- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] 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)
(714) 545-0100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of outstanding shares of the registrant's Common Stock, $.01 par
value, as of May 12, 1999 was 77,719,501.
- --------------------------------------------------------------------------------
<PAGE>
2
ICN PHARMACEUTICALS, INC.
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets -
March 31, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Income -
Three months ended March 31, 1999 and 1998 4
Consolidated Condensed Statements of Comprehensive Income -
Three months ended March 31, 1999 and 1998 5
Consolidated Condensed Statements of Cash Flows -
Three months ended March 31, 1999 and 1998 6
Management's Statement Regarding Unaudited Financial Statements 7
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
<PAGE>
3
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1999 and December 31, 1998
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------- --------------
ASSETS
------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 110,847 $ 104,921
Restricted cash 15,567 15,558
Accounts receivable, net 183,939 180,001
Inventories, net 123,141 126,545
Prepaid expenses and other current assets 11,969 13,723
-------------- --------------
Total current assets 445,463 440,748
Property, plant and equipment, net 324,802 327,756
Deferred income taxes, net 81,436 77,933
Other assets 45,880 45,706
Goodwill and intangibles, net 457,536 464,253
-------------- --------------
$ 1,355,117 $ 1,356,396
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Trade payables $ 68,658 $ 92,287
Accrued liabilities 66,213 60,644
Notes payable 20,635 17,584
Current portion of long-term debt 25,710 28,097
Income taxes payable 3,534 5,142
-------------- --------------
Total current liabilities 184,750 203,754
Long-term debt, less current portion 509,256 510,808
Deferred license and royalty income 2,110 6,061
Other liabilities 22,556 22,160
Minority interest 27,452 27,449
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000 shares authorized;
1 shares Series D issued and outstanding
($22,988 liquidation preference at March 31, 1999) 1 1
Common stock, $.01 par value; 100,000 shares authorized;
77,384 (March 31, 1999) and 76,411 (December 31, 1998)
shares outstanding (after deducting shares in treasury of
424 and 200, respectively) 774 764
Additional capital 953,347 928,956
Accumulated deficit (282,633) (295,211)
Accumulated other comprehensive income (62,496) (48,346)
-------------- --------------
Total stockholders' equity 608,993 586,164
-------------- --------------
$ 1,355,117 $ 1,356,396
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
4
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
For the three months ended March 31, 1999 and 1998
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1999 1998
---------------- --------------
Revenues:
<S> <C> <C>
Product sales $ 160,246 $ 239,796
Royalties 15,828 1,000
---------------- --------------
Total revenues 176,074 240,796
Costs and expenses:
Cost of product sales 66,396 107,969
Selling, general and administrative expenses 62,662 75,137
Research and development costs 2,242 5,504
---------------- --------------
Total expenses 131,300 188,610
---------------- --------------
Income from operations 44,774 52,186
Translation and exchange losses, net 7,259 5,428
Interest income (1,644) (4,973)
Interest expense 13,100 6,614
---------------- --------------
Income before income taxes
and minority interest 26,059 45,117
Provision for income taxes 4,780 3,384
Minority interest (1,340) 7,785
---------------- --------------
Net income $ 22,619 $ 33,948
================ ==============
Basic earnings per share $ 0.29 $ 0.47
================ ==============
Shares used in per share computation 76,853 71,730
================ ==============
Diluted earnings per share $ 0.28 $ 0.44
================ ==============
Shares used in per share computation 81,865 76,903
================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
5
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 1999 and 1998
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
Net income $ 22,619 $ 33,948
Other comprehensive income:
Foreign currency translation adjustments (14,150) (4,608)
Unrealized gains on marketable securities -- 755
---------------- --------------
Other comprehensive income (14,150) (3,853)
---------------- --------------
Comprehensive income $ 8,469 $ 30,095
================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
6
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1999 and 1998
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1999 1998
---------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 22,619 $ 33,948
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 15,460 11,602
Provision for losses on accounts receivable (616) 1,694
Provision for inventory obsolescence 1,211 (22)
Translation and exchange losses, net 7,259 5,428
Deferred income (4,516) (390)
Loss (gain) on sale of assets (3) (61)
Other non-cash losses 988 --
Deferred income taxes (3,526) (163)
Minority interest (1,340) 7,785
Change in assets and liabilities, net of effects of acquisitions:
Accounts and notes receivable (10,935) (34,685)
Inventories 4,337 (9,608)
Prepaid expenses and other assets (1,145) (24,000)
Trade payables and accrued liabilities (27,147) (9,120)
Income taxes payable (2,101) (2,084)
Other liabilities 3,183 2,634
---------------- --------------
Net cash provided by (used in) operating activities 3,728 (17,042)
---------------- --------------
Cash flows from investing activities:
Capital expenditures (12,085) (19,303)
Proceeds from sale of assets 129 259
Increase in restricted cash (9) --
Acquisition of product rights and businesses (1,948) (44,979)
---------------- --------------
Net cash used in investing activities (13,913) (64,023)
---------------- --------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 26,155 1,596
Payments on long-term debt (27,473) (3,494)
Net increase (decrease) in notes payable (39) 66
Proceeds from exercise of stock options 1,332 822
Proceeds from issuance of stock 27,000 4,299
Purchase of treasury stock (5,550) --
Dividends paid (4,637) (3,806)
---------------- --------------
Net cash provided by (used in) financing activities 16,788 (517)
---------------- --------------
Effect of exchange rate changes on cash and cash equivalents (677) (787)
---------------- --------------
Net increase (decrease) in cash and cash equivalents 5,926 (82,369)
Cash and cash equivalents at beginning of period 104,921 209,896
---------------- --------------
Cash and cash equivalents at end of period $ 110,847 $ 127,527
================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
7
MANAGEMENT'S STATEMENT REGARDING UNAUDITED FINANCIAL STATEMENTS
The consolidated condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles ("GAAP") have been condensed or
omitted pursuant to such rules and regulations. The results of operations
presented herein are not necessarily indicative of the results to be expected
for a full year. Although the Company believes that all adjustments (consisting
only of normal, recurring adjustments) necessary for a fair presentation of the
interim periods presented are included and that the disclosures are adequate to
make the information presented not misleading, these consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
<PAGE>
8
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated condensed financial
statements include the accounts of ICN Pharmaceuticals, Inc. and Subsidiaries
(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 the lower
of cost or realizable value. All significant intercompany account balances and
transactions have been eliminated.
