforts to obtain the
consents of the third parties to the assignment to ICN of the
Business Contracts, to the extent they relate to the Products,
at the same terms as currently contained in the Business
Contracts, provided, however, SB shall not be required to make
any payment of any kind whatsoever to ICN or any third party,
or waive any rights or assume any obligations other than those
obligations set forth in the Business Contracts, in connection
with obtaining any such required consents. If SB is unable to
obtain a required consent within a reasonable period of time,
SB may, but is not obliged to, terminate the pertaining
Business Contract (for the Products or as a whole) provided
that SB shall first obtain ICN's consent to such termination
which shall not be unreasonably withheld. For as long as SB
has neither assigned a Business Contract nor terminated it
with respect to the Products, SB or its relevant Affiliate,
shall, to the extent permitted by that Business Contract, hold
that Business Contract or trust for ICN and shall continue to
honour the terms of the relevant Business Contract, for the
Products as sub-contractor for the account and benefit of ICN,
and ICN shall indemnify SB and its Affiliates for all
liability relating to the Products (and only the Products)
under such Business Contract other than any liability arising
from SB's negligence or failure to perform. ICN shall give SB
or its Affiliates all licences and marketing authorisations
necessary or required to continue to fulfil its obligations
under these Business Contracts until such Business Contracts
expire, terminate or are assigned to ICN with respect to the
Products.
14.3 DISCLOSURE SUPPLEMENTS: From time to time prior to the
Completion Date, SB will promptly inform ICN, in writing, with
respect to any matter that may arise hereafter and that, if
existing or occurring prior to the Completion Date, would have
been required to be set forth or described herein or in the
Disclosure Schedule.
14.4 NON-COMPETE:
14.4.1 Save as provided in sub-Clause 14.4.2, SB covenants
and agrees in respect of each Product that for a
period of five years following the Completion Date,
neither SB nor any of its Affiliates will directly
or indirectly engage in the relevant Territory in
the manufacture, marketing or distribution of any
product which both has the same chemical substance
and is provided for the same indication as that
Product (hereinafter a "Competing Product").
14.4.2 The covenant contained in sub-Clause 14.4.1 shall
not apply to any Competing Product acquired by SB or
its Affiliates as a result of the acquisition of a
company or a business during the aforesaid five-year
period provided that aggregate sales of such
Competing Product across the relevant Territory in
the calendar year preceding such acquisition are at
least L10,000,000. If aggregate sales of such
Competing Product are less than L10,000,000, ICN
shall have the right of first refusal to acquire
such Competing Product from SB or its Affiliate on
conditions to be negotiated in good faith. Should
ICN not exercise its right of first refusal or
should negotiations subsequently held between SB and
ICN fail, SB shall make good faith efforts to divest
such Competing Product to a third party. Prior to
such disposal of the Competing Product (whether to
ICN or a third party), Sub-Clause 14.4.1 shall not
apply in respect of that Competing Product.
14.5 HEDGING ACTIVITIES: SB agrees that from the date
hereof until the Final Guarantee Date it shall not
and it shall procure that each of its Affiliates
shall neither (a) except as provided in Clause 5,
sell any Common Stock or Preferred Stock, nor (b)
engage in any hedge transactions relative to the
Common Stock or Preferred Stock, including without
limitation any short sales or purchases or sales of
any derivative securities based on the Common Stock
or Preferred Stock. As used in this sub-Clause 14.5
the term "Final Guarantee Date" shall have the
meaning set forth in sub-clause 5.13.
15. COVENANTS BY ICN
15.1 CONSENTS: ICN shall use all reasonable efforts to cooperate
with SB in obtaining the consents of the third parties to the
assignment to ICN of the Business Contracts, to the extent
they relate to the Products, at the same terms as currently
contained in the Business Contracts; provided, however, ICN
shall not be required to make any payment of any kind
whatsoever to SB or any third party, or waive any rights or
assume any obligations other than those obligations set forth
in the Business Contracts, in connection with obtaining any
such required consents.
15.2 LABELLING: Notwithstanding Clause 4 of this Agreement,
following Completion, ICN shall at its own expense and as
expeditiously as possible use all reasonable efforts to obtain
such approvals of competent government authorities in the
Territory as may be necessary to change ICN's labelling for
each Product used in its relevant Territory in such a way that
any reference to SB or its Affiliates is removed as well as
implement such change of labelling. ICN may use the current
labelling on the Stock existing at Completion approved by SB
prior to such use until such inventory is exhausted, subject
to applicable laws and regulations in the Territory. ICN may,
however, use the SB labelling only in connection with clearly
identifying ICN as the responsible person for commercialising
the Products in a way that is customary in the industry and is
to be approved in advance by SB.
15.3 RESERVATION OF SHARES OF COMMON STOCK: ICN agrees that from
the date hereof until ICN has fulfilled all of its obligations
under Clause 5 of this Agreement ICN shall reserve and keep
free from any pre-emptive rights sufficient shares of Common
Stock to effect the full conversion of all shares of Preferred
Stock as may be outstanding from time to time or otherwise
required to be delivered by ICN to SB pursuant to Clause 5 of
this Agreement.
16. COVENANTS BY ICN AND SB
16.1 TECHNOLOGY TRANSFER: ICN and SB shall work together to
commence transfer of the Know How to ICN promptly after
Completion. SB shall use all reasonable efforts to assist ICN
in assuming manufacture of the Products, provided, however,
that SB cannot ensure ICN's ability to successfully
manufacture the Products. SB shall have no obligation to
provide manufacturing support for any Product and SB shall not
be responsible for any delay or other consequences, if ICN
elects to use a process that is materially different from an
SB process. If ICN elects to transfer an SB process, SB shall
provide reasonable access to SB's manufacturing facilities and
during a period of up to two years from the Completion Date up
to a total of [160 (one hundred and sixty)] man-days of 8
hours each of technical support free-of-charge. Thereafter,
ICN shall reimburse SB for providing such technical assistance
at a rate of US$100.00 (one hundred United States Dollars) per
hour, plus all reasonable out-of-pocket expenses incurred by
SB in rendering such assistance. SB's obligation to provide
hands-on manufacturing support for a transferred Product shall
cease following successful manufacture of the registration
batch for such Product.
16.2 PRESS RELEASES: Subject to the requirements of applicable law
or the regulations of any recognised stock exchange, neither
SB nor ICN, nor any Affiliate thereof, will issue or cause
publication of any press release or other announcement or
public communication with respect to this Agreement or the
transactions contemplated hereby without the prior written
consent of the other party, which consent will not be
unreasonably withheld or delayed. Without prejudice to the
foregoing, the parties acknowledge that ICN will issue a press
release on or shortly after the Completion Date announcing the
transaction. ICN shall provide SB with a draft of such press
release prior to issuance and the parties shall mutually agree
upon the final text thereof.
16.3 CUSTOMER LISTS: As soon as reasonably practicable following
Completion, SB or its Affiliates shall make available to ICN
the Customer Lists.
16.4 LETTER TO CUSTOMERS: SB or its relevant Affiliate shall send
to each customer for the Products as at Completion a letter
substantially in the form set out in Schedule Nine. Such
letter shall for each customer be enclosed with either the
first or second invoice sent to such customer by SB following
Completion.
16.5 MUTUAL CO-OPERATION: The parties hereto shall use reasonable
endeavours to do all such other things as may be necessary or
desirable to ensure a rapid and orderly handover of the
Products within the relevant Territories. The employees of SB
and ICN listed in the respective Contact Lists will be the
first point of contact for the other party in relation to the
areas of responsibility listed in the Contact List. SB and ICN
shall ensure that such employees are given all authority and
resources necessary to ensure that they are able to fulfil
such role effectively. SB and ICN shall each notify the other
party without delay of any amendments to their Contact List.
16.6 NEW APPLICATIONS: If ICN wishes to apply for a new Product
Licence in respect of a Product in a country within the Global
Disposal Area where there is at the date hereof no SB Product
Licence, SB shall, to the extent it is in possession of the
relevant information, allow ICN access to such marketing
authorisations for other countries held in the name of SB or
its Affiliates as may reasonably be required by ICN to support
such new application. If ICN intends to start to exploit an
Additional Trade Mark or a Warranted CEE Trade Mark it shall
give SB 30 days' notice prior to commencing such exploitation.
If during such 30 day period SB notifies ICN that such
Additional Trade Mark or Warranted CEE Trade Mark cannot be
exploited due to the existence of third party rights or
otherwise, the parties will work together in good faith to
resolve the issue and ICN shall not exploit such Trade Mark
until the issue has been resolved.
17. CONFIDENTIALITY
17.1 ICN undertakes to SB and SB undertakes to ICN that they shall
(and shall procure that their employees shall) keep
confidential and not disclose or use for any purpose, other
than the purpose for which the same may have been provided to
it, any information which it may have acquired from the other
party or in relation to the activities of the other.
17.2 The obligations under this Clause 17 shall not apply:
17.2.1 to the extent that the relevant information enters
the public domain other than by virtue of a breach
of this Clause 17;
17.2.2 to the extent that disclosure is required to
comply with any applicable legal or
regulatory requirements;
17.2.3 to the extent that the relevant information is
disclosed by a third party entitled to do so.
17.3 The obligations contained in this Clause 17 shall survive
Completion or termination of this Agreement.
18. COSTS
Except as otherwise expressly provided in this Agreement, each party
shall pay its own costs of and incidental to the negotiation,
preparation, execution and implementation by it of this Agreement and
of all of the documents referred to in it.
19. LIMITATIONS OF LIABILITY
19.1 Notwithstanding anything to the contrary contained in this
agreement, SB will not be liable for any ICN Claims:
19.1.1 to the extent to which the ICN Claim is a result
of or in consequence of any voluntary act,
omission, transaction or arrangement of or on
behalf of ICN after Completion or is the result of
any matter or thing done or omitted to be done in
accordance with this Agreement or otherwise at the
request of or with the approval of ICN;
19.1.2 where an ICN Claim is a result of or in respect
of, or where the ICN Claim arises from, any act,
matter, omission, transaction or circumstance
which would not have occurred but for any
legislation not in force on the Completion Date or
any change after the Completion Date of any law or
administrative practice of any Governmental
Agency, including any such legislation or change
which takes effect retrospectively;
19.1.3 to the extent that the circumstances giving rise
to the ICN Claim are fairly disclosed in or
pursuant to this Agreement or any of the Schedules
hereto or the Disclosure Schedule.
19.1.4 unless:
(a) ICN has given timely notice to SB of any act
or circumstances of which it has become aware
and which gives or may give rise to an ICN
Claim and has afforded SB a four (4) week
period from the giving of that notice to
investigate the same (at SB's expense), even
though it may not at the date of notice give
rise to any liability on the part of SB,
provided that the failure by ICN to comply
with the provisions of this sub-Clause
19.1.4(a) shall only exonerate SB to the
extent such failure causes actual prejudice
to SB;
(b) ICN has in any event given written notice to
SB setting out specific details of the ICN
Claim within the following time limits:
(i) in respect of Product Liability
Claims, within 5 years after
the Completion Date;
(ii) in respect of ICN Claims for
indemnity in relation to
taxation liabilities arising
out of the conduct of the
Business prior to the
Completion Date, within 3
months following the expiry of
the statutory time limit for
the bringing of a claim against
ICN in respect of the same
matter by the relevant taxing
authority in the absence of any
extension to such time limit
agreed between the taxing
authority and ICN;
(iii) in respect of any other ICN
Claim, within 18 months after
the Completion Date.
(c) within 12 months after the giving of
written notice under sub-clause
19.1.3(b), the ICN Claim has been
admitted or satisfied by SB, settled
between SB and ICN, or ICN has instituted
and served legal proceedings in relation
to the ICN Claim;
19.1.5 except as provided in sub-Clause 19.3, unless the
amount finally awarded or agreed as being payable
in respect of the ICN Claim is not less than
L20,000 (twenty thousand pounds);
19.2 The maximum aggregate amount recoverable by ICN from SB in
respect of all ICN Claims except Product Liability Claims is
US$23,000,000 (twenty three million dollars). The amount
recoverable in respect of Product Liability Claims shall be
unlimited.
19.3 In respect of any ICN Claim in respect of any Warranted CEE
Trade Mark or Warranted CEE Product Licence:
19.3.1 sub-Clause 19.1.5 (minimum claim threshold) shall
not apply to the ICN claim; but
19.3.2 the maximum aggregate amount recoverable by ICN in
relation to any individual Warranted CEE Trade
Mark or Warranted CEE Product Licence shall be
2,000 (two thousand pounds).
19.4 Notwithstanding anything to the contrary contained in this
agreement, to the extent that ICN Claims are for or in respect
of any loss of sales, loss of profit, loss of market or loss
of market share, SB shall not be liable for any such loss in
respect of a particular Product in a particular country in
excess of twice the 1997 sales of that Product in that
country, as such sales are stated in Column A of the Sales and
Gross Margin Statement.
19.5 ICN must reimburse SB for amounts paid by SB to ICN in respect
of any ICN Claim to the extent to which the amount is
recovered by ICN from any third party, including but not
limited to suppliers, manufacturers or insurers.
19.6 (i) Prior to the close of trading on the Principal Market
on the last Trading Day before the Settlement Period, SB
may, at its option, satisfy all or part of its liability to
ICN for any ICN Claim by transferring to ICN shares of
Preferred Stock or Remaining Shares, which shall have a
value equal to the product of (A) the number of such
Remaining Shares delivered to ICN or the number of shares
of Common Stock into which such shares of Preferred Stock
are convertible, as the case may be, and (B) the price per
share of Common Stock that is the linear interpolation
(straight line) between the Original Price and the Final
Guaranteed Price for the date of such delivery.
(ii) On or after the Final Guarantee Date, SB may, at its
option, satisfy all or part of its liability to ICN for any
ICN Claim by transferring to ICN shares of Preferred Stock
or Remaining Shares, which shall have a value equal to the
product of (A) the number of such Remaining Shares
delivered to ICN or the number of shares of Common Stock
into which such shares of Preferred Stock delivered to ICN
are convertible, as the case may be, and (B) the Final
Guaranteed Price.
20. THIRD PARTY CLAIMS
20.1 If any claim, demand, action or proceeding is made or
instituted against one of the parties hereto ("Claimant") in
respect of which the Claimant may seek to make any claim under
this Agreement against the other party (the "Indemnifying
Party") ("Third Party Claim"), the following procedure
applies:
20.1.1 The Claimant must give prompt written notice of
the Third Party Claim to the Indemnifying Party
and must ensure that it consults with the
Indemnifying Party concerning the Third Party
Claim;
20.1.2 the Claimant must not admit, compromise, settle or
pay any Third Party Claim or take any other steps
which may in any way prejudice the defence or
challenge thereof without the prior written
consent of the Indemnifying Party except as may be
reasonably required in order to prevent any
judgement against the Claimant;
20.1.3 the Claimant must permit the Indemnifying Party at
the Indemnifying Party's expense to take such
action in the name of the Claimant to defend or
otherwise settle the Third Party Claim as the
Indemnifying Party may reasonably require;
20.1.4 the Claimant must ensure that the Indemnifying
Party and its representatives are given access to
such of the documents and records of the Claimant
as may be reasonably required by the Indemnifying
Party in relation to any action taken or proposed
to be taken by the Indemnifying Party under Clause
20.1.3; and
20.1.5 the Claimant must ensure it does not do or cause
to be done anything in relation to the Third Party
Claim which compromises or prejudices the
Indemnifying Party's rights under this Clause 20.1
to the extent such failure to comply causes actual
prejudice to the Indemnifying Party.
20.2 the Indemnifying Party is not liable to the Claimant for any
Claim arising from a Third Party Claim in respect of which the
Claimant does not comply with Clause 20.1 to the extent such
failure to comply causes actual prejudice to the Indemnifying
Party.
21. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which when executed and delivered shall be an original, but all the
counterparts together shall constitute one and the same instrument.
22. FURTHER ASSISTANCE
At any time after Completion each party shall at its own expense (save
as otherwise provided in this Agreement) do and execute, or procure to
be done and executed, all necessary acts, deeds, documents and things
reasonably within its power, to give effect to this Agreement.
23. GENERAL
23.1 No variation of this Agreement or any of the documents in the
agreed form shall be valid unless it is in writing and signed
by or on behalf of each of the parties.
23.2 The failure to exercise or delay in exercising a right or
remedy under this Agreement shall not constitute a waiver of
the right or remedy or a waiver of any other rights or
remedies and no single or partial exercise of any right or
remedy under this Agreement shall prevent any further exercise
of the right or remedy or the exercise of any other right or
remedy.
23.3 The invalidity, illegality or unenforceability of any
provision of this Agreement shall not affect or impair the
continuation in force of the remainder of this Agreement.
23.4 Except to the extent that they have been performed and except
as expressly provided in this Agreement the warranties,
indemnities, undertakings and obligations contained in this
Agreement shall remain in full force and effect
notwithstanding Completion.
23.5 This Agreement contains the whole agreement between the
parties relating to the subject matter of this Agreement at
the date hereof to the exclusion of any terms implied by law
which may be excluded by contract. ICN acknowledges that it
has not been induced to enter into this Agreement and, so far
as is permitted by law and except in the case of fraud, hereby
waives any remedy in respect of any warranties,
representations and undertakings not expressly incorporated
into this Agreement.
23.6 So far as permitted by law and except in the case of fraud,
the parties agree and acknowledge that the only right and
remedy which shall be available to ICN in connection with or
arising out of or related to any of the statements contained
in Clause 12 (Representations and Warranties of SB) shall be
damages in contract for breach of this Agreement and not
rescission of this Agreement, or damages in tort or under
statute (whether under the Misrepresentation Act 1967 or
otherwise), or any other remedy.
23.7 Each party to this Agreement confirms it has received
independent legal advice relating to all the matters provided
for in this Agreement, including the provisions of sub-Clauses
23.5 and 23.6, and agrees, having considered the terms of
sub-Clauses 23.5 and 23.6 and the Agreement as a whole, that
the provisions of sub-Clauses 23.5 and 23.6 are fair and
reasonable.
23.8 The parties agree to execute and keep the original and
executed counterparts of this Agreement, the Master Trademark
Assignment, the Master Transition Distribution Agreement, the
Master Transition Manufacturing Agreement, and the Patent
Assignment outside the United Kingdom at all times.
23.9 Any cash payments required to be made to SB or an Affiliate of
SB pursuant to this Agreement shall be made by wire transfer
or such other method as SB may direct into a bank account
situated outside the United Kingdom as specified by SB.
24. ASSIGNMENT
24.1 This Agreement shall not be assigned or transferred by either
party (except to one or more of its Affiliates) without the
prior written consent of the other party.
24.2 No attempted assignment shall relieve the assigning party of
any of its obligations hereunder without the prior written
consent of the other party.
25. NOTICES
Any notice or other communication to be given or to be delivered to
either party shall be in writing and delivered personally or sent by
first class pre-paid postage, or if sent overseas, by airmail or if
sent by facsimile transmission to the facsimile number below for the
party to whom it is to be sent, provided that it is confirmed by notice
sent by the same manner of post as is required of this Clause 25:
25.1 in the case of SB to: One New Horizons Court, Brentford,
Middlesex TW8 9EP; Fax No: +44-181-975-2040; attention of
General Counsel.
25.2 in the case of ICN to: 3300 Hyland Avenue, Costa Mesa,
California 92626, USA; Fax No.: 1-714-641-7274; attention of
General Counsel.
Or such other address or facsimile number as shall be notified by such
party in writing to the other. Any notice so given shall be deemed
received if delivered personally or if sent by first class post at the
time of delivery and if sent by facsimile as soon as the transmission
is confirmed to the sender and provided such facsimile is followed by
first class pre-paid postage.
26. GOVERNING LAW AND JURISDICTION
This Agreement is governed by and shall be construed in accordance with
English Law and the parties hereto irrevocably submit to the exclusive
jurisdiction of the Courts of the State of New York.
IN WITNESS WHEREOF this Agreement has been executed by the parties on the date
first written above.
SIGNED BY CHRISTOPHER JOHN BARON/ )
JAMES STEPHEN CROOKES )
ACTING UNDER A POWER OF ATTORNEY )
FOR AND ON BEHALF OF )
SMITHKLINE BEECHAM p.l.c. )
ICN PHARMACEUTICALS, INC.
By: /s/ Bill A. MacDonald
Name: Bill A. MacDonald
Title: Executive Vice President
<PAGE>
SCHEDULE ONE: PRODUCTS AND TERRITORIES
<PAGE>
SCHEDULE TWO: PRODUCT LICENCES
<PAGE>
SCHEDULE THREE: TRADE MARKS
<PAGE>
SCHEDULE FOUR: BUSINESS CONTRACTS
<PAGE>
SCHEDULE FIVE: MASTER TRANSITION DISTRIBUTION AGREEMENT
<PAGE>
SCHEDULE SIX: MASTER TRANSITION MANUFACTURING AGREEMENT
<PAGE>
SCHEDULE SEVEN: MASTER TRADE MARK ASSIGNMENT
MASTER TRADE MARK ASSIGNMENT
THIS ASSIGNMENT is made the day of 1998
BETWEEN:
1. SMITHKLINE BEECHAM p.l.c., a company incorporated in England and Wales
whose registered office is at One New Horizons Court, Brentford,
Middlesex TW8 9EP, United Kingdom ("SB"); and
2 ICN PHARMACEUTICALS, INC., a company incorporated under the laws of the
State of Delaware in the United States of America whose registered
office is at 3300 Hyland Avenue, Costa Mesa, California 92626, USA
("ICN").
WHEREAS:-
(A) SB or an Affiliate of SB is the proprietor of the trade marks (the
"Trade Marks") registered in the various jurisdictions set out in the
Schedule hereto short particulars of which are set out in that
Schedule.
(B) Pursuant to an Agreement dated 24 February 1998 for the sale and
purchase of a portfolio of pharmaceutical, OTC and consumer healthcare
products (the "Agreement"), SB has agreed to assign or procure the
assignment of the Trade Marks to ICN.
IT IS AGREED as follows:
1. In pursuance of the Agreement and in consideration of the aggregate sum
of $21,480,000 (forming part of, and being satisfied in full by the
payment of, the consideration under Clause 5 of the Agreement, and the
receipt of which sum is hereby acknowledged by SB) SB hereby assigns
and undertakes to procure that the registered proprietor of each Trade
Mark assigns unto ICN ALL THAT:-
i) right title and interest of the registered proprietor in and
to each Trade Mark together with the goodwill of the
business represented and symbolised by each Trade Mark in
the product in respect of which such Trade Mark is
registered; and
ii) all of the rights powers liberties and immunities conferred
on SB by registration of any given Trade Mark including the
right to sue for damages and other remedies in respect of
any infringement of the Trade Marks which may have occurred
prior to the date hereof.
TO HOLD UNTO ICN for its own use and benefit absolutely.
2. SB agrees (at ICN's expense) to execute or to procure the execution of
all such documents forms and authorisations and to depose to or swear
(or procure the deposition to or swearing of) any declaration or oath
as may be required by the relevant local Trade Mark Registries or by
any other competent authority for vesting the full right title and
interest in the Trade Marks in ICN, provided that the preparation of
all relevant documents shall be carried out by ICN at its expense.
3. Within 6 months of the date hereof, SB shall make available to ICN for
collection all SB's files relating to the Trade Mark applications and
registrations, or where impracticable, permit ICN reasonable access at
reasonable times to such files upon giving reasonable notice.
4. This Assignment is governed by and shall be construed in accordance
with English Law and the parties hereto submit to the exclusive
jurisdiction of the courts of the State of New York.
<PAGE>
SCHEDULE
The Trade Marks
[Schedule Three to the Agreement to be inserted here]
IN WITNESS whereof this Assignment has been executed by the parties on the date
first above written.
SIGNED BY CHRISTOPHER JOHN BARON/ )
JAMES STEPHEN CROOKES )
ACTING UNDER A POWER OF ATTORNEY )
FOR AND ON BEHALF OF )
SMITHKLINE BEECHAM p.l.c. )
ICN PHARMACEUTICALS, INC.
By:
Name:
Title:
<PAGE>
SCHEDULE EIGHT: STANDARD FORM ASSIGNMENT DOCUMENTS
1. Assignment of Goodwill
2. Assignment of Packaging Rights
3. Assignment of Trade Marks (including Goodwill)
4. Assignment of Patent
<PAGE>
ASSIGNMENT OF GOODWILL
THIS ASSIGNMENT is made on the day of 1998
BETWEEN:
(1) SMITHKLINE BEECHAM p.l.c., a company incorporated in England and Wales
whose registered office is at One New Horizons Court, Brentford,
Middlesex, TW8 9EP, United Kingdom ("SB"); and
(2) ICN PHARMACEUTICALS, INC., a company incorporated under the laws of the
State of Delaware in the United States of America whose registered
office is at 3300 Hyland Avenue, Costa Mesa, California 92626, USA
("ICN").
WHEREAS:-
(A) The parties have entered into an agreement for the sale and purchase of
a portfolio of pharmaceutical, OTC and consumer healthcare products
dated [ ] (the "Agreement").
(B) SB wishes to assign the Goodwill (as defined in the Agreement)
to ICN pursuant to the Agreement.
IT IS AGREED as follows:-
1. ASSIGNMENT
In consideration of the aggregate sum of $20,000,000 (forming part of,
and being satisfied in full by the payment of, the consideration under
Clause 5 of the Agreement, and in respect of which sum SB acknowledges
receipt) SB with full title guarantee subject to matters disclosed in
or pursuant to the Agreement in accordance with its terms hereby
assigns unto ICN all that Goodwill to hold the same unto ICN for its
own use and benefit absolutely.
2. FURTHER ASSURANCE
SB undertakes at the request and expense of ICN to do and execute or
procure to be done and executed all necessary acts, deeds, documents
and things to give effect to this Assignment and to secure the vesting
in ICN of the Goodwill free from all liens, charges, options or
encumbrances or adverse interests of any kind save to the extent any
existing liens, charges, options, encumbrances or adverse interests
have been disclosed to ICN in the Disclosure Schedule to the Agreement
in accordance with its terms.
3. GOVERNING LAW
This Assignment is to be governed by and shall be construed in
accordance with English Law and the parties hereto submit to the
exclusive jurisdiction of the courts of the State of New York.
IN WITNESS whereof this Assignment has been executed by the parties on the date
first above written.
SIGNED BY CHRISTOPHER JOHN BARON/ )
JAMES STEPHEN CROOKES )
ACTING UNDER A POWER OF ATTORNEY )
FOR AND ON BEHALF OF )
SMITHKLINE BEECHAM p.l.c. )
ICN PHARMACEUTICALS, INC.
By:
Name:
Title:
<PAGE>
ASSIGNMENT OF PACKAGING RIGHTS
THIS ASSIGNMENT is made on the day of 1998
BETWEEN:
(1) SMITHKLINE BEECHAM p.l.c., a company incorporated in England and Wales
whose registered office is at One New Horizons Court, Brentford,
Middlesex TW8 9EP, United Kingdom, ("SB"); and
(2) ICN PHARMACEUTICALS, INC., a company incorporated under the laws of the
State of Delaware in the United States of America whose registered
office is at 3300 Hyland Avenue, Costa Mesa, California 92626, USA
("ICN").
WHEREAS:-
(A) The parties have entered into an Agreement for the sale and purchase of
a portfolio of pharmaceutical, OTC and consumer healthcare products
dated [ ] (the "Agreement").
(B) SB wishes to assign the Packaging Rights (as defined in the Agreement
and subject to the restrictions and reservations contained therein) to
ICN pursuant to the Agreement.
IT IS AGREED as follows:-
1. ASSIGNMENT
In consideration of the payment by ICN to SB of the sum of $3,000
(forming part of, and being satisfied in full by the payment of, the
consideration under Clause 5 of the Agreement, and the receipt of which
sum is hereby acknowledged by SB) SB with full title guarantee subject
to matters disclosed in or pursuant to the Agreement in accordance with
its terms hereby assigns to ICN all right title and interest in and to
the Packaging Rights subject to the restrictions and reservations
contained in the Agreement together with all statutory and common law
rights powers benefits and rights of action appertaining to the same
including the right to claim damages and other remedies in respect of
past infringement and any other unlawful acts relating to the Packaging
Rights TO HOLD the same unto ICN for its own use and benefit
absolutely.
2. FURTHER ASSURANCE
SB undertakes at the request and expense of ICN to do and execute or
procure to be done and executed all necessary acts, deeds, documents
and things to give effect to this Assignment.
3. GOVERNING LAW
This Assignment is to be governed by and shall be construed in
accordance with English Law and the parties hereto submit to the
exclusive jurisdiction of the courts of the State of New York.
IN WITNESS whereof this Assignment has been executed by the parties on the date
first above written.
SIGNED BY CHRISTOPHER JOHN BARON/ )
JAMES STEPHEN CROOKES )
ACTING UNDER A POWER OF ATTORNEY )
FOR AND ON BEHALF OF )
SMITHKLINE BEECHAM p.l.c. )
ICN PHARMACEUTICALS, INC.
By:
Name:
Title:
<PAGE>
ASSIGNMENT OF TRADE MARKS
<PAGE>
THIS ASSIGNMENT is made the day of 199
BETWEEN:
(1) [SB/RELEVANT AFFILIATE], a company incorporated in [ ]
whose registered office is at[ ] ("the Assignor"); and
(2) ICN PHARMACEUTICALS, INC., a company incorporated under the laws of the
State of Delaware in the United States of America whose registered
office is at 3300 Hyland Avenue, Costa Mesa, California 92626, USA
("ICN").
WHEREAS:-
(A) The Assignor is the proprietor of the trade marks (the "Trade Marks")
registered in the various jurisdictions set out in the Schedule hereto
short particulars of which are set out in that Schedule.
(B) Pursuant to an Agreement dated 24 February, 1998 for the sale and
purchase of a portfolio of pharmaceutical, OTC and consumer healthcare
products (the "Agreement"), the Assignor has agreed to assign the Trade
Marks to ICN.
IT IS AGREED as follows:
1. In pursuance of the said Agreement and in consideration of the
aggregate sum of [*****] (forming part of, and being satisfied in full
by the payment of, the consideration under Clause 5 of the Agreement,
receipt of which sum is hereby acknowledged by the Assignor) the
Assignor as registered proprietor of the Trade Marks hereby assigns
unto ICN ALL THAT:-
i) right title and interest of the Assignor in and to the Trade
Marks together with the goodwill of the business represented
and symbolised by the Trade Marks in the products in respect
of which the Trade Marks are registered; and
ii) all of the rights powers liberties and immunities conferred
on the Assignor by registration including the right to sue
for damages and other remedies in respect of any
infringement of the Trade Marks which may have occurred
prior to the date hereof.
TO HOLD UNTO ICN for its own use and benefit absolutely.
2. The Assignor agrees (at ICN's expense) to execute or to procure the
execution of all such documents forms and authorisations and to depose
to or swear (or procure the deposition to or swearing of) any
declaration or oath as may be required by the relevant local Trade Mark
Registries or by any other competent authority for vesting the full
right title and interest in the Trade Marks in ICN, provided that the
preparation of all relevant documents shall be carried out by ICN at
its expense.
3. Within 6 months of the date hereof the Assignor shall make available to
the Assignee for collection all the Assignor's files relating to each
of the Trade Mark applications and registrations, or where
impracticable, permit the Assignee reasonable access at reasonable
times to such files upon giving reasonable notice.
4. This Assignment is governed by and shall be construed in accordance
with English Law and the parties hereto submit to the exclusive
jurisdiction of the courts of the State of New York.
<PAGE>
SCHEDULE
The Trade Marks
TRADE MARKS REGISTERED OWNER REGISTRATION NO. REGISTRATION DATE
IN WITNESS whereof this Assignment has been executed by the parties on the date
first above written.
SIGNED BY __________________________
DULY AUTHORISED
FOR AND ON BEHALF OF SB/AFFILIATE
ICN PHARMACEUTICALS, INC.
By:
Name:
Title:
<PAGE>
ASSIGNMENT OF PATENTS
THIS PATENT ASSIGNMENT is made the day of 1998
BETWEEN
(1) SMITHKLINE BEECHAM plc, a company incorporated in England and Wales
whose registered office is at One New Horizons Court, Brentford,
Middlesex TW8 9EP, United Kingdom ("SB"); and
(2) ICN PHARMACEUTICALS, INC., a company incorporated under the laws of the
State of Delaware in the United States of America whose registered
office is at 3300 Hyland Avenue, Costa Mesa, California 92626, USA
("ICN").
WHEREAS:
SB or an Affiliate of SB is the registered proprietor of the Patents and has, by
virtue of an agreement for the sale and purchase of a portfolio of
pharmaceutical, OTC and consumer healthcare products dated 24 February, 1998 and
made between SB and ICN (the "Agreement"), agreed to assign or procure the
assignment to ICN of the Patents (as defined below).
IT IS AGREED as follows:-
1. DEFINITIONS
The following terms shall have the following meanings:
"Affiliate" shall have the meaning given to it in the Agreement;
"Patents" means the patents as described in Schedule 1 attached hereto.
2. ASSIGNMENT
Pursuant to the Agreement, SB with full title guarantee subject to
matters disclosed in or pursuant to the Agreement in accordance with
its terms and in consideration of the sum of $10,000 (forming part of,
and being satisfied in full by the payment of, the consideration under
Clause 5 of the Agreement, receipt of which sum SB hereby acknowledges)
assigns to ICN and undertakes to procure that the registered
proprietors of the Patents shall assign by entering into an assignment
on request by ICN in equivalent form as required by the laws of the
relevant jurisdiction to this Assignment in favour of ICN, at no
further cost or expense to ICN all of its respective rights and title
in and to the Patents (including the right to bring proceedings for
infringement prior to the date hereof) to hold unto ICN absolutely.
3. MISCELLANEOUS
3.1 SB shall have the right to be informed and assume
responsibility for any of the Patents which ICN intends to
abandon or otherwise cause or allow to be forfeited.
3.2 SB shall deliver to ICNSB's files relating to each of the
Patents and the Patent Applications no later than 6 months
after the date hereof.
4. FURTHER ASSURANCE
ICN will at its own expense prepare and record any further document
that may be required to enable it to become registered in the relevant
Registers of Patents as the proprietor of the Patents. SB will at the
request and expense of ICN execute any such further documents
(including without limitation forms of assignment and other documents
of transfer) and do such further things that may be reasonably required
from time to time.
5. GOVERNING LAW AND JURISDICTION
This Assignment is governed by and shall be construed in accordance
with English law and the parties hereto irrevocably submit to the
exclusive jurisdiction of the courts of the State of New York the day
and year first before written
SIGNED BY CHRISTOPHER JOHN BARON/ )
JAMES STEPHEN CROOKES )
ACTING UNDER A POWER OF ATTORNEY )
FOR AND ON BEHALF OF )
SMITHKLINE BEECHAM P.L.C. )
ICN PHARMACEUTICALS, INC.
By: /s/ Bill A. MacDonald
--------------------------------
Name: Bill A. MacDonald
Title: Executive Vice President
<PAGE>
SCHEDULE
THE PATENTS
COUNTRY PATENT NO. DESCRIPTION
Australia AU 591631 Metoclopramide
with sodium metabisulphate
Australia AU 623694 Metoclopramide
without sodium metabisulphate
New Zealand 212097 Metoclopramide
with sodium metabisulphate
South Africa 85/3671 Metoclopramide
with sodium metabisulphate
<PAGE>
SCHEDULE NINE: FORM OF CUSTOMER LETTER
[To be typed on SB note paper]
Dear [name of customer contact]
It has recently been announced that ICN Pharmaceuticals, Inc., has purchased the
following brands from us:
[LIST RELEVANT BRANDS]
There will be a transition period with both companies, and we will be doing
everything possible to ensure a smooth transition.
I would like to thank you for the support you have given on these brands over
the years, and if you have any queries on this sale please give me a call.
Yours sincerely
<PAGE>
SCHEDULE TEN: LETTER OF CROSS REFERRAL
[MOH Authority]
[Date]
Dear Sirs
PRODUCT: ( ) PRODUCT LICENCE NO:
By way of this letter [SB/relevant Affiliate] authorises [ICN/Affiliate] to make
cross reference to the information contained in its Product licence ( ) in
connection with the forthcoming Product licence application by [ICN/Affiliate].
However, we would draw your attention to the fact that the above information is
confidential and should not be disclosed to any third party except
[ICN/Affiliate] without our formal written consent.
Yours faithfully,
for
[SB/Affiliate]
<PAGE>
SCHEDULE ELEVEN: CONTACT LISTS
<PAGE>
SCHEDULE TWELVE: REGISTRATION RIGHTS AGREEMENT
SCHEDULE TWELVE
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") dated as of February
24, 1998, is entered into by and between SMITHKLINE BEECHAM P.L.C., a company
incorporated in England and Wales (hereinafter referred to as "SB") and ICN
PHARMACEUTICALS, INC., a Delaware corporation (hereinafter referred to as
"ICN").
W I T N E S S E T H:
WHEREAS, ICN, as purchaser, and SB, as seller, have entered into that
certain Sale and Purchase Agreement dated 24 February, 1998 (the "Purchase
Agreement"), pursuant to which ICN agreed to purchase and SB agreed to sell
certain assets of SB including certain pharmaceutical compounds owned by SB;
WHEREAS, 821 shares of Series D Convertible Preferred Stock of ICN
(the "Preferred Stock") initially convertible (subject to adjustments pursuant
to the terms of the Certificate of Designation relating thereto) into 410,500
shares of Common Stock, $.01 par value, of ICN (the "Common Stock") are,
concurrently herewith, being issued and delivered by ICN to SB upon the
Completion of the transactions contemplated by the Purchase Agreement as part of
the consideration for the transfer of assets from SB to ICN contemplated by the
Purchase Agreement;
WHEREAS, such shares of Preferred Stock delivered upon Closing and any
Additional Shares of Preferred Stock delivered by ICN to SB at any time during
the Registration Period are referred to herein as the "Shares";
WHEREAS, the execution and delivery of this Agreement is a condition
to the consummation of the transactions contemplated by the Purchase Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, SB and ICN hereby agree as follows:
1. RESTRICTIONS ON TRANSFER, REGISTRATION OF SHARES, ETC.
1.1 CERTAIN DEFINITIONS. Capitalized terms used but not defined in
this Agreement shall have the respective meanings given to such terms in the
Purchase Agreement. As used in this Agreement:
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person shall mean any other person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control of
a person shall mean the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
The terms "Register," "Registered" and "Registration" shall refer to a
registration effected by preparing and filing a Registration Statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement by the Commission.