Effective November 26, 1998, the Company's equity ownership in ICN Yugoslavia
was effectively reduced from 75% to 35% based upon a decision by the Yugoslavian
Ministry of Economic and Property Transformation. Additionally, representatives
of the Company and ICN Yugoslavia's management have been denied access to the
premises and any representation as to the management of ICN Yugoslavia. As a
result, the Company is no longer able to influence the operating and financial
affairs of ICN Yugoslavia. Accordingly, the Company has deconsolidated the
financial statements of ICN Yugoslavia as of November 26, 1998, and reduced the
carrying value of its investment to fair value, currently estimated to be zero.
The Company will account for its ongoing investment in ICN Yugoslavia under the
cost method. The Company did not recognize any revenues or expenses related to
its investment in ICN Yugoslavia in the quarter ended March 31, 1999.
Comprehensive Income: The balance of accumulated other comprehensive income at
March 31, 1999 and December 31, 1998 consists of accumulated foreign currency
translation adjustments. None of the components of other comprehensive income
have been recorded net of any tax provision or benefit as the Company does not
expect to realize any significant tax benefit or expense from these items.
Per Share Information: In January 1999, the Company's Board of Directors
declared a fourth quarter 1998 cash dividend of $0.06 per share, which was paid
in February 1999. In March 1999, the Company's Board of Directors declared a
first quarter cash dividend of $0.07 per share, payable on April 28, 1999, to
stockholders of record on April 14, 1999.
Reclassifications: Certain prior year amounts have been reclassified to conform
with the current period presentation, with no effect on previously reported net
income or stockholders' equity.
2. ACQUISITIONS
Effective January 1, 1999, the Company acquired 97% ownership of Fuzio-Pharma
Rt., a Hungarian distributor of pharmaceutical products with both wholesale
distribution and retail pharmacy operations. Aggregate consideration for the
acquisition was approximately $2,230,000. The acquisition was accounted for as a
purchase and is not material to the financial position or results of operations
of the Company.
<PAGE>
9
3. 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>
Three Months Ended
March 31,
----------------------------
1999 1998
--------- ----------
Income:
<S> <C> <C>
Net income $ 22,619 $ 33,948
Dividends and accretion on preferred stock -- (34)
--------- ----------
Numerator for basic earnings per share--
income available to common stockholders 22,619 33,914
Effect of dilutive securities:
Convertible debt -- (73)
--------- ----------
Numerator for diluted earnings per share--
income available to common stockholders
after assumed conversions $ 22,619 $ 33,841
========= ==========
Shares:
Denominator for basic earnings per share--
weighted-average shares outstanding 76,853 71,730
Effect of dilutive securities:
Employee stock options 2,711 4,151
Series D Preferred Stock 616 246
Convertible debt 21 776
Other dilutive securities 1,664 --
--------- ----------
Dilutive potential common shares 5,012 5,173
--------- ----------
Denominator for diluted earnings per share--
adjusted weighted-average shares and
assumed conversions 81,865 76,903
========= ==========
Basic earnings per share $ 0.29 $ 0.47
========= ==========
Diluted earnings per share $ 0.28 $ 0.44
========= ==========
</TABLE>
Other dilutive securities represent shares contingently issuable in satisfaction
of guarantees made in connection with the issuance of shares for the acquisition
of the rights to certain products from SmithKline Beecham plc ("SKB") and from
F. Hoffmann - La Roche Ltd. ("Roche") during 1998. Under the terms of the
agreements, in the event that the market value of the Company's common stock at
the respective guarantee dates does not meet the specified guarantee prices, the
Company will be obligated to satisfy the aggregate guarantee amounts in cash or,
in certain circumstances, in additional shares of its common stock. Based upon
the market price of the Company's common stock at March 31, 1999, the aggregate
guaranteed value of the shares subject to such guarantees exceeds their market
value by approximately $38,793,000, and the Company may be required to issue an
aggregate of 1,664,000 shares of its common stock to Roche and SKB in
satisfaction of the guarantees.
<PAGE>
10
4. DETAIL OF CERTAIN ACCOUNTS
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1999 1998
---------------- --------------
Accounts receivable, net:
<S> <C> <C>
Trade accounts receivable $ 213,237 $ 209,444
Other receivables 17,480 19,305
---------------- --------------
230,717 228,749
Allowance for doubtful accounts (46,778) (48,748)
----------------- --------------
$ 183,939 $ 180,001
================ ==============
Inventories, net:
Raw materials and supplies $ 29,986 $ 33,915
Work-in-process 13,870 13,372
Finished goods 91,046 90,846
---------------- --------------
134,902 138,133
Allowance for inventory obsolescence (11,761) (11,588)
----------------- --------------
$ 123,141 $ 126,545
================ ==============
Property, plant and equipment, net:
Property, plant and equipment, at cost $ 384,297 $ 385,211
Accumulated depreciation and amortization (59,495) (57,455)
----------------- --------------
$ 324,802 $ 327,756
================ ==============
</TABLE>
5. COMMON STOCK
In February 1999, the Company sold 1,141,498 shares of its common stock to
Schering-Plough Corporation ("Schering-Plough") for $27,000,000. The sale was
pursuant to the terms of the Stock Purchase Agreement made between the Company
and Schering-Plough in 1995, in connection with the licensing to Schering-Plough
of all oral forms of ribavirin for the treatment of chronic hepatitis C ("HCV")
in combination with Schering-Plough's alpha interferon. Although the shares are
initially unregistered, under the terms of the agreement Schering-Plough is
entitled to certain registration rights.