"Registrable Securities" shall mean any shares of Common Stock into
which the Shares are convertible from time to time, any Additional Shares of
Common Stock delivered by ICN to SB during the Registration Period in
satisfaction of the Guaranteed Value for the Initial Guarantee date or the Final
Guarantee date, any other shares of Common Stock otherwise delivered by ICN to
SB in connection with the transactions contemplated by the Purchase Agreement
and other securities issued with respect thereto upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event.
"Registration Expenses" shall mean all expenses incurred by ICN or SB
in compliance with Sections 1.5 and 1.6 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel, financial and other advisors for ICN or SB, Blue Sky fees and expenses,
and the expense of any special audits incident to or required by any such
Registration.
"Registration Period" shall mean the period of time commencing on the
Completion Date and ending upon the fulfillment of all of ICN's obligations
under the Purchase Agreement.
"Registration Statement" shall mean the Shelf Registration Statement
and any other Registration statement filed with the Commission by ICN pursuant
to this Agreement.
"Restricted Securities" shall mean the securities of ICN required to
bear the legend set forth in Section 1.3 hereof.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel, financial and other advisors for SB.
"Securities" shall mean the Shares and the Registrable Securities.
"Shelf Registration" shall mean a Registration effected pursuant to
Section 1.5 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of ICN pursuant to the provisions of Section 1.5(a) hereof which
covers not less than 700,000 Registrable Securities on an appropriate form under
Rule 415 under the Act, or any similar rule that may be adopted by the
Commission, and amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
1.2 RESTRICTIONS ON TRANSFERABILITY. Any transfer of the Shares or the
Registrable Securities shall be made in compliance with the provisions of the
Act.
1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Shares,
or (ii) any other securities issued in respect of the Shares upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Act) be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable state securities laws):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAW
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
OTHER THAN IN A TRANSACTION EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE TRANSFER OF THIS
SECURITY IS SUBJECT TO A SALE AND PURCHASE AGREEMENT DATED FEBRUARY
24, 1998, BETWEEN SMITHKLINE BEECHAM P.L.C. AND ICN PHARMACEUTICALS,
INC.
As soon as practicable but not later than ten business days after ICN shall have
received, at SB's option, either the opinion referred to in Section 1.4(i) or
the "no-action" letter referred to in Section 1.4(ii) to the effect that any
transfer by SB of the securities evidenced by such certificate will not violate
the Act or any applicable state securities laws, ICN shall remove the foregoing
legend from any certificate or issue to SB a new certificate for each
certificate being replaced free of any transfer legend.
1.4 NOTICE OF PROPOSED TRANSFERS. SB by acceptance of certificates
representing Restricted Securities agrees to comply in all respects with the
provisions of this Section 1.4. Prior to any proposed transfer of any Restricted
Securities (other than under circumstances described in Sections 1.5 and 1.6
hereof), SB shall give written notice to ICN of its intention to effect such
transfer. Each such notice shall describe the manner and circumstances of the
proposed transfer in sufficiently reasonable detail, and shall be accompanied
(except in transactions in compliance with Rule 144) by, at SB's option, either
(i) a written opinion of legal counsel who shall be reasonably satisfactory to
ICN, addressed to ICN and reasonably satisfactory in form and substance to ICN's
counsel, to the effect that the proposed transfer of Restricted Securities may
be effected without Registration, or (ii) a "no action" letter from the staff of
the Commission to the effect that the distribution of such securities without
Registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon SB shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by SB to ICN. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the restrictive legend set forth in
Section 1.3 above, except that such certificate shall not bear such restrictive
legend if the opinion of counsel or "no-action" letter referred to above is to
the further effect that such legend is not required in order to establish
compliance with any provisions of the Act
1.5 REGISTRATION.
(a) SHELF REGISTRATION STATEMENT. ICN shall prepare and, not later
than 60 days following the Closing Date, shall file with the Commission a Shelf
Registration Statement pursuant to Rule 415 under the Act or any similar rule
that may be adopted by the Commission relating to the offer and sale of the
Registrable Securities and thereafter shall use its best efforts to cause such
Shelf Registration Statement to be declared effective under the Act.
(b) ICN shall use its best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus forming part
thereof to be usable by SB until the expiration of the Registration Period. ICN
shall be deemed not to have used its best efforts to keep the Shelf Registration
Statement effective during the Registration Period if it voluntarily takes or
neglects to take any action that would result in SB not being able to offer and
sell such Registrable Securities during that period, unless such action or
omission is (i) required by applicable law, or (ii) taken or omitted in good
faith by ICN and results in the occurrence of an event described in Item 11(b)
of Form S-3 under the Act, so long as ICN promptly thereafter complies with the
requirements of Section 1.8(o) hereof, if applicable.
(c) If during the Registration Period, ICN is obligated under the
Purchase Agreement to deliver any Registrable Securities to SB, which
Registrable Securities are not at that time covered by the Registration
Statement, ICN shall, as soon as practicable after becoming obligated to deliver
such Registrable Securities to SB: (i) file a post-effective amendment to the
Shelf Registration Statement requesting Registration of the number of additional
Registrable Securities as then required to meet its obligations under the
Purchase Agreement up to the amount permitted under Rule 462(b)(3) of the Act;
or (ii) if such amount is not sufficient to meet such obligations, prepare and,
not later than 60 days following the time such obligations arise, file with the
Commission and thereafter use its best efforts to cause to be declared effective
under the Act another Shelf Registration Statement relating to the offer and
sale of such Registrable Securities.
(d) Any Registration Statement filed pursuant to this Agreement may,
subject to the provisions of Section 1.5(e) below, include other securities of
ICN, including its own securities and securities which are held by persons who,
by virtue of agreements with ICN, are entitled to include their securities in
any such registration.
(e) UNDERWRITING. If SB intends to distribute any or all of the
Registrable Securities by means of an underwritten offering, it shall so advise
ICN. If holders of securities of ICN who are entitled, by contract with ICN, to
have securities of ICN included in such an underwritten offering (the "Other
Shareholders") request such inclusion, SB may offer to include all or any
portion of the securities of such Other Shareholders in the underwriting as it
may, in its sole discretion, determine and may condition such offer on the
acceptance of such Other Shareholders of the further applicable provisions of
this Section 1. ICN shall (together with SB and the Other Shareholders proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by SB and reasonably
acceptable to ICN. Notwithstanding any other provision of this Section 1.5, if:
(i) the number of Registrable Securities to be distributed by SB in aggregation
with other securities of ICN to be distributed exceeds the number of Registrable
Securities that may be distributed; or (ii) the managing underwriter advises SB
in writing that the inclusion of the number of securities requested to be
included in such registration exceeds the largest number of securities which can
be sold without having a material and adverse effect on such offering (the
"Maximum Offering Size"), ICN will include in such registration, in the
following priority, up to the Maximum Offering Size, (1) all or a portion, as SB
may determine in its sole discretion, of the Registrable Securities to be
registered by SB or its Affiliates, (2) all securities requested to be included
by Other Shareholders in proportion, as nearly as practicable, to the respective
amounts of securities which were requested to be included by such Other
Shareholders in such Registration Statement and (3) any securities proposed to
be Registered by ICN. If SB or any Other Shareholder who has requested inclusion
in such Registration as provided above disapproves of the terms of the
underwriting, such person may elect to have such person's securities withdrawn
therefrom by written notice to ICN, the underwriter and SB. Any securities so
withdrawn by such person, shall also be withdrawn from Registration.
1.6 ICN REGISTRATION.
(a) If at any time during the Registration Period, ICN is obligated
under the Purchase Agreement to deliver any Registrable Securities to SB, which
Registrable Securities are not at that time covered by a Shelf Registration
Statement, and ICN shall consider Registration of any of its securities, whether
such securities are owned by ICN or by Other Holders, other than a registration
relating solely to a Commission Rule 145 transaction, or a Registration on any
registration form which does not permit secondary sales or does not include
substantially as much information as would be required to be included in a
Registration Statement covering the sale of Registrable Securities, ICN will:
(i) promptly give to SB written notice thereof at least 20 days before the
filing of any Registration Statement (which shall include a list of the
jurisdictions in which ICN intends to attempt to qualify such securities under
the applicable Blue Sky or other state securities laws); and (ii) include in
such Registration (and any related qualification under Blue Sky laws or other
compliance), such Registrable Securities which are not at that time covered by
an effective Registration Statement and, if so requested by SB, include in any
underwriting such number of Registrable Securities as shall be specified in a
written request or requests, made by SB within fifteen (15) business days after
receipt of the written notice from ICN described in clause (i) above, except (A)
as set forth in Section 1.6(b) below, and (B) subject to Section 1.12. ICN shall
not be required to include Registrable Securities in any such registration if,
and to the extent, in the opinion of ICN's investment bankers, delivered to SB
in writing, the inclusion of such Registrable Securities would exceed the
Maximum Offering Size.
(b) UNDERWRITING. If the Registration of which ICN gives notice is for
a registered public offering involving an underwriting, ICN shall so advise SB
as part of the written notice given pursuant to Section 1.6(a)(i). In such event
the right of SB to Registration pursuant to this Section 1.6 shall be
conditioned upon SB's participation in such underwriting and the inclusion of
SB's Registrable Securities in the underwriting to the extent provided herein.
SB, together with ICN and the Other Shareholders distributing their securities
through such underwriting, if any, shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by ICN or the Other
Shareholders, as the case may be, with the prior approval of SB, which approval
shall not be unreasonably withheld. Notwithstanding any other provision of this
Section 1.6, if the underwriter determines that the inclusion of all the
securities requested to be included would exceed the Maximum Offering Size, the
underwriter may (subject to the allocation priority set forth below) exclude
from such Registration and underwriting some or all of the Registrable
Securities which would otherwise be underwritten pursuant hereto. ICN shall so
advise all holders of securities requesting Registration, and the number of
securities that are entitled to be included in the Registration and underwriting
shall be allocated in the following manner: The securities of ICN held by
officers and directors of ICN shall be excluded from such Registration and if
thereafter a further limitation on the number of securities is still required in
order to reduce the number of securities to an amount less than the Maximum
Offering Size, then the number of securities that may be included in the
Registration and underwriting shall be allocated among SB and Other Shareholders
in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities and other securities which they had requested to be
included in such Registration at the time of filing the Registration Statement.
If SB or any officer, director or Other Shareholder disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice to
ICN and the underwriter. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such Registration.
1.7 EXPENSES OF REGISTRATION.
All Registration Expenses incurred in connection with any
Registration, qualification or compliance pursuant to this Section 1 shall be
borne by ICN, and all Selling Expenses (except fees and disbursements of
counsel, which shall be borne by the party engaging such counsel) shall be borne
by the holders of the securities so Registered pro rata on the basis of the
number of their shares so Registered.
1.8 REGISTRATION PROCEDURES.
In the case of each Registration effected by ICN pursuant to this
Section 1, ICN shall keep SB advised in writing as to the initiation of each
Registration and as to the completion thereof. At its expense, ICN shall:
(a) Keep such Registration effective for the Registration Period and
in furtherance thereof, ICN shall prepare and file with the Commission such
amendments and supplements to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep such Registration Statement
effective for such period;
(b) Furnish to SB without charge, at any time during the Registration
Period, such number of Prospectuses (including preliminary prospectuses) and
other documents incident thereto, as the same shall be amended or supplemented
from time to time, as SB from time to time may reasonably request and ICN
consents to the use of any Prospectus or any amendment or supplement thereto by
SB in connection with the offering and sale of the securities covered by the
Prospectus or any amendment or supplement thereto;
(c) Use its best efforts to Register or qualify the Registrable
Securities covered by such Registration Statement under the securities or Blue
Sky laws of such jurisdictions as the underwriter for such offering or SB may
reasonably request; provided that ICN shall in no event be required to qualify
to do business as a foreign corporation in any jurisdiction where it is not
otherwise required to be qualified, to amend its Restated Certificate of
Incorporation, as amended, or to change the composition of its assets at the
time to conform with the securities or Blue Sky laws of such jurisdictions, to
take any action that would subject it to service of process in suits other than
those arising out of the offer and sale of the Registrable Securities covered by
the Registration Statement; or to subject itself to taxation in any jurisdiction
where it has not theretofore done so;
(d) Promptly notify SB of: (i) any stop order or the initiation of any
stop order or similar proceeding by state or federal regulatory bodies and use
its best efforts to expeditiously remove such stop order or similar proceeding;
(ii) the receipt by ICN of any notification with respect to the suspension of
the qualification of the securities included in any Registration Statement for
sale in any jurisdiction or the initiation of threatening of any proceedings for
such purpose; or (iii) the happening of any event that requires the amendment of
any Registration Statement or the Prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the statements therein (in
the case of the Prospectus, in light of the circumstances under which they were
made) not misleading (which advice shall be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have been made);
(e) Cause all Registrable Securities to be listed on each securities
exchange on which similar securities issued by ICN are then listed and, if not
so listed, to be listed on the NASDAQ automated quotation system on which
similar securities issued by ICN are listed;
(f) Provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such Registration Statement;
(g) Otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months beginning with the first day of ICN's first full calendar
quarter after the effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158
under the Act;
(h) Prior to filing any Registration Statement, Prospectus or
amendment with the Commission, provide SB copies of all information to be
included therein concerning SB and give SB an opportunity to furnish corrections
or other modifications to such information;
(i) Upon the effectiveness of any Registration Statement hereunder,
deliver to SB the opinion of the General Counsel of ICN to the effect that the
Registration Statement has been declared effective and to the best knowledge of
such counsel no stop order suspending the effectiveness of the Registration
Statements has been issued and no proceeding for that purpose is pending or
threatened by the Commission.
(j) Ensure that: (i) any Registration Statement and any amendment
thereto and any Prospectus forming part thereof and any amendment or supplement
thereto complies in all material respects with the Act and the rules and
regulations thereunder; (ii) any Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and (iii) any
Prospectus forming part of any Registration Statement and any amendment or
supplement to such Prospectus, does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading;
(k) Use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of any Registration Statement at the earliest
possible time;
(l) Cooperate with SB to facilitate the timely preparation and
delivery of certificates representing the Registrable Securities to be sold
pursuant to any Registration Statement free of any restrictive legends and in
such denominations and registered in such names as SB may request prior to sales
of Registrable Securities pursuant to such Registration Statement;
(m) If requested, promptly incorporate in a Prospectus supplement or
post-effective amendment to a Registration Statement, such information as SB may
reasonably determine should be included therein and shall make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(n) Enter into such agreements (including underwriting agreements) and
take all other appropriate actions in order to expedite or facilitate the
Registration or the disposition of the Registrable Securities and in connection
therewith, if an underwriting agreement is entered into, cause the same to
contain indemnification provisions and procedures no less favorable than those
set forth in Section 1.9; and
(o) Upon the occurrence of the event contemplated by the last sentence
of Section 1.5(b) above, ICN shall promptly prepare a post-effective amendment
to any Registration Statement or an amendment or supplement to the related
Prospectus or file any other required document and take any action necessary so
that: (i) SB shall be able promptly thereafter to offer and sell Registrable
Securities as if such an event had not occurred; and (ii) as thereafter
delivered to purchasers of the securities included therein, the Prospectus will
not include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
1.9 INDEMNIFICATION.
(a) ICN shall indemnify and hold harmless SB and each of its
directors, officers, employees and agents and any other person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, SB, within the meaning of the Act or the Exchange
Act, and any underwriter and each person who controls such underwriter within
the meaning of the Act or the Exchange Act with respect to Registration,
qualification or compliance effected pursuant to this Section 1, against all
claims, losses, damages and liabilities (or actions in respect thereof), whether
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
Prospectus, offering circular or other document, any related Registration
Statement, notification or the like as originally filed or any amendment thereof
or supplement thereto (collectively "Offering Documents") incident to any such
Registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a Prospectus, in light
of the circumstances under which they were made) not misleading, or any
violation by ICN of the Act or the Exchange Act or any rule or regulation
thereunder applicable to ICN and relating to action or inaction required of ICN
in connection with any such Registration, qualification or compliance, and will
reimburse any such indemnified party and its Affiliates as incurred for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claims, loss, damage, liability or action,
provided that ICN will not be liable in any such case to indemnify any such
indemnified party to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to ICN by such indemnified party and stated to be
specifically for use therein. This indemnity will be in addition to any
liability which ICN may otherwise be subject to.
(b) SB shall, if Registrable Securities held by it are included in the
securities as to which any Registration, qualification or compliance is being
effected pursuant to this Agreement, indemnify and hold harmless ICN and each of
its directors, officers, employees and agents, and any other person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, ICN, within the meaning of the
Act or the Exchange Act, any underwriter and each person who controls such
underwriter, within the meaning of the Act or the Exchange Act with respect to
Registration, qualification, or compliance effected pursuant to this Section 1,
against all claims, losses, damages and liabilities (or actions in respect
thereof) joint or several, to which they or any of them may become subject under
the Act, the Exchange Act or other Federal or state statutory law or regulation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue statement (or alleged untrue statement) of a material fact contained in
that portion of any such Offering Documents relating to information concerning
SB, which was furnished by SB to ICN in writing and stated to be specifically
for use therein or any omission (or alleged omission) to state in such portion
thereof a material fact required to be stated therein or necessary to make the
statements therein (in the case of a Prospectus, in light of the circumstances
under which they were made) not misleading, and will reimburse any such
indemnified party and its Affiliates as incurred for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Offering Documents in reliance
upon and in conformity with written information furnished to ICN by SB and
stated to be specifically for use therein, provided, however, that the
obligations of SB hereunder shall not exceed an amount equal to the lesser of:
(i) the net proceeds to SB of Registrable Securities sold pursuant to such
Offering Document, or (ii) the Guaranteed Value for the following Guarantee
Date.
(c) Each party entitled to indemnification under this Section 1.9 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and, provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1.9. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(d) If for any reason the foregoing indemnity is unavailable, or is
insufficient to hold harmless an Indemnified Party under Section 1.9(a) or
1.9(b) above in respect of any claim, then the Indemnifying Party shall
contribute to the amount paid or payable by the Indemnified Party as a result of
such claim in such proportion as is appropriate to reflect the relative benefits
received by, and the relative fault of, the Indemnifying Party on the one hand
and the Indemnified Party on the other from such offering of securities, as well
as any other relevant equitable considerations, provided, however, that the
obligations of SB hereunder shall be limited to an amount equal to the net
proceeds to SB of securities sold as contemplated herein. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Indemnifying
Party or by the Indemnified Party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable in respect of any such claim shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The provisions of this Section
1.9(d) shall be in addition to any other rights to indemnification or
contribution which any Indemnified Party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any Indemnified Party and shall
survive the transfer of the Registrable Securities by any such party.
1.10 INFORMATION BY SB.
SB shall furnish to ICN such information regarding SB and the
distribution proposed by SB as ICN may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification
or compliance referred to in this Section 1.
1.11 RULE 144 REPORTING.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of the Restricted
Securities to the public without registration, ICN agrees to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required to be filed by ICN under the Act
and the Securities Exchange Act of 1934 (the "Exchange Act"); and
(c) So long as SB owns any Restricted Securities, furnish to SB
forthwith upon request a written statement by ICN as to its compliance with the
current reporting requirements of Rule 144, and of the Act and the Exchange Act,
a copy of the most recent annual or quarterly report of ICN and such other
reports and documents so filed as SB may reasonably request in availing
themselves of any rule or regulation of the Commission allowing SB to sell any
such securities without Registration.
1.12 "MARKET STAND-OFF" AGREEMENT.
SB agrees, if reasonably requested by ICN and an underwriter of Common
Stock (or other equity securities or securities convertible into equity
securities) of ICN in connection with a firm commitment underwriting of a public
offering, not to effect any public sale or distribution of any Common Stock (or
other equity securities or securities convertible into equity securities) of ICN
held by SB during such period as the managing underwriter and ICN shall agree
(which period shall not exceed 90 days) after the effective date of a
Registration Statement of ICN filed under the Act not including Restricted
Securities, provided that all Other Shareholders and officers and directors of
ICN enter into similar agreements. Such agreement shall be in writing in a form
satisfactory to ICN and such underwriter. In the event that SB holds any
Registrable Securities on the date which is 30 days prior to the Final Guarantee
Date, the foregoing agreement shall not apply to the period of time commencing
on such day and ending on the earlier of: (i) the 90th day following the Final
Guarantee Date, or (ii) the expiration of the Registration Period. ICN agrees
that if it offers or sells any securities of ICN in a public offering during the
period mentioned in the preceding sentence, clause (ii)(B) of Section 1.6(a) and
the fourth sentence of Section 1.6(b) shall not apply, and SB shall be permitted
to include in any such public offering Registrable Securities as specified in a
request pursuant to clause (ii) of paragraph 1.6.
2. MISCELLANEOUS PROVISIONS
2.1 AMENDMENT; WAIVER.
Neither this Agreement, nor any of the terms or provisions hereof, may
be amended, modified, supplemented or waived, except by a written instrument
signed by the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof, nor shall such waiver constitute a continuing waiver. No failure of
either party hereto to insist upon strict compliance by the other party with any
obligation, covenant, agreement or condition contained in this Agreement shall
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
2.2 NOTICES. (a) All notices and other communications required or
permitted under this Agreement shall be in writing and mailed, faxed or
delivered: (i) If to SB, to:
Smithkline Beecham p.l.c,
One New Horizons Court
Brentford, Middlesex TW89EP England
Attention: General Counsel
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
USA
Attention: James Munsell
Fax: (212) 225-3999
(ii) If ICN:
ICN Pharmaceuticals, Inc.
3300 Hyland Avenue
Costa Mesa, California 92626 USA
fax: 714-641-7206
Attention: General Counsel
(b) All notices that are addressed as provided in this Section 2.2 (1)
if delivered personally against proper receipt or by confirmed fax shall be
effective upon delivery and (2) if delivered (A) by certified or registered mail
with postage prepaid or (B) by Federal Express or similar courier service with
courier fees paid by the sender shall be effective three business days following
the date when mailed or couriered, as the case may be. Either party may from
time to time change its address for the purpose of notices to that party by a
similar notice specifying a new address, but no such change shall be deemed to
have been given until it is actually received by the party sought to be charged
with its contents.
2.3 ASSIGNMENT.
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. The rights, interests and obligations of SB under this
Agreement, including, without limitation, its rights to cause ICN to Register
Registrable Securities granted to SB by ICN under Sections 1.5 and 1.6 may be
transferred or assigned by SB to a transferee or assignee of SB; provided that
ICN is given notice at the time of such transfer or assignment, stating the name
and address of such transferee or assignee and identifying the securities with
respect to which such Registration and other rights are being transferred or
assigned; and provided, further, that the transferee or assignee shall agree to
be bound by the terms of this Agreement; whereupon such transferee or assignee
shall be SB for purposes of this Agreement. Neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned or transferred by
ICN without the prior written consent of SB.
2.4 GOVERNING LAW.
This Agreement and the agreements entered into in connection with the
transaction contemplated by this Agreement are made subject to and shall be
construed under the laws of the State of New York without giving effect to the
principles of conflicts of law thereof. All actions and proceedings arising out
of or relating to this Agreement shall be heard and determined in a New York
State or federal court sitting in the City of New York, in the Borough of
Manhattan, and the parties hereto hereby irrevocably submit to the exclusive
jurisdiction of such courts in any such action or proceeding and irrevocably
waive the defense of an inconvenient forum to the maintenance of such action or
proceeding.
2.5 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
2.6 HEADINGS.
The headings contained in this Agreement are for convenience of
reference only and shall not constitute a part hereof or define, limit or
otherwise affect the meaning of any of the terms or provisions hereof.
2.7 ENTIRE AGREEMENT.
This Agreement together with the Purchase Agreement embodies the
entire agreement and understanding among the parties hereto with respect to the
subject matter of this Agreement and supersedes all prior agreements,
commitments, arrangements, negotiations or understandings, whether oral or
written, between the parties with respect thereto. There are no agreements,
covenants, undertakings, representations or warranties with respect to the
subject matter of this Agreement other than those expressly set forth or
referred to herein.
2.8 SEVERABILITY.
Each term and provision of this Agreement constitutes a separate and
distinct undertaking, covenant, term or provision hereof. In the event that any
term or provision of this Agreement shall be determined to be unenforceable,
invalid or illegal in any respect, such unenforceability, invalidity or
illegality shall not affect any other term or provision of this Agreement, but
this Agreement shall be construed as if such unenforceable, invalid or illegal
term or provision had never been contained herein. Moreover, if any term or
provision of this Agreement shall for any reason be held to be excessively broad
as to time, duration, activity or subject, it shall be construed, by limiting
and reducing it, as to be enforceable to the extent permitted under applicable
law as it shall then exist.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, as
of the date first above written.
"ICN"
ICN PHARMACEUTICALS, INC.
By: ____________________________________
Name:
Title:
"SB"
SIGNED BY CHRISTOPHER JOHN BARON AND )
JAMES STEPHEN CROOKES )
ACTING UNDER A POWER OF ATTORNEY )
FOR AND ON BEHALF )
OF SMITHKLINE BEECHAM p.l.c.. )
SCHEDULE THIRTEEN: CERTIFICATE OF DESIGNATION
<PAGE>
SCHEDULE FOURTEEN: SALES AND GROSS MARGIN STATEMENT
<PAGE>
SCHEDULE FIFTEEN: APPORTIONMENT OF CONSIDERATION
-----------------------------------------------
ICN PHARMACEUTICALS, INC.
------------------------
CREDIT AGREEMENT
Dated as of March 31, l997
$15,000,000
----------------------
BANQUE NATIONALE DE PARIS
Los Angeles Branch
----------------------------------------
<PAGE>
-ii-
TABLE OF CONTENTS
PAGE
SECTION 1
DEFINITIONS.................................................. 1
1.1 CERTAIN DEFINED TERMS............................................. 1
1.2 ACCOUNTING TERMS.................................................. 8
1.3 OTHER TERMS....................................................... 8
SECTION 2
CREDIT....................................................... 9
2.1 REVOLVING CREDIT LOANS AND LETTERS OF CREDIT...................... 9
2.2 ISSUANCE OF LETTERS OF CREDIT..................................... 12
SECTION 3
CONDITIONS OF LENDING........................................ 14
3.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING CREDIT
LOAN OR LETTER OF CREDIT..................................... 14
3.2 CONDITIONS PRECEDENT TO EACH REVOLVING CREDIT LOAN OR
LETTER OF CREDIT............................................. 15
SECTION 4
REPRESENTATIONS AND WARRANTIES............................... 16
4.1 STATUS............................................................ 16
4.2 AUTHORITY......................................................... 16
4.3 LEGAL EFFECT...................................................... 17
4.4 FINANCIAL STATEMENTS.............................................. 17
4.5 LITIGATION........................................................ 17
4.6 TITLE TO ASSETS................................................... 18
4.7 ERISA............................................................. 18
4.8 TAXES............................................................. 18
4.9 REGULATION U...................................................... 18
4.10 ENVIRONMENTAL COMPLIANCE.......................................... 18
SECTION 5
COVENANTS.................................................... 18
5.1 PRESERVATION OF EXISTENCE; WITH APPLICABLE LAWS................... 19
5.2 MAINTENANCE OF INSURANCE.......................................... 19
5.3 MAINTENANCE OF PROPERTIES......................................... 19
5.4 PAYMENT OF OBLIGATIONS AND TAXES.................................. 19
5.5 INSPECTION RIGHTS................................................. 19
5.6 REPORTING AND CERTIFICATION REQUIREMENTS.......................... 20
5.7 PAYMENT OF DIVIDENDS.............................................. 20
5.8 REDEMPTION OR REPURCHASE OF STOCK................................. 21
5.9 ADDITIONAL INDEBTEDNESS........................................... 21
5.10 LOANS............................................................. 21
5.11 LIENS AND ENCUMBRANCES............................................ 21
5.12 TRANSFER ASSETS................................................... 21
5.13 CHANGE IN NATURE OF BUSINESS...................................... 21
5.14 FINANCIAL CONDITION............................................... 22
5.15 NOTICE............................................................ 22
5.16 CONSOLIDATED OPERATING LOSS....................................... 22
5.17 ENVIRONMENTAL COMPLIANCE.......................................... 22
5.18 SUBORDINATED DEBT................................................. 23
5.19 INVESTMENTS....................................................... 23
SECTION 6
EVENTS OF DEFAULT.............................................. 23
6.1 NON-PAYMENT....................................................... 23
6.2 PERFORMANCE UNDER THIS AND OTHER AGREEMENTS....................... 23
6.3 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS.............. 24
6.4 INSOLVENCY........................................................ 24
6.5 EXECUTION......................................................... 24
6.6 SUSPENSION........................................................ 24
6.7 CHANGE IN OWNERSHIP............................................... 25
SECTION 7
REMEDIES ON DEFAULT............................................ 25
7.1 ACCELERATION...................................................... 25
7.2 CEASE EXTENDING CREDIT............................................ 25
7.3 TERMINATION....................................................... 25
7.4 CASH COLLATERAL................................................... 25
7.5 NON-EXCLUSIVITY OF REMEDIES....................................... 25
SECTION 8
BANK PROTECTIONS............................................... 26
8.1 INABILITY TO DETERMINE INTEREST RATE.............................. 26
8.2 ILLEGALITY........................................................ 26
8.3 INCREASED COSTS................................................... 27
8.4 TAXES............................................................. 28
8.5 INDEMNITY......................................................... 29
8.6 MITIGATION OF COSTS............................................... 29
SECTION 9
MISCELLANEOUS.................................................. 30
9.1 DEFAULT INTEREST RATE............................................. 30
9.2 RELIANCE.......................................................... 30
9.3 EXPENSES.......................................................... 30
9.4 NOTICES........................................................... 30
9.5 WAIVER............................................................ 31
9.6 CONFLICTING PROVISIONS............................................ 31
9.7 BINDING EFFECT; ASSIGNMENT........................................ 31
9.8 JURISDICTION...................................................... 31
9.9 WAIVER OF JURY TRIAL.............................................. 31
9.10 HEADINGS.......................................................... 32
9.11 ENTIRE AGREEMENT.................................................. 32
9.12 CONFIDENTIALITY................................................... 32
<PAGE>
CREDIT AGREEMENT
This Credit Agreement (the "Agreement") is made and entered into as of
March 31, 1997, by and between BANQUE NATIONALE DE PARIS, Los Angeles Branch
(the "Bank") and ICN PHARMACEUTICALS, INC. (the "Borrower"), on the terms and
conditions that follow:
SECTION 1
DEFINITIONS
1.1 CERTAIN DEFINED TERMS: Unless elsewhere defined in this Agreement,
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
"AGREEMENT": shall have the meaning set forth in the first paragraph
hereof.
"ALTERNATE BASE RATE": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Reference
Rate and (b) the Federal Funds Effective Rate in effect on such day PLUS 1/2 of
1%. Any change in the Alternate Base Rate due to a change in the Reference Rate
or the Federal Funds Effective Rate shall be effective on the effective date of
such change in the Reference Rate or the Federal Funds Effective Rate,
respectively.
"ALTERNATE BASE RATE LOANS": Revolving Credit Loans the rate of
interest applicable to which is based upon the Alternate Base Rate.
"BANK": shall have the meaning set forth in the first paragraph
hereof.
"BORROWER": shall have the meaning set forth in the first paragraph
hereof.
"BUSINESS DAY": shall mean a day other than a Saturday or Sunday on
which commercial banks are open for business in California, USA.
"CASH INCOME TAXES": for any period, income taxes paid in cash by the
Borrower and its Subsidiaries on a consolidated basis.
"COMMITMENT": $15,000,000, as the same shall be adjusted from time to
time pursuant to this Agreement.
"CURRENT ASSETS": at any date, the assets of the Borrower and its
Subsidiaries on a consolidated basis which would be classified as current assets
in accordance with generally accepted accounting principles.
"CURRENT LIABILITIES": at any date, the liabilities (including tax and
other proper accruals) of the Borrower and its Subsidiaries on a consolidated
basis which would be classified as current liabilities in accordance with
generally accepted accounting principles.
"CURRENT RATIO": as of the last day of each calendar quarter, the
ratio of Current Assets to Current Liabilities.
"DEFAULT": any of the events specified in Section 6, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"EBITDA": for the Borrower and its Subsidiaries on a consolidated
basis, Net Income after eliminating extraordinary gains and losses, plus (a)
provisions for taxes, (b) depreciation and amortization, (c) Interest Expense,
(d) other non-cash charges and (e) minority interests in Subsidiaries, all to
the extent deducted in computing Net Income.
"EFFECTIVE DATE": the date on which the conditions precedent set forth
in Section 3.1 have been satisfied, but in no event later than March 31, 1997.
"ERISA": shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
"EURODOLLAR BUSINESS DAY": shall mean any day on which banks are open
for dealings in U.S. dollar deposits in the London Interbank Market.
"EVENT OF DEFAULT": shall have the meaning set forth in Section 6,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"EXCLUDED TAXES": all taxes imposed on or by reference to the net
income of the Bank and all franchise taxes, taxes on doing business or taxes
measured by capital or net worth imposed on the Bank, imposed:
(i) by the jurisdiction in which the Bank is located or in which
the Bank is organized or has its principal or registered office;
(ii) by reason of any connection between the jurisdiction
imposing such tax and the Bank other than a connection arising solely
from this Agreement or any transaction contemplated hereby;
(iii) by the United States or any political subdivision thereof
or therein including without limitation, branch profits taxes imposed
by the U.S. or similar taxes imposed by any subdivision thereof; or
(iv) by reason of the failure of the Bank to provide accurate
documentation required to be provided by the Bank pursuant to Section
8.4(b).
"FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Bank from three (3)
federal funds brokers of recognized standing selected by it. If, for any reason,
the Bank shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Federal Funds Effective Rate
for any reason, including, without limitation, the inability or failure of the
Bank to obtain sufficient quotations in accordance with the terms hereof, the
Alternate Base Rate shall be determined without regard to the Federal Funds
Effective Rate until the circumstances giving rise to such inability no longer
exist.
"FIXED CHARGE COVERAGE RATIO": the ratio of EBITDA for the fiscal
quarter most recently ended and the immediately preceding three (3) fiscal
quarters to the sum of (a) Total Debt Service for the fiscal quarter most
recently ended and the immediately preceding three (3) fiscal quarters and (b)
Cash Income Taxes for the fiscal quarter most recently ended and the immediately
preceding three (3) fiscal quarters.
"INDEBTEDNESS": shall mean, with respect to the Borrower and its
Subsidiaries on a consolidated basis, (a) all indebtedness for borrowed money,
(b) for the deferred purchase price of property or services due more than sixty
(60) days from the date of payment specified on the invoice for such obligation
in respect of which the Borrower is primarily liable as obligor and (c)
obligations under leases which shall have been or should be, in accordance with
generally accepted accounting principles, reported as capital leases in respect
of which the Borrower or its Subsidiaries is primarily liable.
"INTEREST EXPENSE": for the Borrower and its Subsidiaries on a
consolidated basis, as of any date, for the fiscal quarter most recently ended
and the immediately preceding three (3) fiscal quarters, (a) the sum of (i) the
aggregate of all interest expense of the Borrower and its Subsidiaries to the
extent included in the calculation of Net Income for such periods in accordance
with generally accepted accounting principles and (ii) all commitment, letter of
credit or line of credit fees paid, payable and/or accrued for such period
(without duplication of previous amounts) to any lender in exchange for such
lender's commitment to lend or otherwise extend credit, less (b) all interest
income.
"INTEREST PAYMENT DATE": (a) as to an Alternate Base Rate Loan, the
last day of each calendar month while an Alternate Base Rate Loan is
outstanding, (b) as to any LIBOR Loan having an Interest Period of three (3)
months or less, the last day of such Interest Period, (c) as to any LIBOR Loan
having an Interest Period longer than three (3) months, each day which is at the
end of each three-month period within such Interest Period after the first day
of such Interest Period and the last day of such Interest Period and (d) for
each of (a), (b) and (c) above, the day on which the Revolving Credit Loans
become due and payable in full and are paid or are prepaid.
"INTEREST PERIOD": with respect to any LIBOR Loan":
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such LIBOR Loan and ending
on the numerically corresponding day one (1), two (2), three (3) or six (6)
months (or, if reasonably available to the Bank, twelve (12) months) thereafter,
as selected by the Borrower in its notice of borrowing or its continuation
notice, as the case may be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such LIBOR Loan and ending one (1),
two (2), three (3) or six (6) months (or, if reasonably available to the Bank,
twelve (12) months) thereafter, as selected by the Borrower by irrevocable
notice to the Bank not less than three (3) LIBOR Business Days prior to the last
day of the then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(i) if any Interest Period pertaining to a LIBOR Loan would otherwise
end on a day that is not a Business Day, such Interest Period shall be extended
to the next succeeding Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) any Interest Period which would otherwise extend beyond the date
final payment is due on the Revolving Credit Loans, shall end on the date of
such final payment; and
(iii) any Interest Period pertaining to a LIBOR Loan that begins on
the last day of the calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month.