In March 1999, the Company repurchased 223,967 shares of its common stock for
$5,550,000, completing the initial $10,000,000 portion of the Stock Repurchase
Program authorized by the Company's Board of Directors in 1998. The Company's
Board of Directors has also authorized a long-term stock repurchase program that
allows the Company to repurchase up to 3,000,000 shares of its common stock. In
executing the repurchase programs, the Company is limited by certain covenants
contained in the indentures relating to the Company's Senior Notes. Repurchases
under the second program will only be permitted as the Company generates
cumulative net income, as provided for in the indentures.
6. COMMITMENTS AND CONTINGENCIES
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 United States Securities and Exchange Commission (the
"Commission") 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 from 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 (the "Securities Act") and Section 10(b) of the Securities and
Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder, by having
possibly: (i) made false or misleading statements or omitted material facts with
<PAGE>
11
respect to the status and disposition of the 1994 Hepatitis C NDA; (ii)
purchased or sold 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 Common Stock. The Company has cooperated and continues to cooperate with
the Commission in its investigation. On January 13, 1998, the Company received a
letter from the Commission's Philadelphia District 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, Milan
Panic, Chairman and Chief Executive Officer of the Company, and a former senior
executive of the Company. As set forth in the letter, the District Office sought
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 sought the authority to commence 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 order barring Mr. Panic from
serving as an officer or director of a public company pursuant to Section 21 of
the Exchange Act. On January 30, 1998 and thereafter, the Company filed
submissions with the Commission urging that it reject the District Office's
request. On August 27, 1998, the Company's counsel was informed by the District
Office that (i) the District Office had withdrawn its request for authorization
to commence an enforcement action against Mr. Panic with respect to allegations
of illegal insider trading and the remedies of disgorgement, interest, and
monetary penalties attendant thereto; and (ii) the Commission had granted the
District Office's request for authorization to commence an enforcement action
against the Company, Mr. Panic, a senior executive officer, and a former senior
executive officer of the Company alleging false or misleading statements or
omissions with respect to the status and disposition of the 1994 Hepatitis C
NDA, including the remedies of injunctive relief and a civil penalty not to
exceed $500,000 against the Company, and injunctive relief and a director and
officer bar against Mr. Panic.
The Company has received 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. The
Company understands that the Company, Mr. Panic, two current senior executive
officers, a former senior officer, and a current employee of the Company are
targets of the investigation. The Company also understands that a senior
executive officer, a former officer, a current employee, and a former employee
are subjects of the investigation. The United States Attorney's office has
advised counsel for the Company that the areas of its investigation include
disclosures made and not made concerning the 1994 Hepatitis C NDA to the public
and other third parties; stock sales for the benefit of Mr. Panic following
receipt on November 28, 1994 of a letter from the FDA informing the Company that
the 1994 Hepatitis C NDA had been found not approvable; possible violations of
the economic embargo imposed by the United States upon the Federal Republic of
Yugoslavia, based upon alleged sales by the Company and Mr. Panic of stock
belonging to Company employees; and, with respect to Mr. Panic, personal
disposition of assets of entities associated with Yugoslavia, including possible
misstatements and/or omissions in federal tax filings. 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 United States Attorney's office has
issued subpoenas requiring various current and former officers and employees of
the Company to testify before the Grand Jury. Certain current and former
employees testified before the Grand Jury beginning in July 1998.
On or about February 9, 1999, the Company commenced an action in the United
States District Court of the District of Columbia against the Federal Republic
of Yugoslavia ("FRY"), the Republic of Serbia (the "Republic") and the State
Health Fund of Serbia (the "State Fund") seeking damages in the amount of at
least $500,000,000 and declaratory relief arising out of the FRY's recent
seizure of the Company's majority ownership interest in ICN Yugoslavia and the
failure of the State Fund to pay ICN Yugoslavia for goods sold and delivered. On
or about March 9, 1999, the State Fund commenced an arbitration against the
Company before the International Chamber of Commerce (the "ICC") for
unquantified damages due to alleged breaches of the agreement pursuant to which
the Company acquired its majority ownership interest in ICN Yugoslavia, and for
unspecified injunctive relief. The Company, in turn, counterclaimed against the
Health Fund, and commenced an arbitration against the FRY and the Republic in
the ICC arising out of the seizure of ICN Yugoslavia and the failure to pay for
goods sold and delivered, seeking damages and other relief. The Company intends
to prosecute vigorously its claims against the FRY, the Republic, and the Health
Fund, and to defend against the State Fund's claims against the Company, which
the Company believes to be meritless and filed solely as a response to the
Company's earlier-filed action in the United States District Court.
<PAGE>
12
The Company is party to other pending lawsuits or subject to a number of
threatened lawsuits. While the ultimate outcome of pending and threatened
lawsuits and the Commission and Grand Jury investigations cannot be predicted
with certainty, and an unfavorable outcome could have a material adverse effect
on the Company, at this time in the opinion of management, the ultimate
resolution of these matters will not have a material effect on the Company's
consolidated financial position, results of operations or liquidity.