"LETTERS OF CREDIT": shall have the meaning set forth in Section 2.1
hereof.
"LETTER OF CREDIT AMOUNT": the stated maximum amount available to be
drawn under a particular Letter of Credit, as such amount may be reduced or
reinstated from time to time in accordance with the terms of such Letter of
Credit.
"LIBOR": with respect to each day during each Interest Period
pertaining to a LIBOR Loan, the rate equal to the rate of interest per annum
determined by the Bank to be the arithmetic mean of the rates of interest per
annum appearing on Telerate page 3750 (or any successor publication) for U.S.
dollar deposits in the approximate amount of such LIBOR Loan to be borrowed,
continued or converted and having a maturity comparable to such Interest Period,
at approximately 11:00 a.m. (London time) two (2) Business Days prior to the
commencement of such Interest Period. Notwithstanding the foregoing, if for any
reason rates are not available as provided in the preceding clause, the LIBOR
Rate instead means the rate of interest per annum determined by the Bank to be
the arithmetic mean (rounded upwards to the nearest 1/16th of 1%) of the rates
of interest per annum notified to the Bank as the rate of interest at which U.S.
dollar deposits in the approximate amount of each LIBOR Loan to be borrowed,
continued or converted and having a maturity comparable to such Interest Period,
would be offered to major U.S. banks in the London Interbank Market at their
request at approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period.
"LIBOR ADJUSTED RATE": with respect to each day during each Interest
Period pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
LIBOR
1.00 minus LIBOR Reserve Requirements
"LIBOR BUSINESS DAY": a day which is a Business Day and a day on which
dealings in U.S. dollar deposits may be carried out in the London Interbank
Market.
"LIBOR LOANS": Revolving Credit Loans the rate of interest applicable
to which is based upon LIBOR.
"LIBOR RESERVE REQUIREMENTS": for any day as applied to a LIBOR Loan,
the aggregate (without duplication) of maximum rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves and/or any
regulations of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such Federal Reserve System. As of the Effective Date, there are
no such reserve requirements.
"LOAN ACCOUNT": shall have the meaning set forth in Section 2.1(d)
hereof.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property or conditions, (financial or otherwise) of the
Borrower and its Subsidiaries on a consolidated basis, (b) the ability of the
Borrower or any of its Subsidiaries to perform its respective obligations
hereunder or (c) the validity or enforceability of this Agreement or the rights
or remedies of the Bank hereunder.
"MATERIAL SUBSIDIARY": shall mean any Subsidiary of the Borrower which
represents at any time (a) 10% of Net Income for the fiscal quarter most
recently ended and the immediately preceding three (3) fiscal quarters, (b) 10%
of the value of the assets as of the end of the most recently ended fiscal
quarter of the Borrower and its Subsidiaries on a consolidated basis or (c) 10%
of the total product sales of the Borrower and its Subsidiaries on a
consolidated basis for the fiscal quarter most recently ended and the
immediately preceding three (3) fiscal quarters.
"MATURITY DATE": in respect of any amount outstanding hereunder, March
31, 1999, unless all such amounts shall have earlier become due and payable,
whether by acceleration or otherwise.
"NET INCOME": net income as determined in accordance with generally
accepted accounting principles and in a manner consistent with the calculations
of net income as set forth in financial statements previously delivered by the
Borrower and its Subsidiaries on a consolidated basis to the Bank.
"NET WORTH": shall mean, as of the calculation date, all assets of the
Borrower and its Subsidiaries on a consolidated basis less all Total Liabilities
of the Borrower and its Subsidiaries on a consolidated basis.
"OBLIGATIONS": shall mean all amounts owing by the Borrower to the
Bank pursuant to this Agreement.
"OPERATING LOSS": a loss from operations before other income and
expenses, interest income and expense, income taxes, translation adjustments and
extraordinary items as set forth on the Borrower's consolidated statement of
income.
"PERMITTED LIENS": shall mean (a) liens and security interests
securing indebtedness owed by the Borrower to the Bank; (b) liens for taxes,
assessments or similar charges either not more than sixty (60) days past due or
being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers or other like liens arising in the ordinary course of
business and securing obligations which are not more than sixty (60) days past
due or being contested in good faith; (d) purchase money liens or purchase money
security interests upon or in any property acquired or held by the Borrower and
its Subsidiaries in the ordinary course of business to secure Indebtedness
outstanding on the date hereof or permitted to be incurred under Section 5.9
hereof and any renewals and modifications thereof not increasing the amount of
the obligations thereunder; (e) liens and security interests which, as of the
date hereof, have been disclosed in filings with the Securities and Exchange
Commission or which have been approved by the Bank in writing and any renewals
and modifications thereof not increasing the amount of the obligations
thereunder; (f) liens in connection with workers' compensation, unemployment
insurance, social security obligations and such other types of insurance; (g)
liens to secure performance bonds, bid bonds, contracts, leases, public or
statutory obligations, surety bonds and other similar obligations; (h) liens
resulting from zoning restrictions, easements and such other similar
restrictions on the use of real property; and (i) liens arising from judgments
and attachments that would not constitute an Event of Default hereunder; (j)
liens securing intercompany indebtedness (k) security interest filings
evidencing operating leases; (l) liens on the property or assets of any entity
at the time such entity becomes a Subsidiary after the date hereof and any
renewals and modifications thereof not increasing the amount of the obligation
thereunder; and (m) liens not otherwise covered under this definition in an
aggregate amount not exceeding at any time $15,000,000.
"REFERENCE RATE": the rate of interest per annum publicly announced
from time to time by the Bank as its reference rate in effect at its principal
office in Los Angeles.
"REGULATION D": Regulation D of the Board of Governors of the Federal
Reserve System as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof and any successor regulation
thereto.
"REVOLVING CREDIT LOANS": shall have the meaning set forth in Section
2.1 hereof.
"SUBORDINATED DEBT": shall mean such liabilities of the Borrower and
its Subsidiaries which have been subordinated to those owed to the Bank in a
manner acceptable to the Bank.
"SUBSIDIARY": as to any person or entity at any time as determined, a
corporation, partnership or other entity of which shares of stock or other
ownership interest having ordinary voting power (other than stock or such other
ownership interest having such power only by reason of the happening of a
contingency) to elect a majority of the Board of Directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries or subsidiaries, or both, by such person or entity.
Unless otherwise qualified, all references to a "subsidiary" or to
"subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower.
"TANGIBLE NET WORTH": shall mean Net Worth less all intangible assets
of the Borrower and its Subsidiaries (i.e., goodwill, trademarks, patents,
copyrights, organization expense, and similar intangible items).
"TAXES": shall have the meaning set forth in Section 8.4 hereof.
"TOTAL DEBT SERVICE": for the Borrower and its Subsidiaries on a
consolidated basis, as of any date, for the fiscal quarter most recently ended
and the immediately preceding three (3) fiscal quarters, the sum of (a) all
Interest Expense and (b) regularly scheduled principal payments due on
Indebtedness (which result in permanent reductions in availability).
"TOTAL LIABILITIES": for the Borrower and its Subsidiaries on a
consolidated basis, as of any date, the aggregate amount of all items that would
be set forth as liabilities on a balance sheet of the Borrower and its
Subsidiaries on such date in accordance with generally accepted accounting
principles (but not redeemable equity or minority interests).
1.2 ACCOUNTING TERMS: All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with generally accepted accounting principles consistently applied
and, except where otherwise specified, all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles. Any change
in generally accepted accounting principles which changes the calculation of
covenants hereunder shall result in the Borrower and the Bank negotiating, in
good faith, to recalculate such covenants on the basis of the new generally
accepted accounting principles.
1.3 OTHER TERMS: Other terms not otherwise defined shall have the
meanings attributed to such terms in the California Uniform Commercial Code.
SECTION 2
CREDIT
2.1 REVOLVING CREDIT LOANS AND LETTERS OF CREDIT (a) Subject to the
terms and conditions of this Agreement, the Bank agrees to (i) make revolving
credit loans ("Revolving Credit Loans") to the Borrower at any time and from
time to time on and after the Effective Date and until the Maturity Date and
(ii) issue letters of credit ("Letters of Credit") for the account of the
Borrower pursuant to Section 2.2 from time to time from and including the
Effective Date until the Maturity Date; provided, however, that at no time shall
the outstanding aggregate principal amount of all Revolving Credit Loans made by
the Bank, together with the aggregate Letter of Credit Amount of all outstanding
Letters of Credit exceed the Commitment. Within the Commitment, the Borrower may
borrow, have Letters of Credit issued for the Borrower's account, prepay
Revolving Credit Loans, reborrow Revolving Credit Loans and have additional
Letters of Credit issued for the Borrower's account. The Commitment shall
automatically and permanently terminate on the Maturity Date. The minimum amount
of each Revolving Credit Loan shall be $500,000 or an integral multiple thereof.
(b) The Borrower shall give to the Bank irrevocable written
notice (which notice must be received by the Bank prior to 10:00 a.m., Los
Angeles time, one (1) Business Day prior to each proposed borrowing date or, if
all or any part of the Revolving Credit Loans are requested to be made as LIBOR
Loans, three (3) Eurodollar Business Days prior to each proposed borrowing date)
requesting that the Bank make the Revolving Credit Loans on the proposed
borrowing date and specifying (i) the aggregate amount of Revolving Credit Loans
requested to be made, (ii) subject to Section 2.1(e), whether the Revolving
Credit Loans are to be LIBOR Loans, Alternate Base Rate Loans or a combination
thereof and (iii) if the Revolving Credit Loans are to be entirely or partly
LIBOR Loans, the respective amounts of each type of Revolving Credit Loan and
the respective lengths of the Interest Periods therefor.
(c) Proceeds from the Revolving Credit Loans shall be used for
general operating requirements of the Borrower including financing of fixed
assets acquired in the ordinary course of business, refinancing of existing
indebtedness and making acquisitions.
(d) The Bank shall maintain on its books a record of account
in which the Bank shall make entries setting forth all Revolving Credit Loans
made, all Letters of Credit issued, all payments made, the application of such
payments to interest and principal, accrued and unpaid interest (if any) and the
outstanding principal balance under the Revolving Credit Loans (the "Loan
Account"). The Bank shall provide the Borrower with a monthly statement of the
Loan Account, which statement shall be considered to be correct and conclusively
binding on the Borrower, absent manifest error.
(e) Subject to Sections 8.1
and 8.2, the Revolving Credit Loans may from time to time be (i) LIBOR Loans,
(ii) Alternate Base Rate Loans or (iii) a combination thereof, as determined by
the Borrower and notified to the Bank in accordance with the either Section
2.1(b) or 2.1(f). Notwithstanding the foregoing, the initial Revolving Credit
Loans made on or after the Effective Date shall be made as Alternate Base Rate
Loans and shall be subject to conversion to LIBOR Loans pursuant to Section
2.1(f).
Interest on LIBOR Loans shall bear interest at the rate equal
to the LIBOR Adjusted Rate plus a margin of 1.00% per annum and the Alternate
Base Rate Loans shall bear interest at the applicable Alternate Base Rate.
Interest on all Revolving Credit Loans shall be paid on each
applicable Interest Payment Date.
Interest shall be calculated on the basis of a year of 365/366
days (as applicable) for actual days that elapsed, in the case of Revolving
Credit Loan bearing interest at the Reference Rate. Interest on all other
Revolving Credit Loans shall be calculated on the basis of a year of 360 days
for actual days elapsed.
(f) The Borrower may elect from time to time to convert LIBOR
Loans to Alternate Base Rate Loans, by the Borrower giving the Bank at least two
(2) Business Days' prior irrevocable written notice of such election, provided
that any such conversion of LIBOR Loans may only be made on the last day of an
Interest Period with respect thereto. The Borrower may elect from time to time
to convert Alternate Base Rate Loans to LIBOR Loans by the Borrower giving the
Bank at least three LIBOR Business Days' prior irrevocable written notice of
such election. Any such notice of conversion to LIBOR Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. All or any
part of outstanding LIBOR Loans and Alternate Base Rate Loans may be converted
as provided herein, provided that (i) any such conversion may only be made if,
after giving effect thereto, each such LIBOR Loan or Alternate Base Rate Loan
shall be equal to at least $500,000 or an integral multiple thereof, (ii) no
Revolving Credit Loan may be converted into a LIBOR Loan after the date that is
one (1) month prior to the Maturity Date and (iii) the Borrower shall not have
the right to elect or to continue at the end of the applicable Interest Period,
or to convert to, a LIBOR Loan if a Default shall have occurred and be
continuing.
Any LIBOR Loan may be continued as such upon the expiration of the
then current Interest Period with respect thereto by the Borrower giving notice
to the Bank in accordance with Section 2.1(b), of the length of the next
Interest Period to be applicable to such LIBOR Loan, provided that no LIBOR Loan
may be continued as such (i) if, after giving effect thereto, each such LIBOR
Loan would be less than $500,000 or an integral multiple thereof, (ii) after the
date that is one (1) month prior to the Maturity Date or (iii) if a Default
shall have occurred and be continuing and provided, further, that if the
Borrower shall fail to give any required notice as described above in this
Section or if such continuation is not permitted pursuant to the preceding
proviso, such LIBOR Loan shall be automatically converted to Alternate Base Rate
Loans on the last day of such then-expiring Interest Period.
(g) The Borrower may on the last day of any Interest Period
with respect thereto, in the case of LIBOR Loans, or at any time and from time
to time, in the case of Alternate Base Rate Loans, prepay such amounts, in whole
or in part, without premium or penalty, upon at least three (3) Business Days'
irrevocable written notice, in the case of both LIBOR Loans and Alternate Base
Rate Loans, from the Borrower to the Bank, specifying the date and amount of
prepayment and whether the prepayment is of LIBOR Loans or Alternate Base Rate
Loans or a combination thereof, and, if of a combination thereof, the amount
allocable to each. If any such notice is given, the amounts specified in such
notice shall be due and payable by the Borrower on the date specified therein,
together with accrued interest to such date on the amount prepaid and any other
amounts payable hereunder. Partial prepayments of Revolving Credit Loans shall
be in an aggregate principal amount at least equal to $1,000,000 or an integral
multiple thereof or the amount of Revolving Credit Loans outstanding, if less.
If LIBOR Loans are prepaid by reason of acceleration or otherwise on other than
the last day of an Interest Period, the Borrower shall upon the Bank's request,
promptly pay to and indemnify the Bank for all costs and any losses (including
interest) actually incurred by the Bank and any losses (including loss of profit
resulting from the re-employment of funds) sustained by the Bank as a
consequence of such prepayment. Any prepayment shall first be applied to pay
accrued interest, then be applied to pay the principal of Revolving Credit
Loans.
(h) The Borrower hereby promises and agrees to pay the
outstanding principal of all Revolving Credit Loans on the Maturity Date.
Each payment received by the Bank shall be applied to pay
interest then due and unpaid and the remainder thereof (if any) shall be applied
to pay principal.
(i) The Borrower agrees to pay to the Bank a commitment fee of
.25% per annum on the unutilized portion of the Commitment for the period from
the Effective Date to but excluding the Maturity Date (and, for purposes of this
calculation, issued Letters of Credit shall be deemed usage of the Commitment),
payable quarterly in arrears and computed on a year of 360 days for actual days
elapsed.
(j) The Borrower agrees to pay to the Bank an up-front
facility fee on the Effective Date equal to 1/4 of 1% of the Commitment.
(k) At the Borrower's option and upon at least five (5)
Business Days' prior irrevocable notice to the Bank, with such notice specifying
the amount and the date of such reduction, the Borrower may permanently reduce
the Commitment in whole at any time or in part from time to time; provided,
however, that each partial reduction of the Commitment shall be in an aggregate
amount equal to at least $1,000,000 or an integral multiple thereof or the
amount of the Commitment, if less. Upon each reduction of the Commitment, the
Borrower shall (i) pay the commitment fee, payable pursuant to Section 2.1(i),
accrued on the amount of the Commitment so reduced through the date of such
reduction, (ii) prepay the amount, if any, by which the sum of (A) the aggregate
unpaid principal amount of the Revolving Credit Loans and (B) the aggregate
Letter Credit Amount of all Letters of Credit outstanding exceed the amount of
the Commitment as so reduced, together with accrued interest on the amount being
prepaid to the date of such prepayment (or, with respect to outstanding Letters
of Credit, make a cash collateral deposit in an amount equal to such excess to
the extent such excess is not corrected by the foregoing prepayment) and (iii)
compensate the Bank for its funding costs, if any, in accordance with Section
8.5.
. 2.2 ISSUANCE OF LETTERS OF CREDIT
(a) The Borrower shall be entitled to request the issuance of
Letters of Credit from time to time from and including the Effective Date to but
excluding the date which is thirty (30) Business Days prior to the Maturity Date
by giving the Bank a Letter of Credit request at least three (3) Business Days
before the requested date of issuance of such Letter of Credit (which shall be a
Business Day). Any Letter of Credit Request received by the Bank later than
10:00 a.m., Los Angeles time, shall be deemed to have been received on the next
Business Day. Such Letter of Credit request shall be made in writing, shall be
signed by an authorized officer of the Borrower, shall be irrevocable and shall
be effective upon receipt by the Bank. Provided that a valid Letter of Credit
request has been received by the Bank and upon fulfillment of the other
applicable conditions set forth in Section 3, the Bank will issue the requested
Letter of Credit from its office specified in Section 9.4. No Letter of Credit
shall have an expiration date later than three (3) Business Days prior to the
Maturity Date.
(b) The payment by the Bank of a draft drawn under any Letter
of Credit shall first be made from any cash collateral deposit held by the Bank
with respect to such Letter of Credit. After any such cash collateral deposit
have been applied, prepayment by the Bank of a draft drawn under any Letter of
Credit shall constitute for all purposes of this Agreement the making by the
Bank of an Alternate Base Rate Loan in the amount of such payment (but without
any requirement of compliance with the conditions set forth in Section 3 and
without regard to any minimum borrowing amount).
(c) The obligations of the Borrower with respect to any Letter
of Credit, any Letter of Credit request and any other agreement or instrument
relating to any Letter of Credit and any Alternate Base Rate Loan made under
Section 2.2(b) shall be absolute, unconditional and irrevocable and shall be
paid strictly in accordance with the aforementioned documents under all
circumstances, including the following:
(i) any lack of validity or enforceability of any Letter of
Credit, this Agreement or any other related documents;
(ii) the existence of any claim, setoff, defense or other right
that the Borrower may have at any time against any beneficiary or
transferee of any Letter of Credit (or any person for whom any such
beneficiary or transferee may be acting), the Bank or any person,
whether in connection with this Agreement, and any other related
documents, the transactions contemplated hereby or thereby or any
unrelated transaction;
(iii) any statement or other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect, or any statement therein being untrue or inaccurate in
any respect whatsoever;
(iv) payment by the Bank under any Letter of Credit against
presentation of the draft or certificate that does not substantially
comply on its face with the terms of such Letter of Credit;
(v) any exchange, release or non-perfection of any collateral or
any of the lease, amendment or waiver of or consent to departure from
any guarantee for any of the Obligations of the Borrower in respect of
the Letters of Credit; and
(vi) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
(d) The Borrower shall pay to the Bank with respect to each
Letter of Credit issued hereunder, for the period from and including the day
such Letter of Credit is issued to but excluding the day such Letter of Credit
expires or is cancelled, a letter of credit fee equal to 1.00% per annum of the
Letter of Credit Amount of such Letter of Credit from time to time, such letter
of credit fee to be payable quarterly in arrears on the last day of each March,
June, September and December and on the expiration date or cancellation date of
such Letter of Credit.