7. BUSINESS SEGMENTS
The following table sets forth the amounts of segment revenues and operating
income of the Company for the three months ended March 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
Revenues Operating Income
----------------------- ----------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
Pharmaceuticals
<S> <C> <C> <C> <C>
North America $ 54,256 $ 33,560 $ 37,927 $ 15,739
Western Europe 22,341 14,198 4,558 3,848
Latin America 22,611 18,692 7,796 5,092
Russia 23,008 52,628 (2,449) 6,942
Yugoslavia -- 73,164 -- 25,683
Other Eastern Europe 23,932 22,182 533 4,682
Asia, Africa, Australia 13,940 9,880 4,059 2,315
----------- ----------- ---------- ----------
Total Pharmaceuticals 160,088 224,304 52,424 64,301
Biomedicals 15,986 16,492 2,088 2,040
----------- ----------- ---------- ----------
Consolidated revenues and
segment operating income $ 176,074 $ 240,796 54,512 66,341
=========== ===========
Corporate expenses 9,738 14,155
Interest income (1,644) (4,973)
Interest expense 13,100 6,614
Translation and exchange losses, net 7,259 5,428
---------- ----------
Income before income
taxes and minority interest $ 26,059 $ 45,117
========== ==========
</TABLE>
The following table sets forth the segment total assets of the Company as of
March 31, 1999 and December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Assets
-----------------------------------
March 31, December 31,
1999 1998
---------------- -----------------
Pharmaceuticals
<S> <C> <C>
North America $ 500,541 $ 520,017
Western Europe 41,698 34,816
Latin America 71,566 66,486
Russia 152,004 155,368
Other Eastern Europe 185,190 190,675
Asia, Africa, Australia 82,416 79,274
----------------- -----------------
Total Pharmaceuticals 1,033,415 1,046,636
Biomedicals 71,833 76,671
Corporate 249,869 233,089
----------------- -----------------
$ 1,355,117 $ 1,356,396
================= =================
</TABLE>
<PAGE>
13
8. ICN RUSSIA
The Company's Russian operations consist of five pharmaceutical factories and
related distribution operations. In addition, the Company operates 28 retail
pharmacies in Russia. The Company's Russian operations represented 13% and 22%
of the Company's total revenues for the three months ended March 31, 1999 and
1998, respectively.
The Company's Russian operations have been adversely affected by the recent
economic events in the region. In August 1998, the Russian Central Bank became
unable to support the value of the ruble and by the end of 1998, the value of
the ruble had fallen from its mid-August level of approximately 6.3 rubles to $1
to approximately 20.7 rubles to $1. In 1999, the value of the ruble has
continued to fall in relation to the dollar and as of March 31, 1999 the
exchange rate was approximately 24.2 rubles to $1, a decline of more than 75%
from the ruble's March 1998 level. As a result of the continued decline in the
ruble exchange rate, the Company recorded foreign exchange losses of $4,742,000
related to its Russian operations during the quarter ended March 31, 1999.
Foreign exchange risk: ICN Russia operates in a highly inflationary economy and
uses the dollar as the functional currency rather than the Russian ruble. During
the three year period ended December 31, 1998, the cumulative rate of inflation
was approximately 180%. All foreign exchange gains and losses arising from
foreign currency transactions and the effects of foreign exchange rate
fluctuations are included in income. As of March 31, 1999, ICN Russia had a net
monetary asset position of approximately $11,814,000 which would be subject to
foreign exchange loss if a further decline in the value of the ruble in relation
to the United States dollar were to occur.
Credit Risk: The Company believes that the economic crisis in Russia has
adversely affected the pharmaceutical industry in the region. Many Russian
companies, including many of the Company's customers, continue to experience
severe liquidity shortages as rubles are in short supply, and as Russian
companies' hard-currency assets remain frozen in Russian banks. This liquidity
crisis has diminished many Russian companies' ability to pay their debts, and is
likely to lead to a number of business failures in the region.
9. SUPPLEMENTAL CASH FLOW INFORMATION
In March 1998, the Company announced the redemption of its Bio Capital Holdings
5-1/2% Swiss Franc Exchangeable Certificates (the "New Certificates") and during
the first quarter of 1998 SFr 14,390,000 principal amount of the New
Certificates were exchanged for an aggregate of approximately 306,000 shares of
the Company's common stock. Upon the exchange of the New Certificates,
marketable securities held in trust for the payment of the New Certificates,
having a market value of approximately $11,937,000 at March 31, 1998, became
available to the Company. The exchange increased stockholders' equity by
$13,734,000 and reduced long-term debt and accrued interest by $1,797,000.
Cash paid for income taxes for the three months ended March 31, 1999 and 1998
was $3,380,000 and $4,518,000, respectively. Cash paid for interest, net of
amounts capitalized, for the three months ended March 31, 1999 and 1998 was
$14,301,000 and $13,807,000 respectively.
<PAGE>
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
During 1998, the Company completed several product acquisitions which
contributed to the growth in revenues for the three months ended March 31, 1999
compared to 1998. In November 1998, the Company completed the acquisition of the
worldwide rights (except India) to four products from Roche for $178,800,000 in
cash and common stock. The products include Dalmadorm(R), a sleep disorder drug;
Fluoro-Uracil(R), an oncology product; Librax(R), a treatment for
gastrointestinal disorders; and Mogadon(R), a sleep disorder drug also used to
treat epilepsy. The Company principally markets these products in its North
America, Latin America, Western Europe, and Asia, African and Australia
Pharmaceuticals segments. In February 1998, the Company acquired from SKB the
Asian, African and Australian rights to 39 prescription and over-the-counter
pharmaceutical products including Actal(R), Breacol(R), Coracten(R),
Eskornade(R), Fefol(R), Gyno-Pevaryl(R), Maxolan(R), Nyal(R), Pevaryl(R),
Ulcerin(R) and Vylcim(R). In addition, the Company recently entered into an
agreement with Senetek plc under which it obtained worldwide rights to market
Kinetin(R) (marketed by the Company as Kinerase(TM)), a skin cream to help
reduce signs of aging, through physicians and pharmacies. The Company will
market these products primarily through its existing North American and Western
European operations. In Latin America, the Company recently acquired the rights
to market three products--Breacol(R), Cynoplus(R) and Cytomel(R)--from SKB,
which the Company believes complement its existing product line and increase its
market presence in the region.
ROYALTY REVENUES
Royalty revenues earned under the Company's Exclusive License and Supply
Agreement (the "License Agreement") with Schering-Plough were also a major
contributor to the Company's revenue growth. Under the License Agreement,
Schering-Plough licensed all oral forms of ribavirin for the treatment of
chronic hepatitis C ("HCV") in combination with Schering-Plough's alpha
interferon. In 1998, Schering-Plough received approval from the FDA to market
Rebetron(TM) Combination Therapy, containing Rebetol(R) (ribavirin) Capsules and
Intron(R)A (interferon alfa-2b, recombinant) Injection, for the treatment of HCV
and began selling Rebetron(TM) in the United States.