(e) The Borrower shall pay to the Bank with respect to each
Letter of Credit issued hereunder, for the period from and including the day
such Letter of Credit is issued to but excluding the day such Letter of Credit
expires, such additional fees and charges (including cable charges) as are
generally associated with letters of credit, in accordance with the Bank's
standard internal charge guidelines and the related Letter of Credit request.
(f) The Borrower assumes all risks of the acts or omissions of
any beneficiary or transferee of any Letter of Credit with respect to its use of
such Letter of Credit. Neither the Bank nor any of its officers or directors
shall be liable or responsible for (i) the use that may be made of any Letter of
Credit or any acts or omissions of any beneficiary or transferee in connection
therewith; (ii) the validity, sufficiency or genuineness of documents, or of any
endorsement thereof, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (iii) payment by the Bank
against presentation of documents that do not comply with the terms of any
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to any Letter of Credit; or (iv) any other circumstance
whatsoever in making or failing to make payment under any Letter of Credit. In
furtherance and not in limitation of the foregoing, the Bank may accept any
document that appears on its face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
Notwithstanding anything herein to the contrary, the Borrower shall not be
responsible for any acts of gross negligence or willful misconduct by the Bank.
SECTION 3
CONDITIONS OF LENDING
3.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING CREDIT LOAN OR
LETTER OF CREDIT: The obligation of the Bank to make the first extension of
credit (either by a Revolving Credit Loan or a Letter of Credit) to or on
account of the Borrower hereunder is subject to the conditions precedent that
the Bank shall have received before the date of such first extension of credit
all of the following, in form and substance reasonably satisfactory to the Bank:
(a) Evidence that the execution, delivery and performance by
the Borrower of this Agreement and any document, instrument or agreement
required hereunder have been duly authorized.
(b) The up-front facility fee referred to in Section 2.1(j).
(c) An incumbency certificate of the Borrower dated the
Effective Date executed by one of its authorized officers or its Secretary or
Assistant Secretary.
(d) A copy of the resolutions of the Board of Directors of the
Borrower dated as of the Effective Date authorizing (i) the execution, delivery
and performance of this Agreement and related documents to which the Borrower is
or will become a party and (ii) the borrowings contemplated hereunder, in each
case certified by the Secretary or Assistant Secretary, which certificate states
that the resolutions thereby certified have not been amended, modified, revoked
or rescinded and are in full force and effect.
(e) Copies of the Certificate of Incorporation and Bylaws of
the Borrower, certified as of the Effective Date as complete and correct copies
thereof by the Secretary or Assistant Secretary of the Borrower.
(f) Payment of all fees, costs and expenses accrued and unpaid
and otherwise due and payable on or before the Effective Date by the Borrower in
connection with Section 9.3 of this Agreement.
(g) The executed legal opinion of David C. Watt, general
counsel to the Borrower, in form and substance reasonably acceptable to the
Bank.
(h) A certificate, dated a recent date, of the Secretaries of
the States of Delaware and California and each other jurisdiction where the
Borrower is required to be qualified to do business under such jurisdiction's
law, certifying as to the existence and good standing of, and the payment of
taxes by, the Borrower in each such state and listing all charter documents of
the Borrower on file with such officials.
(i) such other evidence as the Bank may reasonably request to
establish the consummation of the transaction contemplated hereunder and
compliance with the conditions of this Agreement.
3.2 CONDITIONS PRECEDENT TO EACH REVOLVING CREDIT LOAN OR LETTER OF
CREDIT : The obligation of the Bank to make each Revolving Credit Loan
(including the initial Revolving Credit Loan) or to issue each Letter of Credit
(including the initial Letter of Credit) to or on account of the Borrower
hereunder is subject to the following conditions precedent, which shall be
deemed certified by the Borrower to the Bank with each delivery of a borrowing
notice or Letter of Credit request:
(a) The following are true as of each borrowing date and on
each date on which a Letter of Credit is issued:
(i) The representations and warranties contained in
this Agreement and in each of the related documents and certificates
delivered to the Bank prior to, on or after the Effective Date pursuant
hereto and on or prior to the date for such Revolving Credit Loan or
the issuance of such Letter of Credit are correct on and as of such
date in all material respects as though made on and as of such date,
except to the extent that such representations and warranties expressly
relate to an earlier date;
(ii) No Default has occurred and is continuing or would
result from the making of the Revolving Credit Loan to be made on such
date or the issuance of such Letter of Credit as of such date; and
(iii) The making of such Revolving Credit Loan or the
issuance of such Letter of Credit, as applicable, shall not contravene
any law, rule or regulation applicable to the Borrower.
(b) The Bank shall have received a borrowing notice or Letter
of Credit request, as applicable, pursuant to the provisions of this Agreement
from the Borrower.
SECTION 4
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties
to the Bank, which representations and warranties are true and correct:
4.1 STATUS: The Borrower is a corporation duly organized and validly
existing under the laws of the State of Delaware and it and each Subsidiary is
properly licensed and is qualified to do business and in good standing in, and,
where necessary to maintain the Borrower's and such Subsidiary's rights and
privileges, has complied in all material respects with the fictitious name
statute of every jurisdiction in which the Borrower or such Subsidiary is doing
business, except where the failure to do so would result or could reasonably be
expected to result in a Material Adverse Effect.
4.2 AUTHORITY: The execution, delivery and performance by the Borrower
of this Agreement and any instrument, document or agreement required hereunder
have been duly authorized and do not: (a) violate any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having application to the Borrower or any Subsidiary,
(b) result in a breach of or constitute a default under any material indenture
or loan or credit agreement or other material agreement, lease or instrument to
which the Borrower or any Subsidiary is a party or by which it or its properties
may be bound or affected; or (c) require any consent or approval of its
stockholders or violate any provision of its certificate of incorporation or
by-laws.
4.3 LEGAL EFFECT: This Agreement constitutes, and any instrument,
document or agreement required hereunder when delivered hereunder will
constitute, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms except as the
same may be limited by applicable bankruptcy, insolvency, reorganization or
similar laws relating to or limiting creditors' rights generally and subject to
the availability of equitable remedies.
4.4 FINANCIAL STATEMENTS: The audited consolidated balance sheet of
the Borrower and its Subsidiaries as at December 31, 1995 and the related
audited consolidated statements of operations, changes in stockholders' equity
and statements of cash flows for the fiscal year ended on such date, copies of
which have heretofore been furnished to the Bank, present fairly the
consolidated financial condition of the Borrower and its Subsidiaries as at such
date in all material respects, and the consolidated results of their operations,
consolidated changes in stockholders' equity and their consolidated cash flows
for the fiscal year then ended in all material respects. The unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as at September
30, 1996 and the related unaudited consolidated statements of operation and cash
flows for the nine-month period ended on such date, a copy of which has
heretofore been furnished to the Bank, present fairly the consolidated financial
condition of such entities at such date in all material respects (subject to
normal year-end audit adjustments), and the consolidated results of their
operations and their respective consolidated cash flows for the nine-month
period then ended. All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with generally
accepted accounting principles applied consistently throughout the periods
involved. Since the most recent submission of such financial information or data
to the Bank, the Borrower represents and warrants that no material adverse
change in the financial condition or operations of the Borrower and its
Subsidiaries taken as a whole has occurred which has not been fully disclosed to
the Bank in writing.
4.5 LITIGATION: Except as have been disclosed to the Bank or disclosed
in reports filed with the Securities and Exchange Commission, there are no
actions, suits or proceedings pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or the Borrower's Subsidiaries or
properties before any court or administrative agency which could reasonably be
expected, if determined adversely to the Borrower or any Subsidiary, to have a
material adverse effect on the Borrower's consolidated financial condition or
operations.
4.6 TITLE TO ASSETS: The Borrower and each Subsidiary has good and
marketable title to all of its assets, except for assets which are leased and
except whether the failure to have such title would not result or could
reasonably be expected to result in a Material Adverse Effect. Such assets are
not subject to any security interest, encumbrance, lien or claim of any third
person except for Permitted Liens.
4.7 ERISA: If the Borrower or any Subsidiary has a pension, profit
sharing or retirement plan subject to ERISA, such plan has been funded in
accordance with its terms and otherwise complies in all material respects with
the requirements of ERISA, except as disclosed in writing to the Bank prior to
the date of this Agreement.
4.8 TAXES: The Borrower and each Subsidiary has filed all tax returns
required to be filed and paid all taxes shown thereon to be due, including
interest and penalties, other than such taxes which are currently payable
without penalty or interest or those which are being duly contested in good
faith.
4.9 REGULATION U: The proceeds of the Revolving Credit Loans will not
be used to purchase or carry margin stock.
4.10: ENVIRONMENTAL COMPLIANCE: The Borrower and each Subsidiary has
implemented and complied in all material respects with all applicable federal,
state and local laws, ordinances, statutes and regulations with respect to
hazardous or toxic wastes, substances or related materials, industrial hygiene
or environmental conditions, except where the failure to so comply would not
result or could reasonably be expected to result in a Material Adverse Effect.
Except as previously disclosed to the Bank or in filings of the Borrower with
the Securities and Exchange Commission, there are no suits, proceedings, claims
or disputes pending or, to the knowledge of the Borrower or any Subsidiary,
threatened against or affecting the Borrower or any Subsidiary or its property
claiming violations of any federal, state or local law, ordinance, statute or
regulation relating to hazardous or toxic wastes, substances or related
materials which could reasonably be expected, if determined adversely to the
Borrower or any Subsidiary, to have a Material Adverse Effect.
SECTION 5
COVENANTS
The Borrower covenants and agrees that, during the term of this
Agreement, and so long thereafter as the Borrower is indebted to the Bank under
this Agreement, the Borrower will and will cause each Material Subsidiary to,
unless the Bank shall otherwise consent in writing:
5.1 PRESERVATION OF EXISTENCE; WITH APPLICABLE LAWS: Subject to
Section 5.12, maintain and preserve its existence; not liquidate or dissolve,
merge or consolidate with or into, any other business organization (other than
the Borrower or any Subsidiary); and conduct its business and operations in
accordance in all material respects with all applicable laws, rules and
regulations.
5.2 MAINTENANCE OF INSURANCE: Maintain insurance in such amounts and
covering such risks as is usually and prudently carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
which the Borrower and its Material Subsidiaries operate; provided that the
Borrower and its Material Subsidiaries shall be permitted to self-insure against
product liability risks.
5.3 MAINTENANCE OF PROPERTIES: Subject to Section 5.12, maintain and
preserve all its properties in good working order and condition in accordance
with the general practice of other businesses of similar character and size,
ordinary wear and tear excepted.
5.4 PAYMENT OF OBLIGATIONS AND TAXES: Make timely payment of all
assessments and taxes and all of its liabilities and obligations unless the same
are being contested in good faith by appropriate proceedings with the
appropriate court or regulatory agency, provided however that the Borrower and
its Material Subsidiaries may make payment of trade payables in accordance with
its customary business practices. For purposes hereof, the issuance of a check,
draft or similar instrument without delivery to the intended payee shall not
constitute payment.
5.5 INSPECTION RIGHTS: At any reasonable time and from time to time,
permit the Bank or any representative thereof to examine and make copies of the
records as the Bank may reasonably request and visit the properties of the
Borrower and its Subsidiaries and discuss the business and operations of the
Borrower and its Subsidiaries with any designated representative thereof. If the
Borrower and its Subsidiaries shall maintain any records (including, but not
limited to, computer generated records or computer programs for the generation
of such records) in the possession of a third party, the Borrower and its
Subsidiaries hereby agree to notify such third party to permit the Bank free
access to such records at all reasonable times and to provide the Bank with
copies of any records which it may reasonably request. The costs and expenses
associated with the first such visit and examination in any fiscal year shall be
at the Borrower's expense, the amount of which shall be payable within thirty
(30) days following demand. Any subsequent visits or examinations in the same
fiscal year shall be at the Bank's expense.
5.6 REPORTING AND CERTIFICATION REQUIREMENTS: Deliver or cause to be
delivered to the Bank in form and detail reasonably satisfactory to the Bank:
(a) Not later than one hundred (100) days after the end of
each of the Borrower's fiscal years, a copy of the annual audited consolidated
financial report of the Borrower and its Subsidiaries for such year, all
certified to as having been prepared in accordance with generally accepted
accounting principles consistently applied by Coopers & Lybrand or another firm
of certified public accountants reasonably acceptable to Bank.
(b) Not later than fifty-five (55) days after the end of each
fiscal quarter, the consolidated balance sheet and income statement for the
Borrower and its Subsidiaries, each as of the end of such period.
(c) Not later than fifty-five (55) days after the end of each
fiscal quarter, a certificate of the chief financial officer of the Borrower
demonstrating compliance as of the end of such period with each financial
covenant set forth herein, all in form satisfactory to the Bank.
(d) Not later than fifty-five (55) days after the end of each
fiscal quarter, a certificate of an authorized officer of the Borrower updating
any outstanding litigation in which the claim or liability exceeds $10,000,000
against the Borrower or any of its Subsidiaries as of the end of such period,
all in form satisfactory to the Bank.
(e) Not later than ten (10) days after sending or filing
thereof, copies of all regular and periodic reports and all registration
statements (including, but not limited to, Form 10-K and Form 10-Q) and
prospectuses, if any, filed by the Borrower or any of its Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority (other than reports of a routine or
ministerial nature which are not material).
(f) Promptly upon the Bank's request, such other information
pertaining to the Borrower as the Bank may reasonably request.
5.7 PAYMENT OF DIVIDENDS: Not declare or pay any dividends on any
class of stock now or hereafter outstanding except (a) dividends payable solely
in the Borrower's capital stock, (b) dividends by Subsidiaries and (c) dividends
payable on any class of the Borrower's stock not to exceed, in any fiscal year,
$40,000,000 in aggregate amount and not to exceed, during the term of this
Agreement, $60,000,000 in aggregate amount (or such higher amount as the Bank
and the Borrower shall negotiate in good faith).
5.8 REDEMPTION OR REPURCASE OF STOCK: Not redeem or repurchase any
class of the Borrower's stock now or hereafter outstanding, except redemptions
or repurchases of any class of the Borrower's stock not to exceed, in any fiscal
year, $40,000,000 in aggregate amount and not to exceed, during the term of this
Agreement, $60,000,000 in aggregate amount (or such higher amount as the Bank
and the Borrower shall negotiate in good faith).
5.9 ADDITIONAL INDEBTEDNESS: Not, after the date hereof, create, incur
or assume, directly or indirectly, any additional Indebtedness or any commitment
therefor other than (a) Indebtedness owed or to be owed to the Bank, (b)
intercompany Indebtedness, (c) other Indebtedness outstanding from time to time
in an aggregate amount not to exceed, at any time, $250,000,000 or (d) renewals
or refinancing of Indebtedness existing on the date hereof but only to the
extent of the principal of the Indebtedness outstanding on the date hereof.
5.10 LOANS: Not make any loans or advances or extend credit to any
third person (other than a Subsidiary), including, but not limited to,
directors, officers, shareholders or employees of the Borrower and its
Subsidiaries, except for (a) credit extended in the ordinary course of the
Borrower's or its Subsidiaries' business as presently conducted, (b) loans or
advances outstanding on the date hereof and (c) loans or advances currently or
in the future outstanding not to exceed, at any time, $2,000,000 in aggregate
amount.
5.11 LIENS AND ENCUMRANCES: Not create, assume or permit to exist any
security interest, encumbrance, mortgage, deed of trust, or other lien affecting
any of the Borrower's properties or any properties of its Material Subsidiaries,
or execute or allow to be filed any financing statement or continuation thereof
affecting any of such properties, except for Permitted Liens or as otherwise
provided in this Agreement.
5.12 TRANSFER ASSETS: Not, after the date hereof, sell, contract for
sale, convey, transfer, assign, lease or sublet (a "Transfer"), any of its
assets except (a) in the ordinary course of business as presently conducted by
the Borrower and its Subsidiaries, which ordinary course of business includes,
but is not limited to, sale-leasebacks of equipment and, then, only in an arm's
length transaction and (b) during the term of this Agreement, Transfer of assets
not exceeding, when combined with previous asset Transfers, fifteen percent
(15%) of the value of total assets (calculated at book value) of the Borrower
and its Subsidiaries on a consolidated basis as of the end of the most recently
completed fiscal quarter.
5.13 CHANGE IN NATURE OF BUSINESS: Not make any material change in the
fundamental nature of its business existing or conducted as of the date hereof.
5.14 FINANCIUAL CONDITION: Maintain at the end of each fiscal
quarter:IAL CONDITION
(a) A minimum consolidated Tangible Net Worth of at least
$250,000,000, plus 75% of the sum of Net Income for each fiscal quarter
beginning on or after the date hereof.
(b) A Fixed Charge Coverage Ratio of not less than 2.0 to 1.0.
(c) A Current Ratio of not less than 2.0 to 1.0. For the
purposes hereof, outstanding amounts under any revolving lines of credit shall
be included in Current Liabilities.
(d) A ratio of Total Liabilities to Tangible Net Worth of not
more than:
1.75 to 1.00 for the quarter ending December 31, 1996
1.50 to 1.00 for each fiscal quarter in 1997
1.25 to 1.00 for each fiscal quarter in 1998
5.15 NOTICE: Give the Bank prompt written notice of any and all (a)
Defaults; (b) litigation, arbitration or administration proceedings to which the
Borrower is a party and which would be required to be reported to the Securities
and Exchange Commission and (c) other matters, other than matters of a general
economic nature (other than those matters relating primarily to the Borrower or
its Subsidiaries or the industries in which the Borrower or its Subsidiaries
conducts its respective businesses) which have resulted in, or could reasonably
be expected to, result in a Material Adverse Effect.
5.16 CONSOLIDATED OPERATING LOSS: Not incur for any two consecutive
fiscal quarters an Operating Loss.
5.17 ENVIRONMENTAL COMPLIANCE: SHALL:
(a) Implement and comply in all material respects with all
applicable federal, state and local laws, ordinances, statutes and regulations
with respect to hazardous or toxic wastes, substances or related materials,
industrial hygiene or to environmental conditions.
(b) Own, use, generate, manufacture, store, handle, treat,
release or dispose of any hazardous or toxic wastes, substances or related
materials, only if such ownership or use would not result, or could reasonably
be expected to result, in a Material Adverse Effect.
(c) Give prompt written notice to the Bank of any discovery of
or suit, proceeding, claim, dispute, threat, inquiry or filing respecting
hazardous or toxic wastes, substances or related materials.