In May 1999, the Company was informed that the European Union's (EU) Commission
of the European Communities had granted marketing authorization to Rebetol(R)
(ribavirin) Capsules for use in combination with interferon alfa-2b injection
(marketed as Intron(R) A in certain countries) for the treatment of both
relapsed and previously untreated (naive) HCV patients. Commission approval of
the centralized application for Rebetol(R) results in a single Marketing
Authorization with unified labeling that is immediately valid in all 15 European
Union-Member States. The Commission's decision follows the product's unanimous
recommendation for approval in February by the EU's Committee for Proprietary
Medicinal Products (CPMP) of the European Agency for the Evaluation of Medicinal
Products (EMEA). The Company anticipates that Schering-Plough will introduce
Rebetol(R) in the EU markets upon receiving pricing approvals, where necessary,
from individual EU countries.
Royalty revenues for the three months ended March 31, 1999 were $15,828,000
compared to $1,000,000 for the same period of 1998, reflecting the commencement
of United States commercial sales of Rebetron(TM) by Schering-Plough subsequent
to receipt of initial FDA approval in June 1998, as well as royalties on
compassionate use sales outside the United States, primarily in Western Europe.
RUSSIA
The Company's operations in Eastern Europe continue to be affected by the
Russian economic crisis. In August 1998, the Russian government and the Russian
Central Bank were no longer able to support the ruble at its then-current
exchange rate of approximately 6.3 rubles to $1. Subsequently, the ruble fell
sharply and through the quarter ended March 31, 1999, the exchange rate was
approximately 24.2 rubles to $1, a decline of approximately 75% from the ruble's
March 1998 level. As a result of the continued decline in the ruble exchange
rate, the Company recorded foreign exchange losses of $4,742,000 related to its
Russian operations during the three months ended March 31, 1999.
The Company believes that the economic crisis in Russia has adversely affected
the pharmaceutical industry in the region. Many Russian companies, including
many of the Company's customers, continue to experience severe liquidity
shortages as rubles are in short supply, and Russian companies' hard-currency
assets remain frozen in Russian banks. This liquidity crisis has diminished many
<PAGE>
15
Russian companies' ability to pay their debts and has led to a number of
business failures in the region. In addition, the devaluation of the ruble has
reduced the purchasing power of Russian companies and consumers, thus increasing
pressure on the Company and other producers to limit price increases in hard
currency terms. These factors have adversely affected, and may continue to
adversely affect, sales and gross margins in the Company's Russian operations.
In addition, the Company's Hungarian and Polish operations have been, and may
continue to be, adversely affected by lower export sales to Russia.
YUGOSLAVIA
In the fourth quarter of 1998, the Company wrote off its investment in ICN
Yugoslavia (a 75%-owned subsidiary), following the Yugoslavian government's
seizure of those operations. The Company has not recognized any revenues or
expenses related to its investment in ICN Yugoslavia in the quarter ended March
31, 1999. Excluding the 1998 contribution from ICN Yugoslavia, revenues for the
1999 first quarter rose five percent to $176,074,000 from $167,632,000 in the
same period of 1998, and income from operations for the 1999 first quarter
increased 69% to $44,774,000 from $26,503,000 in the 1998 first quarter. Net
income excluding the results of ICN Yugoslavia rose 45% to $22,619,000 from
$15,597,000.
RESULTS OF OPERATIONS
Certain financial information for the Company's business segments is set forth
below. This discussion should be read in conjunction with the consolidated
condensed financial statements of the Company included elsewhere in this
document. For additional financial information by business segment, see Note 7
of Notes to Consolidated Condensed Financial Statements for the three months
ended March 31, 1999 included elsewhere in this Quarterly Report.
<TABLE>
<CAPTION>
Revenues: Three Months Ended
March 31,
------------------------------------
(in thousands) 1999 1998
---------------- --------------
Pharmaceuticals
<S> <C> <C>
North America $ 54,256 $ 33,560
Western Europe 22,341 14,198
Latin America 22,611 18,692
Russia 23,008 52,628
Yugoslavia -- 73,164
Other Eastern Europe 23,932 22,182
Asia, Africa, Australia 13,940 9,880
---------------- --------------
Total Pharmaceuticals 160,088 224,304
Biomedicals 15,986 16,492
---------------- --------------
Total revenues $ 176,074 $ 240,796
================ ==============
Product sales $ 160,246 $ 239,796
Royalty revenues 15,828 1,000
---------------- --------------
Total revenues $ 176,074 $ 240,796
================ ==============
Cost of product sales $ 66,396 $ 107,969
Gross profit margin on product sales 59% 55%
Gross profit margin on product sales, excluding the Russia,
Yugoslavia, and Other Eastern Europe Pharmaceuticals segments 71% 68%
</TABLE>
<PAGE>
16
Revenues: In the North America Pharmaceuticals segment, revenues were
$54,256,000, compared to $33,560,000 for the same period of 1998. The
$20,696,000 (62%) increase primarily reflects a $14,828,000 increase in royalty
revenues from sales of ribavirin by Schering-Plough. The increase also reflects
additional product sales resulting from the Company's October 1998 acquisitions
of the rights to four products--Dalmadorm(R), Fluoro-Uracil(R), Librax(R), and
Mogadon (R)--from Roche and the rights to Kinerase(R), a skin cream to inhibit
signs of aging, from Senetek plc. The acquired products generated revenues of
$5,386,000 in the North America Pharmaceuticals segment in the 1999 first
quarter. The Company also continued to experience growth in sales of its
anti-cancer product Efudex, which increased $2,124,000 (25%) over the 1998 first
quarter.
In the Western Europe Pharmaceuticals segment, revenues for the three months
ended March 31, 1999 were $22,341,000 compared to $14,198,000 in the same period
of 1998. The increase in revenues of $8,143,000 (57%) is primarily due to the
Company's acquisition of the rights to certain products from Roche in October
1998, which generated additional sales of $6,756,000 in 1999. In addition, sales
of the Company's product for the treatment of myasthenia gravis increased
$956,000 over the 1998 first quarter.
In the Latin America Pharmaceuticals segment, revenues for the three months
ended March 31, 1999 were $22,611,000, compared to $18,692,000 for the same
period of 1998. The increase of $3,919,000 (21%) primarily reflects sales of
products acquired during or subsequent to the quarter ended March 31, 1998.
Principal acquisitions in the Latin America Pharmaceuticals segment include a
portfolio of 32 dermatology products acquired from Laboratorios Pablo Cassara
("Cassara") effective March 1, 1998, which generated additional sales of
$2,370,000 over the 1998 period. In addition, sales of the products acquired
from Roche in October 1998 and other acquisitions subsequent to March 31, 1998
generated additional sales of $1,438,000.
In the Russia Pharmaceuticals segment, revenues for the three months ended March
31, 1999 were $23,008,000, compared with $52,628,000 for the same period of
1998, a decrease of $29,620,000 (56%). The Company's Russian operations continue
to be adversely impacted by the Russian economic crisis, which the Company
believes has adversely affected the liquidity and the purchasing power of many
of its customers. In addition, the Company's Russian revenues are generally
denominated in rubles and the 75% decline in the value of the Russian ruble in
relation to the dollar from March 1998 through March 1999 has reduced the dollar
amount of the Company's Russian revenues.
In the Other Eastern Europe Pharmaceuticals segment, revenues for the three
months ended March 31, 1999 were $23,932,000, compared with $22,182,000 for the
same period of 1998, an increase of $1,750,000 (8%). The increase is the result
the June 1998 acquisition of VUAB in the Czech Republic, which generated
revenues of $4,311,000. The effect of the VUAB acquisition was partially offset
by lower revenues at Alkaloida in Hungary ($998,000) and at Polfa Rzeszow, S.A.
in Poland ($1,563,000), principally resulting from lower export sales to Russia
due to the Russian economic crisis. Domestic sales have also been, and may
continue to be, adversely affected by the overall political and economic events
transpiring in this region of the world.
In the Asia, Africa and Australia Pharmaceuticals segment, revenues for the
three months ended March 31, 1999 were $13,940,000 compared to $9,880,000 for
the same period of 1998, an increase of $4,060,000 (41%). The increase is
primarily due to sales of the products acquired from Roche in October 1998,
which contributed $2,872,000 to revenues for the three months ended March 31,
1999, and the February 1998 acquisition of the rights to 39 prescription and
over-the-counter pharmaceutical products from SKB, which generated additional
sales of $3,150,000 in this segment over the 1998 period. The effect of these
acquisitions was partially offset by lower revenues at Wuxi ICN Pharmaceuticals
in China.
In the Company's Biomedicals segment, revenues for the three months ended March
31, 1999 were $15,986,000 compared to $16,492,000 for the same period of 1998, a
decrease of $506,000 (3%). The decrease is primarily due to lower unit sales
volume in the Company's diagnostics and radiochemicals product lines, partially
offset by increased revenues from dosimetry services.
<PAGE>
17
Gross Profit: Gross profit margin on product sales increased to 59% for the
three months ended March 31, 1999, compared to 55% for 1998. The improvement in
gross profit margin is primarily due to increased sales of the products acquired
from Roche and SKB in 1998, which generally yield higher gross profit margins
than were previously achieved by the Company's base business. The Company's
gross profit margin for 1999 was also affected by the loss of the Company's
Yugoslavian operations, which achieved a 49% gross profit margin for the three
months ended March 31, 1998. Gross profit margins in the North America
Pharmaceuticals segment increased to 91% for the three months ended March 31,
1999 from 81% in the 1998 first quarter, reflecting the effect of the acquired
products. The overall gross margins for the Company's Russia Pharmaceuticals
segment were 27% for 1999, compared to 41% for the 1998 first quarter. In 1999,
gross profit margins in the Company's Russian operations continue to be affected
by the decline in sales volume resulting from the Russian economic crisis and
the impact of the weakening of the ruble. While the Company has historically
been able to set its prices for Russian markets without government approval, the
liquidity crisis in Russia has reduced the purchasing power of Russian
consumers, effectively restricting price increases to a level that does not
fully offset the impact of the devaluation. Gross profit margins at ICN Russia
were further impacted as inventories manufactured prior to the devaluation were
charged to cost of product sales at the higher historical exchange rate. In the
Other Eastern Europe Pharmaceuticals segment, the gross profit margin for the
three months ended March 31, 1999 was 29% compared with 54% for 1998. In
response to lower export sales to the Russian market, the Company's operations
in Poland and Hungary have reduced production levels, resulting in lower
operating efficiency during the 1999 first quarter.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $62,662,000 (36% of revenues) for the three months
ended March 31, 1999, compared to $75,137,000 (31% of revenues) for the same
period in 1998, a decrease of $12,475,000. The decrease primarily reflects the
loss of the Company's Yugoslavian operations, which incurred expenses of
$8,443,000 in the 1998 first quarter. In the Company's Russian operations,
selling, general and administrative expenses decreased by $6,383,000,
principally due to the 75% decline in the value of the ruble and the Company's
cost-control efforts. The decrease in selling, general and administrative
expenses also reflects a $3,738,000 decline in corporate expenses. These amounts
were partially offset by additional costs resulting from acquisitions of
business and product rights subsequent to March 31, 1998, which totaled
$10,186,000 (including amortization of goodwill and intangibles of $3,492,000),
and other changes.
Research and Development: Research and development expenditures for the 1999
first quarter were $2,242,000, compared to $5,504,000 for the same period in
1998. The decrease primarily resulted from the loss of the Company's Yugoslavian
operations, and from lower costs incurred at the Company's facilities in the
United States and Hungary.