(d) At all times indemnify and hold harmless the Bank from and
against any and all liability arising out of the Borrower's or any Subsidiary's
use, generation, manufacture, storage, handling, treatment, disposal or presence
of hazardous or toxic wastes, substances or related materials.
5.18 Subordinated Debt: Not make any prepayment of principal, interest
or any other amount on Subordinated Debt until the Bank has been repaid in full
all Obligations.
5.19 Investments: Not acquire for consideration any evidence of
Indebtedness, stock or other securities of any person or entity, except as so
long as no Default then exists or would be caused thereby, the Borrower and its
Subsidiaries may make investments as follows:
(a) Purchase marketable, direct obligations of the U.S.
maturing within three hundred sixty-five (365) days of the date of purchase;
(b) Purchase commercial paper issued by corporations, each of
which conducts a substantial part of its business in the U.S., maturing within
one hundred eighty (180) days from the date of the original issue thereof, and
rated "P-1" or better by Moody's Investors Service or "A-1" or better by
Standard & Poor's Corporation;
(c) Acquisition of a majority of the voting interest of other
companies, divisions of other companies or product lines;
(d) overnight deposits; and
(e) such other investments which shall not, in aggregate
amount, at any time exceed $100,000,000.
SECTION 6
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an
event of default (an "Event of Default") under this Agreement:
6.1 NON-PAYMENT: The Borrower shall fail to pay any principal on any
Revolving Credit Loan when due or shall fail to pay any other Obligation within
five (5) days after the date when due.
6.2 PERFORMANCE UNDER THIS AND OTHER AGREEMENT: The Borrower or any
Subsidiary shall fail in any material respect to perform or observe any term,
covenant or agreement contained in this Agreement or in any document, instrument
or agreement evidencing or relating to any Indebtedness in excess of $10,000,000
(whether such Indebtedness is owed to the Bank or to third persons if such
failure would permit such third persons to accelerate the Indebtedness), and any
such failure (exclusive of the payment of money to the Bank under this Agreement
or under any other instrument, document or agreement, which failure shall
constitute and be an immediate event of default if not paid when due or when
demanded to be due, but after giving effect to any grace period therefore) shall
continue for more than fifteen (15) days after written notice from the Bank to
the Borrower of the existence and character of such event of default.
6.3 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS: Any
representation or warranty made by the Borrower under or in connection with this
Agreement or any financial statement given by the Borrower shall prove to have
been incorrect in any material respect when made or given or when deemed to have
been made or given.
6.4 INSOLVENCY: The Borrower or any Material Subsidiary shall: (a)
become insolvent or be unable to pay (due to reasons other than currency
liquidity problems) its debts as they mature; (b) make an assignment for the
benefit of creditors or to an agent authorized to liquidate any substantial
amount of its properties and assets; (c) file a voluntary petition in bankruptcy
or seeking reorganization or to effect a plan or other arrangement with
creditors; (d) file an answer admitting the material allegations of an
involuntary petition relating to bankruptcy or reorganization or join in any
such petition; (e) be adjudicated a bankrupt; (f) apply for or consent to the
appointment of, or consent that an order be made, appointing any receiver,
custodian or trustee, for itself or any of its properties, assets or businesses;
or (g) any receiver, custodian or trustee shall have been appointed for all or
substantial part of its properties, assets or businesses and shall not be
discharged within sixty (60) days after the date of such appointment.
6.5 EXECUTION: Any writ of execution or attachment or any judgment
lien which individually exceeds $5,000,000 or which, in the aggregate, exceeds
$10,000,000, shall be issued against any property of the Borrower or any
Subsidiary and there shall be any period of sixty (60) consecutive days during
which a stay of enforcement of such writ or judgment by reason of a pending
appeal, or otherwise, shall not be in effect.
6.6 SUSPENSION: The Borrower or any Material Subsidiary shall
voluntarily suspend the transaction of business or allow to be suspended,
terminated, revoked or expired any permit, license or approval of any
governmental body materially necessary to conduct the Borrower's or any Material
Subsidiary's business as now conducted if such suspension, termination,
revocation or expiration would result or could reasonably be expected to result
in a Material Adverse Effect.
6.7 CHANGE IN OWNERSHIP: There shall occur a sale, transfer,
disposition or encumbrance (whether voluntary or involuntary), or an agreement
shall be entered into to do so with, any Person or group of Persons (as such
terms are defined pursuant to Federal securities laws) with respect to more than
thirty-five percent (35%) of the issued and outstanding capital stock of the
Borrower and, as a result thereof, such Person or group of Persons has the
ability to direct or cause the direction of the management and policies of the
Borrower.
SECTION 7
REMEDIES ON DEFAULT
Upon the occurrence and during the continuation of any Event of
Default, the Bank may, at its sole and absolute election, without demand and
only upon such notice as may be required by law:
7.1 ACCELERATION: Declare any or all of the Borrower's Indebtedness
owing to the Bank, whether under this Agreement or any other document,
instrument or agreement, immediately due and payable, whether or not otherwise
due and payable.
7.2 CEASE EXTENDING CREDIT: Cease extending credit to or for the
account of the Borrower under this Agreement or under any other agreement now
existing or hereafter entered into between the Borrower and the Bank.
7.3 TERMINATION: Terminate this Agreement as to any future obligation
of the Bank without affecting the Borrower's Obligations to the Bank or the
Bank's rights and remedies under this Agreement or under any other document,
instrument or agreement.
7.4 CASH COLLATERAL: To the extent any Letters of Credit are then
outstanding, demand that the Borrower make a cash collateral deposit in an
amount equal to the aggregate Letter of Credit Amount. Any such cash collateral
shall first be used to reimburse the Bank for drawings under outstanding Letters
of Credit. Upon expiration and payment of all Letters of Credit, any remaining
cash collateral shall be applied to repay outstanding Revolving Credit Loans.
7.5 NON-EXCLUSIVITY OF REMEDIES: Exercise one or more of the Bank's
rights set forth herein or seek such other rights or pursue such other remedies
as may be provided by law, in equity or in any other agreement now existing or
hereafter entered into between the Borrower and the Bank, or otherwise.
SECTION 8
BANK PROTECTIONS
8.1 INABILITY TO DETERMINE INTEREST RATE: In the event that prior to
the first day of an Interest Period:
(a) the Bank shall have determined (which determination shall
be conclusive and binding upon the Borrower absent manifest error) that, by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the LIBOR Adjusted Rate for such Interest
Period, or
(b) the Bank shall have determined that the LIBOR Adjusted
Rate determined or to be determined for such Interest Period will not adequately
and fairly reflect the cost to the Bank of making or maintaining its affected
Revolving Credit Loans during such Interest Period,
the Bank shall give prompt telecopy or telephonic notice thereof to the
Borrower. If such notice is given (i) any LIBOR Loans requested to be made on
the first day of such Interest Period shall accrue interest at the Alternate
Base Rate, (ii) Revolving Credit Loans that were to have been converted on the
first day of such Interest Period to LIBOR Loans shall be continued as Alternate
Base Rate Loans and (iii) any outstanding LIBOR Loans shall be converted, on the
first day of such Interest Period, to Revolving Credit Loans accruing interest
at the Alternate Base Rate Loans. Until such notice has been withdrawn by the
Bank, no further LIBOR Loans shall be made or continued as such, nor shall the
Borrower have the right to convert Alternate Base Rate Loans to LIBOR Loans.
8.2 ILLEGALITY: Notwithstanding any other provision herein, if any
change after the date of execution hereof in any requirement of law or in the
interpretation or application thereof shall make it unlawful for the Bank to
make or maintain LIBOR Loans as contemplated by this Agreement, (a) the
commitment of the Bank hereunder to make LIBOR Loans, continue LIBOR Loans as
such and convert Alternate Base Rate Loans to LIBOR Loans shall forthwith be
suspended during such period of illegality and (b) the Revolving Credit Loans
then outstanding as LIBOR Loans, if any, shall be converted automatically to
Alternate Base Rate Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier period as
required by law. If any such conversion of a LIBOR Loan occurs on a day which is
not the last day of the then current Interest Period with respect thereto, the
Borrower shall pay to the Bank such amounts, if any, as may be required pursuant
to Section 8.5. To the extent that a Lender's LIBOR Loans have been converted to
Alternate Base Rate Loans pursuant to this Section, all payments and prepayments
of principal that otherwise would be applied to such Lender's LIBOR Loans shall
be applied instead to its Alternate Base Rate Loans.
8.3 INCREASED COSTS: (a) In the event that any change after the date
of execution hereof in any requirement of law or in the interpretation or
application thereof or compliance by the Bank with any request or directive
(whether or not having the force of law but, if not having the force of law,
generally applicable to and complied with by banks and financial institutions of
the same general type as the Bank in the relevant jurisdiction) from any central
bank or other governmental authority made subsequent to the date hereof:
(i) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirements against assets
held by, letters of credit or guarantees issued by, deposits or other
liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, any
office of the Bank which is not otherwise included in the determination
of the LIBOR Adjusted Rate hereunder; or
(ii) shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Bank of
issuing or maintaining any Letter of Credit or of making, converting into,
continuing or maintaining LIBOR Loans, or to reduce any amount receivable
hereunder in respect thereof then, in any such case, the Borrower shall
immediately pay to the Bank, upon the demand of the Bank, any additional amounts
necessary to compensate the Bank for such increased cost or reduced amount
receivable. If the Bank becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrower of the event by
reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this Section submitted by the Bank to the Borrower
shall be conclusive evidence of the accuracy of the information so recorded,
absent manifest error. This covenant shall survive the termination of this
Agreement, expiration of the Letters of Credit and the payment of all other
amounts payable hereunder.
(b) If, after the date of this Agreement, the introduction of
or any change in any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change in the interpretation or administration thereof
by any governmental authority charged with the interpretation or administration
thereof, affects the amount of capital required or expected to be maintained by
the Bank or any corporation controlling the Bank, and the Bank (taking into
consideration the Bank's or such corporation's policies with respect to capital
adequacy) determines that the amount of capital maintained by the Bank or such
corporation which is attributable to or based upon the Revolving Credit Loans,
the Letters of Credit, the Commitment or this Agreement must be increased as a
consequence of such introduction or change by an amount deemed by the Bank to be
material, then, the Bank shall promptly notify the Borrower thereof and, upon
demand of the Bank, the Borrower shall immediately pay to the Bank additional
amounts sufficient to compensate the Bank or such corporation for the increased
costs to the Bank or corporation of such increased capital. Any such demand
shall be accompanied by a certificate of the Bank setting forth in reasonable
detail the computation of any such increased costs, which certificate shall be
conclusive, absent manifest error. This obligation of the Borrower under this
Section shall survive repayment of the Revolving Credit Loans, expiration of the
Letters of Credit and payment of all other amounts hereunder in full and the
termination of this Agreement.
8.4 TAXES: (a) All payments made by the Borrower to the Bank in
respect of the Obligations shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any governmental authority or any political subdivision or taxing authority
thereof or therein, other than Excluded Taxes (all such non-Excluded Taxes being
hereinafter called "TAXES"). If any Taxes are required to be withheld from any
amounts payable to the Bank in respect of the Obligations, the amounts so
payable to the Bank shall be increased to the extent necessary to yield to the
Bank (after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement. The Bank
shall deliver to the Borrower a certificate setting forth the amount of such
Taxes, the calculation of such Taxes and an explanation of the requirement
therefor, all in reasonable detail and such certificate shall be conclusive,
absent manifest error. Whenever any Taxes are payable by the Borrower, as
promptly as possible thereafter, the Borrower shall send to the Bank a copy of
an original official receipt received by the Borrower showing payment thereof or
such other evidence of payment reasonably satisfactory to the Bank. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Bank the required receipts or other required documentary
evidence, the Borrower shall indemnify the Bank for any incremental taxes,
interest or penalties (and related reasonable fees and expenses of counsel) that
may become payable by the Bank as a result of any such failure. The agreements
in this Section shall survive the termination of this Agreement, the expiration
of the Letters of Credit and the payment of all other amounts payable hereunder.
(b) The Bank agrees that prior to the date the Borrower makes
any payments under this Agreement it will deliver to the Borrower two duly
completed copies of (i) United States Internal Revenue Service Form 1001 or 4224
or successor applicable form, as the case may be, and (ii) an Internal Revenue
Service Form W-8 or W-9 or successor applicable form. The Bank also agrees to
deliver to the Borrower two further copies of the said Form 1001 or 4224 and
Form W-8 or W-9, or successor applicable forms or other manner or certification,
as the case may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower, and such extensions or
renewals thereof as may reasonably be requested by the Borrower, unless in any
such case an event beyond the control of the Bank (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent the Bank from duly completing and
delivering any such form with respect to it and the Bank so advised the
Borrower. The Bank shall certify (i) in the case of a Form 1001 or 4224, that it
is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from U.S. backup
withholding tax.
(c) The Borrower shall not be required to pay any amounts to
the Bank in respect of U.S. withholding tax pursuant to this Section if the
obligation to pay such amounts would not have arisen but for a failure by the
Bank to comply with the requirements of this Section (including the accuracy of
the certificates described in Section 8.04(b)).
8.5 INDEMNITY: The Borrower agrees to indemnify the Bank and to hold
the Bank harmless from and to pay the Bank within 5 days of the Bank's demand
the amount of any liability, loss or expense arising from the reemployment of
funds obtained by it or from fees payable to terminate the deposits from which
such funds were obtained (including reasonable fees and expenses of counsel)
which the Bank may sustain or incur as a consequence of (a) default by the
Borrower in payment when due of the principal amount of or interest on any LIBOR
Loan, (b) default by the Borrower in making a borrowing of, conversion into or
continuation of LIBOR Loans after the Borrower has given a notice requesting the
same in accordance with the provisions of this Agreement, (c) default by the
Borrower in making any prepayment after the Borrower has given a notice thereof
in accordance with the provisions of this Agreement or (d) the making by the
Borrower of a prepayment or conversion of LIBOR Loans on a day which is not the
last day of an Interest Period with respect thereto. The Bank's certificate as
to such liability, loss or expense shall be deemed conclusive, absent manifest
error. This covenant shall survive the termination of this Agreement and the
payment of all other amounts payable hereunder.
8.6 MITIGATION OF COSTS: If the Bank, by changing its applicable
lending office or taking any other reasonable action, can mitigate any adverse
effect on the Borrower under this Section 8, the Bank shall take such action, so
long as making such change or taking such other action is not, in the good faith
judgment of the Bank, disadvantageous to it in any financial, regulatory or
other respect.
SECTION 9
MISCELLANEOUS
9.1 DEFAULT INTEREST RATE: The Borrower shall pay the Bank interest on
any indebtedness or amount payable under this Agreement, from the date that such
indebtedness or amount became due or was demanded to be due until paid in full,
at a rate which is 3% in excess of the applicable interest rate otherwise
provided under this Agreement.
9.2 RELIANCE: Each warranty, representation, covenant, obligation and
agreement contained in this Agreement shall be conclusively presumed to have
been relied upon by the Bank regardless of any investigation made or information
possessed by the Bank and shall be cumulative and in addition to any other
warranties, representations, covenants and agreements which the Borrower now or
hereafter shall give, or cause to be given, to the Bank in writing, other than
those implied hereunder.
9.3 EXPENSES: Reasonable out-of-pocket expenses and attorneys' fees of
the Bank shall be paid by the Borrower in connection with the preparation of
this Agreement. In the event of any action in relation to this Agreement or any
document, instrument or agreement executed with respect to, evidencing or
securing the Obligations, the Borrower shall, in addition to all other sums
which it may owe to Bank, pay all reasonable attorneys' fees incurred by the
Bank.
9.4 NOTICES: All notices, payments, requests, information and demands
which either party hereto may desire, or may be required to give or make to the
other party hereto, shall be given or made to such party by hand delivery,
overnight courier service or through deposit in the United States mail, postage
prepaid, or by telecopier addressed as set forth below or to such other address
as may be specified from time to time in writing by either party to the other
and shall be deemed effective upon receipt.
To the Borrower: To the Bank:
ICN PHARMACEUTICALS, INC. BANQUE NATIONALE DE PARIS
3300 Hyland Avenue Los Angeles Branch
Costa Mesa, CA 92626 725 So. Figueroa Street,
Suite 2090
Los Angeles, CA 90017
Attn: Operational Controller Attn: Tjalling Terpstra
and Director of Cash Vice President
Management
Telecopier No. (714) 668-3145 Telecopier No. (213) 488-9602
9.5 WAIVER: Neither the failure nor delay by the Bank in exercising
any right hereunder or under any document, instrument or agreement mentioned
herein shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder or under any other document, instrument or
agreement mentioned herein preclude other or further exercise thereof or the
exercise of any other right; nor shall any waiver of any right or default
hereunder, or under any other document, instrument or agreement mentioned
herein, constitute a waiver of any other right or default or constitute a waiver
of any other default of the same or any other term or provision.
9.6 CONFLICTING PROVISIONS: To the extent the provisions contained in
this Agreement are inconsistent with those contained in any other document,
instrument or agreement executed pursuant hereto, the terms and provisions
contained herein shall control. Otherwise, such provisions shall be considered
cumulative.
9.7 BINDING EFFECT; ASSIGNMEENT: This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Bank. The Bank may sell, assign or grant participations in all or
any portion of its rights and benefits hereunder. The Borrower agrees that, in
connection with any such sale, grant or assignment, the Bank may deliver to the
prospective buyer, participant or assignee financial statements and other
relevant information relating to the Borrower if such third party agrees in
writing to abide by the confidentiality provisions of Section 9.12 hereof.
9.8 JURISDICTION: This Agreement, and any documents, instruments or
agreements mentioned or referred to herein shall be governed by and construed
according to the laws of the State of California, to the jurisdiction of whose
courts the parties hereby submit.
9.9 WAIVER OF JURY TRIAL: THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
9.10 HEADINGS: The headings herein set forth are solely for the
purpose of identification and have no legal significance.
9.11 ENTIRE AGREEMENT: This Agreement and all documents, instruments
and agreements mentioned herein constitute the entire and complete understanding
of the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties pertaining to
the transactions contemplated hereunder not incorporated or referenced in this
Agreement or in such documents, instruments and agreements are superseded
hereby.
9.12 CONFIDENTIALITY: The Bank shall take normal and reasonable
precautions to maintain the confidentiality of all non-public information
obtained pursuant to the provisions of this Agreement but may, in any event,
make disclosures (a) reasonably required by any bona fide transferee, assignee
or participant in connection with the contemplated transfer or assignment of any
of the Commitment or Revolving Credit Loans or participations herein or
participations in Letters of Credit or (b) as required or requested by any
governmental agency or representative thereof or as required pursuant to legal
process or (c) to its attorneys and accountants or (d) as required by law or (e)
in connection with litigation involving the Bank; provided that the Bank shall
use its best efforts to notify the Borrower of any requirement or request by any
governmental agency or representative thereof (other than such request in
connection with an examination of the Bank by such governmental agency) and any
requirement pursuant to legal process of or disclosure of such information
(other than in connection with litigation between the Borrower and the Bank) and
further provided that in the case of clauses (a) and (e), the Banks makes each
person aware of the terms of this Section 9.12 and such persons agree to abide
by such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first hereinabove written.