Translation and Exchange Losses, Net: Foreign exchange losses, net, were
$7,259,000 for the three months ended March 31, 1999 compared to $5,428,000 for
the same period in 1998. In the first quarter of 1999, translation losses
principally consisted of losses of $4,742,000 related to the net monetary asset
position of the Company's Russian subsidiaries and losses of $1,929,000 in
Hungary resulting from foreign-denominated debt. In the first quarter of 1998,
the Company's foreign exchange losses were primarily related to ICN Yugoslavia's
net monetary asset position.
Interest Income and Expense: Interest expense during the three months ended
March 31, 1999 increased $6,486,000 compared to the same period in 1998,
primarily due to the additional interest expense resulting from the Company's
$200,000,000 8-3/4% Senior Notes due 2008, issued in August 1998. The increase
in interest expense also reflects a decrease in the amount of interest cost
capitalized. During the three months ended March 31, 1998, the Company
capitalized interest of $1,718,000; no interest cost was capitalized in the 1999
first quarter. Interest income decreased to $1,644,000 in 1999 from $4,973,000
in 1998; the 1998 first quarter included $3,072,000 earned by ICN Yugoslavia on
notes and accounts receivable from the Yugoslavian government.
Income Taxes: The Company's effective income tax rate was 18% for 1999 compared
to 8% for 1998. The Company operates in many regions where the tax rate is lower
than the U.S. Federal statutory rate or where it benefits from tax relief. The
increase in the Company's provision for income taxes for the three months ended
March 31, 1999 over the same period of 1998 reflects lower 1999 taxable losses
in the United States and higher 1999 taxable income in Canada and Latin America,
where tax rates are relatively higher or no such tax relief is available. The
provision for income taxes for 1998 reflects the effect of higher taxable income
in Russia, Yugoslavia and other jurisdictions taxed at rates lower than the U.S.
Federal statutory rate of 35%. In addition, the Company received no tax benefit
for the foreign currency translation losses included in the Company's 1999 and
1998 net loss.
<PAGE>
18
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, cash provided by operating
activities totaled $3,728,000, compared to cash used in operations of
$17,042,000 in 1998. Operating cash flows reflect the Company's net income of
$22,619,000 and net noncash charges (including depreciation, minority interest,
and foreign exchange gains and losses) of $14,917,000, partially offset by
working capital increases (after the effect of business acquisitions and
currency translation adjustments) totaling approximately $33,808,000. The
working capital increases principally consist of a $27,147,000 decrease in trade
accounts payable resulting from the timing of payments to certain vendors, and a
$10,935,000 increase in accounts receivable, mainly resulting from higher sales
volumes in the Western Europe and Asia, Africa and Australia regions.
Cash used in investing activities was $13,913,000 for the three months ended
March 31, 1999 compared to $64,023,000 for the same period of 1998. In 1999, the
Company made capital expenditures of $12,085,000, principally representing the
continuation of its plant expansion efforts and investment in information
systems. In addition, the Company used cash of $1,948,000 for the acquisition of
a 97% interest in Fuzio-Pharma, a pharmaceutical distributor in Hungary (net of
cash acquired of $72,000). These amounts were partially offset by proceeds of
$129,000 from the sale of assets and other items. In 1998, net cash used in
investing activities of $64,023,000 principally consisted of payments for
acquisitions totaling $44,979,000 and capital expenditures of $19,303,000, which
were partially offset by proceeds from the sale of assets of $259,000.
Cash provided by financing activities totaled $16,788,000 for the three months
ended March 31, 1999, including proceeds of long-term borrowings totaling
$26,155,000. In addition, as provided for under the terms of a Stock Purchase
Agreement entered into with Schering-Plough in 1995, the Company sold to
Schering-Plough 1,141,498 shares of its common stock for $27,000,000. Proceeds
from the exercise of employee stock options provided an additional $1,332,000.
These amounts were partially offset by principal payments on long-term debt of
$27,473,000, cash dividends paid on common stock of $4,637,000, and a net
reduction of short-term borrowings of $39,000. Also during the quarter ended
March 31, 1999, the Company repurchased 223,967 shares of its common stock for
$5,550,000, completing the initial $10,000,000 portion of the Stock Repurchase
Program authorized by the Company's Board of Directors in 1998. During the first
quarter of 1998, cash used in financing activities of $517,000 principally
consisted of principal payments on long-term debt of $3,494,000 and dividend
payments of $3,806,000, partially offset by proceeds of $4,299,000 from the
issuance of common stock, long-term borrowings of $1,596,000, proceeds of
$822,000 from the exercise of employee stock options, and net short-term
borrowings of $66,000.
The Company's principal sources of liquidity are its existing cash and cash
equivalents and cash provided by operations. Cash and cash equivalents at March
31, 1999 totaled $110,847,000 compared to $104,921,000 at December 31, 1998.
Working capital at March 31, 1999 was $260,713,000, compared to $236,994,000 at
December 31, 1998. The $23,719,000 increase in working capital is primarily due
to cash and working capital generated by operating activities during the quarter
ended March 31, 1999. Certain of the Company's lines of credit and long term
borrowings include covenants restricting payment of dividends, issuance of new
indebtedness, and repurchase of the Company's common stock and requiring the
maintenance of certain financial ratios.
The current economic crisis in Russia continues to adversely affect the
Company's operating cash flows in Russia and Eastern Europe, as its Russian
customers continue to experience severe liquidity shortages. The Company may
need to invest additional working capital in Eastern Europe (including Russia)
to sustain its operations, to provide increasing levels of working capital
necessary to support renewed growth, and to fund the purchase or upgrading of
facilities. The Company also has several preliminary acquisition prospects that
may require significant funds in 1999. However, there can be no assurance that
any such acquisitions will be consummated. In March 1999, the Company
repurchased an additional 223,967 shares of its common stock for $5,550,000,
completing the first part of its stock repurchase program. Under the terms of
the indentures related to the Company's Senior Notes, the Company is not
currently permitted to repurchase additional shares of its common stock.