BANK: BORROWER:
BANQUE NATIONALE DE PARIS ICN PHARMACEUTICALS, INC.
Los Angeles Branch
By: /s/ C. BEETLES By: /s/ BARBAROS GUVENC
---------------------------- ------------------------------
Name: C. Beetles Name: BARBAROS GUVENC
---------------------------- ------------------------------
Title: Sr. V.P. & Manager Title: TREASURER
---------------------------- ------------------------------
By: /s/ TJALLING TERPSTRA
-------------------------
Name: TJALLING TERPSTRA
-------------------------
Title: VICE PRESIDENT
-------------------------
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement is entered into this 24th day
of February 1998, by and between BANQUE NATIONALE DE PARIS, Los Angeles Branch
(the "Bank"), and ICN PHARMACEUTICALS, INC., a Delaware corporation (the
"Borrower").
WHEREAS, the Bank and the Borrower have entered into that certain
Credit Agreement dated as of March 31, 1997 (as amended by the First Amendment
to Credit Agreement dated as of August 13, 1997, and as further amended from
time to time, the "Credit Agreement") in connection with the making by the Bank
of revolving credit loans and the issuance of letters of credit.
WHEREAS, the Borrower has requested the Bank to issue a standby letter
of credit (the "Standby Letter of Credit") in the amount of $28,300,000 for the
account of the Borrower and for the benefit of SmithKline Beecham.
WHEREAS, in connection with the Standby Letter of Credit, the Bank and
the Borrower desire to make certain amendments to the Credit Agreement to (i)
increase the Commitment, (ii) extend the Maturity Date, (iii) permit additional
indebtedness and (iv) include an Account Pledge Agreement.
NOW, THEREFORE, the Bank and the Borrower, in consideration of the
foregoing recitals and covenants contained herein, do hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is,
effective as of the date first set forth above (the "Effective Date") but
subject to fulfillment of the conditions set forth in Section 2 below, hereby
amended as follows:
(a) The definition of "Commitment" in Section 1.1 is amended in the
following manner:
The amount of "$15,000,000" referred to therein is deleted and a new
amount of "$28,300,000" is substituted in its place.
(b) The definition of "Maturity Date" in Section l .l is amended in the
following manner:
The date of "March 31, 1999" referred to therein is deleted and a new
date of "December 31, 1999" is substituted in its place.
(c) Section 5.9, Additional Indebtedness, is amended in the following
manner:
<PAGE>
The aggregate amount of "$275,000,000" referred to in subsection (c)
is deleted and a new aggregate amount of "$325,000,000" is substituted
in its place.
(d) The first half of Section 6.2, Performance Under This and Other
Agreements, is amended to read as follows:
The phrase "any term, covenant or agreement contained in this
Agreement" in the third and fourth lines thereof are deleted and a new
phrase "any term, covenant or agreement contained in this Agreement or
in the Account Pledge Agreement dated as of February 24, 1998 by the
Borrower in favor of the Bank" is substituted in its place.
SECTION 2. CONDITIONS TO EFFECTIVENESS OF AMENDMENT The effectiveness
of this Amendment is subject to receipt by the Bank of the following:
(a) this Amendment, duly authorized, executed and delivered by each
party hereto;
(b) a $15,000,000 deposit with the Bank, required as cash collateral
in connection with the Standby Letter of Credit; and
(c) an Account Pledge Agreement (in form and substance satisfactory to
the Bank) duly authorized, executed and delivered by the Borrower.
SECTION 3. REPRESENTATIONS AND WARRANTIES The Borrower hereby
represents and warrants that no Default or Event of Default has occurred and is
continuing and that the representations and warranties set forth in the Credit
Agreement are true and correct as of the Effective Date, except as such
representations and warranties relate solely to an earlier date.
SECTION 4. EFFECT ON CREDIT AGREEMENT. Except as otherwise amended
above, the remaining provisions of the Credit Agreement remain in full force and
effect without amendment.
- -2-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Second Amendment to
Credit Agreement to be duly executed and delivered as of the date first written
above.
BANK: BORROWER:
BANQUE NATIONALE DE PARIS, ICN PHARMACEUTICALS, INC.
Los Angeles Branch a Delaware corporation
By: /s/ C. Bettles By: /s/ John E. Giordani
--------------------------------- -----------------------------
Name: C. Bettles Name: JOHN E. GIORDANI
Title: Sr. V.P. & Manager TITLE: Chief Financial Officer
and Executive Vice President
By: /s/ Deborah Y. Gohh
--------------------------------
Name: Deborah Y. Gohh
Title: Vice President
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Second Amendment to
Credit Agreement to be duly executed and delivered as of the date first written
above.
BANK: BORROWER:
BANQUE NATIONALE DE PARIS ICN PHARMACEUTICALS, INC.
Los Angeles Branch a Delaware Corporation
By: By: /s/ John E. Giordani
------------------------ ---------------------------
Name: Name: John E. Giordani
Title: Title: Chief Financial Officer
and Executive Vice President
By:
------------------------
Name:
Title:
ICN Pharmaceuticals, Inc. is incorporated in the State of Delaware. The
following table shows the Company's subsidiaries as of December 31, 1997, the
percentage of their voting securities (including directors' qualifying shares)
then owned, directly or indirectly by the Company, and the jurisdiction under
which each subsidiary is incorporated. These subsidiaries are included in the
Company's Consolidated Financial Statements.
PERCENTAGE
OF VOTING
JURISDICTION SECURITIES OWNED
OF BY COMPANY
INCORPORATION OR SUBSIDIARY
------------- -------------
ICN Canada, Limited Canada 100
Alpha Pharmaceutical, Inc. Panama 100
ICN Farmaceutica, S.A. Mexico 100
Laboratorios Grossman, S.A. Mexico 100
ICN Pharmaceuticals Holland, B.V. Netherlands 100
ICN Biomedicals, Inc. Delaware 100
ICN Yugoslavia Yugoslavia 75
ICN Biomedicals GmbH--Eschwege Germany 100
ICN Pharmaceuticals Australasia Pty Ltd. Australia 100
ICN Pharmaceuticals Japan, K.K. Japan 100
ICN Biomedicals B.V. Netherlands 100
ICN Biomedicals California, Inc. California, U.S.A. 100
ICN Iberica Spain 100
Labsystems Benelux B.V. Netherlands 100
Labsystems Benelux N.V. Belgium 100
ICN Biomedicals, Ltd. Scotland 100
ICN Biomedicals, GmbH Germany 100
ICN France SARL France 100
ICN Biomedicals S.R.L. Italy 100
ICN Biomedicals N.V./S.A. Belgium 100
ICN Oktyabr Russia 90
ICN Polypharm Russia 89
ICN Leksredstva Russia 95
ICN Alkaloida Hungary 67
Polfa Rzeszow, S.A. Poland 80
AO Tomsk Chemical Pharmaceutical Plant Russia 75
Marbiopharm Russia 72
Wuxi ICN Pharmaceuticals China 75
ICN Puerto Rico Puerto Rico 100
In accordance with the instructions of Item 601 of Regulation S-K, certain
subsidiaries are omitted from the foregoing table.
To ICN Pharmaceuticals, Inc.:
We consent to the incorporation by reference in the registration
statements of ICN Pharmaceuticals, Inc. on Form S-8 (File No. 33-56971) and Form
S-3 (File No.'s 333-38901, 333-10661, and 333-16409) of our report dated March
5, 1998, on our audits of the consolidated financial statements and consolidated
financial statement schedule of ICN Pharmaceuticals, Inc. as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, which report, as it relates to 1997, includes an emphasis of a matter
paragraph related to the Company's net monetary assets at ICN Yugoslavia which
would be subject to foreign exchange loss if a devaluation of the Yugoslavian
dinar were to occur, included in this Annual Report on Form 10K.
/s/ COOPERS & LYBRAND L.L.P.
Newport Beach, California
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s December 31, 1997 Consolidated Financial Statements 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-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 210,445
<SECURITIES> 00
<RECEIVABLES> 417,925
<ALLOWANCES> (11,999)
<INVENTORY> 146,988
<CURRENT-ASSETS> 786,751
<PP&E> 413,825
<DEPRECIATION> (53,112)
<TOTAL-ASSETS> 1,491,745
<CURRENT-LIABILITIES> 201,145
<BONDS> 00
00
1
<COMMON> 714
<OTHER-SE> 795,613
<TOTAL-LIABILITY-AND-EQUITY> 1,491,745
<SALES> 752,202
<TOTAL-REVENUES> 752,202
<CGS> 351,978
<TOTAL-COSTS> 351,978
<OTHER-EXPENSES> 18,692
<LOSS-PROVISION> 4,021
<INTEREST-EXPENSE> 22,849
<INCOME-PRETAX> 105,571
<INCOME-TAX> (27,736)
<INCOME-CONTINUING> 00
<DISCONTINUED> 00
<EXTRAORDINARY> 00
<CHANGES> 00
<NET-INCOME> 113,924
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s December 31, 1996 Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
**RESTATED FINANCIAL DATA SCHEDULE***
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 39,918
<SECURITIES> 0
<RECEIVABLES> 267,401
<ALLOWANCES> (8,870)
<INVENTORY> 120,973
<CURRENT-ASSETS> 444,401
<PP&E> 280,629
<DEPRECIATION> (46,420)
<TOTAL-ASSETS> 778,651
<CURRENT-LIABILITIES> 137,637
<BONDS> 0
0
1
<COMMON> 485
<OTHER-SE> 314,864
<TOTAL-LIABILITY-AND-EQUITY> 778,651
<SALES> 614,080
<TOTAL-REVENUES> 614,080
<CGS> 291,807
<TOTAL-COSTS> 291,807
<OTHER-EXPENSES> 15,719
<LOSS-PROVISION> (4,345)
<INTEREST-EXPENSE> 15,780
<INCOME-PRETAX> 99,052
<INCOME-TAX> (6,815)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,928
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s December 31, 1995 Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
***RESTATED FINANCIAL DATA SCHEDULE***
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<CASH> 24,632
<SECURITIES> 27,536
<RECEIVABLES> 76,583
<ALLOWANCES> (8,070)
<INVENTORY> 138,756
<CURRENT-ASSETS> 283,616
<PP&E> 209,845
<DEPRECIATION> (37,358)
<TOTAL-ASSETS> 518,298
<CURRENT-LIABILITIES> 92,814
<BONDS> 0
0
0
<COMMON> 456
<OTHER-SE> 161,716
<TOTAL-LIABILITY-AND-EQUITY> 518,298
<SALES> 507,905
<TOTAL-REVENUES> 507,905
<CGS> 206,049
<TOTAL-COSTS> 206,049
<OTHER-EXPENSES> 17,231
<LOSS-PROVISION> (1,262)
<INTEREST-EXPENSE> 22,889
<INCOME-PRETAX> 86,249
<INCOME-TAX> 2,997
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,337
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s March 31, 1997 Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
***RESTATED FINANCIAL DATA SCHEDULE***
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 43,546
<SECURITIES> 0
<RECEIVABLES> 288,520
<ALLOWANCES> 0
<INVENTORY> 109,442
<CURRENT-ASSETS> 469,152
<PP&E> 279,195
<DEPRECIATION> (49,293)
<TOTAL-ASSETS> 805,878
<CURRENT-LIABILITIES> 133,725
<BONDS> 0
0
1
<COMMON> 497
<OTHER-SE> 339,343
<TOTAL-LIABILITY-AND-EQUITY> 805,878
<SALES> 158,968
<TOTAL-REVENUES> 158,968
<CGS> 74,804
<TOTAL-COSTS> 74,804
<OTHER-EXPENSES> 4,310
<LOSS-PROVISION> (440)
<INTEREST-EXPENSE> 3,959
<INCOME-PRETAX> 27,004
<INCOME-TAX> (196)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,312
<EPS-PRIMARY> .37
<EPS-DILUTED> .32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s June 30, 1997 Consolidated Financial Statements and is
qualified in its entirety by reference to such financial statements.
***RESTATED FINANCIAL DATA SCHEDULE***
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> Dec-31-1997 Dec-31-1997
<PERIOD-START> Apr-01-1997 Jan-01-1997
<PERIOD-END> Jun-30-1997 Jun-30-1997
<CASH> 42,521 42,521
<SECURITIES> 0 0
<RECEIVABLES> 323,076 323,076
<ALLOWANCES> 0 0
<INVENTORY> 122,670 122,670
<CURRENT-ASSETS> 509,638 509,638
<PP&E> 284,926 284,926
<DEPRECIATION> (51,367) (51,367)
<TOTAL-ASSETS> 871,978 871,978
<CURRENT-LIABILITIES> 161,375 161,375
<BONDS> 0 0
0 0
1 1
<COMMON> 520 520
<OTHER-SE> 362,088 362,088
<TOTAL-LIABILITY-AND-EQUITY> 871,978 871,978
<SALES> 160,229 319,197
<TOTAL-REVENUES> 160,229 319,197
<CGS> 75,957 150,761
<TOTAL-COSTS> 75,957 150,761
<OTHER-EXPENSES> 4,610 8,920
<LOSS-PROVISION> 2,026 1,586
<INTEREST-EXPENSE> 3,423 7,382
<INCOME-PRETAX> 11,701 38,705
<INCOME-TAX> (11,594) (11,790)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 21,268 43,580
<EPS-PRIMARY> .38 .76
<EPS-DILUTED> .34 .66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s September 30, 1997 Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
***RESTATED FINANCIAL DATA SCHEDULE***
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 270,413 270,413
<SECURITIES> 4,327 4,327
<RECEIVABLES> 332,694 332,694
<ALLOWANCES> 0 0
<INVENTORY> 123,471 123,471
<CURRENT-ASSETS> 752,143 752,143
<PP&E> 369,167 369,167
<DEPRECIATION> (68,265) (68,265)
<TOTAL-ASSETS> 1,292,752 1,292,752
<CURRENT-LIABILITIES> 298,033 298,033
<BONDS> 0 0
0 0
1 1
<COMMON> 580 580
<OTHER-SE> 513,635 513,635
<TOTAL-LIABILITY-AND-EQUITY> 1,292,752 1,292,752
<SALES> 177,397 496,594
<TOTAL-REVENUES> 177,397 496,594
<CGS> 77,309 228,070
<TOTAL-COSTS> 77,309 228,070
<OTHER-EXPENSES> 4,290 13,210
<LOSS-PROVISION> 649 2,235
<INTEREST-EXPENSE> 5,950 13,332
<INCOME-PRETAX> 40,559 79,264
<INCOME-TAX> (521) (12,311)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 34,557 78,137
<EPS-PRIMARY> .61 1.38
<EPS-DILUTED> .50 1.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s March 31, 1996 Consolidated Financial Statements and is
qualified in its entirety by reference to such financial statements.
***RESTATED FINANCIAL DATA SCHEDULE***
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 41,367
<SECURITIES> 00
<RECEIVABLES> 121,849
<ALLOWANCES> (7,877)
<INVENTORY> 119,465
<CURRENT-ASSETS> 302,818
<PP&E> 213,069
<DEPRECIATION> (39,884)
<TOTAL-ASSETS> 544,126
<CURRENT-LIABILITIES> 93,495
<BONDS> 00
<COMMON> 470
00
00
<OTHER-SE> 194,135
<TOTAL-LIABILITY-AND-EQUITY> 544,126
<SALES> 138,162
<TOTAL-REVENUES> 138,162
<CGS> 68,028
<TOTAL-COSTS> 68,028
<OTHER-EXPENSES> 3,531
<LOSS-PROVISION> (193)
<INTEREST-EXPENSE> 2,702
<INCOME-PRETAX> 26,153
<INCOME-TAX> 1,938
<INCOME-CONTINUING> 00
<DISCONTINUED> 00
<EXTRAORDINARY> 00
<CHANGES> 00
<NET-INCOME> 22,003
<EPS-PRIMARY> .47
<EPS-DILUTED> .42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s June 30, 1996 Consolidated Financial Statements and is
qualified in its entirety by reference to such financial statements.
***RESTATED FINANCIAL DATA SCHEDULE***
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-Mos 12-Mos
<FISCAL-YEAR-END> Dec-31-1996 Dec-31-1996
<PERIOD-START> APR-01-1996 Jan-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 36,869 36,869
<SECURITIES> 451 451
<RECEIVABLES> 160,416 160,416
<ALLOWANCES> 0 0
<INVENTORY> 111,790 111,790
<CURRENT-ASSETS> 323,791 323,791
<PP&E> 222,995 222,995
<DEPRECIATION> (41,080) (41,080)
<TOTAL-ASSETS> 578,805 578,805
<CURRENT-LIABILITIES> 95,346 95,346
<BONDS> 0 0
0 0
0 0
<COMMON> 480 480
<OTHER-SE> 217,668 217,668
<TOTAL-LIABILITY-AND-EQUITY> 578,805 578,805
<SALES> 143,746 281,908
<TOTAL-REVENUES> 143,746 281,908
<CGS> 72,307 140,335
<TOTAL-COSTS> 72,307 140,335
<OTHER-EXPENSES> 3,379 6,910
<LOSS-PROVISION> 322 129
<INTEREST-EXPENSE> 2,890 5,592
<INCOME-PRETAX> 18,583 44,736
<INCOME-TAX> (898) 1,040
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,893 36,896
<EPS-PRIMARY> .32 .79
<EPS-DILUTED> .27 .68
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s September 30, 1996 Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
***RESTATED FINANCIAL DATA SCHEDULE***
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-Mos 12-Mos
<FISCAL-YEAR-END> Dec-31-1996 Dec-31-1996
<PERIOD-START> Jul-01-1996 Jan-01-1996
<PERIOD-END> Sep-30-1996 Sep-30-1996
<CASH> 34,224 34,224
<SECURITIES> 0 0
<RECEIVABLES> 209,526 209,526
<ALLOWANCES> 0 0
<INVENTORY> 106,660 106,660
<CURRENT-ASSETS> 363,060 363,060
<PP&E> 229,979 229,979
<DEPRECIATION> (43,943) (43,943)
<TOTAL-ASSETS> 654,970 654,970
<CURRENT-LIABILITIES> 137,482 137,482
<BONDS> 0 0
0 0
0 0
<COMMON> 503 503
<OTHER-SE> 239,232 239,232
<TOTAL-LIABILITY-AND-EQUITY> 654,970 654,970
<SALES> 157,917 439,825
<TOTAL-REVENUES> 157,917 439,825
<CGS> 70,515 210,850
<TOTAL-COSTS> 70,515 210,850
<OTHER-EXPENSES> 4,130 11,040
<LOSS-PROVISION> 260 389
<INTEREST-EXPENSE> 3,653 9,245
<INCOME-PRETAX> 29,343 74,079
<INCOME-TAX> 2,345 3,385
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 20,835 57,731
<EPS-PRIMARY> .42 1.21
<EPS-DILUTED> .38 1.06
</TABLE>