<PAGE>
19
Management believes that the Company's existing cash and cash equivalents and
funds generated from operations will be sufficient to meet its operating
requirements in 1999 and to fund anticipated acquisitions and capital
expenditures, including the continued development of its network of retail
pharmacies in Russia. The Company may also seek additional debt financing or
issue additional equity securities to finance future acquisitions.
The Company evaluates the carrying value of its inventories at least quarterly,
taking into account such factors as historical and anticipated future sales
compared with quantities on hand, the price the Company expects to obtain for
its products in their respective markets compared with historical cost, and the
remaining shelf life of goods on hand. The Company also evaluates the
collectibility of its receivables at least quarterly, based upon various factors
including the financial condition and payment history of major customers, an
overall review of collections experience on other accounts, and economic factors
or events expected to affect the Company's future collections experience. As of
March 31, 1999, the Company believes that adequate provision has been made for
inventory obsolescence and for anticipated losses on uncollectible accounts
receivable.
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.
FOREIGN OPERATIONS
Approximately 67% and 84% of the Company's revenues for the three months ended
March 31, 1999 and 1998, respectively, were generated from operations outside
the United States. All of the Company's 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.
The Russian political situation has been increasingly unstable. The recent
turmoil in the Russian government may delay or prevent further financial
assistance from the International Monetary Fund or the World Bank and the
greater uncertainty in the Russian political and economic situation may
contribute to further declines in the value of the ruble. The Russian government
has recently instituted a process for establishing prices for pharmaceutical
products which may lead to price controls in the Russian market in the future.
Currently, this process requires the Company to register the prices for certain
of its products included on the government's list of "products important for
health". The next procedure for registration includes the negotiation and
approval of such prices between the Company and the relevant state bodies. The
Company is currently working with all relevant state bodies to approve its
prices and the Company is not presently able to determine the effect, if any,
that this process may have on its results of operations. However, such
developments could have a material adverse effect on the Company's results of
operations in Russia.
The Company's collections on accounts receivable in Eastern Europe (including
Russia) have been adversely affected by the Russian economic crisis. Prior to
the August 1998 devaluation of the Russian ruble, the Company had favorable
experience with the collection of receivables from its customers in the region.
Subsequently, the Company has taken additional steps to ensure the
creditworthiness of its customers and the collectibility of accounts receivable
by tightening its credit policies in the region. These steps include a
shortening of credit periods, suspension of sales to customers with past-due
balances, and discounts for cash sales. The adoption of these more restrictive
credit policies has contributed to the decline in sales in Russia for the three
months ended March 31, 1999 compared with the same period of 1998.
ICN Russia operates in a highly inflationary economy and uses the dollar as the
functional currency rather than the Russian ruble. During the three year period
ended December 31, 1998, the cumulative rate of inflation in Russia was
approximately 180%. All foreign exchange gains and losses arising from foreign
currency transactions and the effects of foreign exchange rate fluctuations are
included in income. As of March 31, 1999, ICN Russia had a net monetary asset
position of approximately $11,814,000 which would be subject to foreign exchange
loss if a further decline in the value of the ruble in relation to the dollar
were to occur. Due to the extremely large fluctuation in the ruble exchange
rate, the ultimate amount of any future foreign exchange loss the Company may
incur cannot presently be determined and such loss may have a material adverse
effect on the Company's financial position and results of operations. The
Company's management continues to work to reduce its net monetary exposure,
including the tightening of credit policies and increased accounts receivable
collection efforts including, in some cases, discounts for early payment from
customers. However, there can be no assurance that such efforts will be
successful.
The Company does not currently provide any hedges on its foreign currency
exposure and, in certain countries in which the Company operates, no effective
hedging programs are available. The Company and its subsidiaries are also
subject to foreign currency risk on its foreign-denominated debt of
approximately $46,251,000 at March 31, 1999, which is primarily denominated in
Swiss francs and German marks and, at Hungary and Poland, in U.S. dollars.
INFLATION AND CHANGING PRICES
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 Mexico and other regions, which has created lower sales in
U.S. dollars and reductions in gross profit. The Company's operations in Russia
and other regions may be subject to price controls in the future. Future sales
and gross profit could be materially affected if the Company is unable to obtain
price increases commensurate with the levels of inflation.
<PAGE>
20
THE YEAR 2000 ISSUE
Many computer systems and equipment and instruments with embedded
microprocessors were designed to recognize only the last two digits of a
calendar year. With the arrival of the Year 2000, these systems and
microprocessors may encounter operating problems due to their inability to
distinguish years after 1999 from years preceding 1999. Systems that are not
"Year 2000 compliant" could malfunction, potentially resulting in an adverse
impact on the Company's business.
The Company is pursuing an action plan to be Year 2000 compliant in all
locations by the third quarter of 1999. The Company does not have significant
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 information 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 Company has spent approximately $7,200,000 to upgrade its information
systems to be Year 2000 compliant, and currently considers its information
systems to be over 90% Year 2000 compliant. The Company recently converted its
Russian operations to Year 2000-compliant software.
The remaining projects that must be completed for full Year 2000 compliance are
software upgrades at the Company's plants in Hungary and Puerto Rico. The
purchase of replacement software is necessary to maintain the existing "Good
Manufacturing Practices" status of these plants. The Company has acquired
appropriate replacement software for these facilities and installation began
early in 1999. The estimated additional cost to complete the conversion to full
Year 2000 compliance is estimated to be approximately $1,100,000 which will be
spent primarily in 1999 and funded with cash from operations. There can be no
assurance that the conversion will be completed within internal or external
deadlines.
The Company's operations may also be impacted in the event that computer
disruption is encountered by third parties with whom the Company conducts
significant business. These third parties include suppliers and service
providers on whom the Company relies, and the wholesalers, distributors, health
care providers, and others from whom the Company derives its revenues. The
Company has identified the most critical of these third parties and the Company
intends to communicate with these third parties concerning their state of
readiness. However, the Company can provide no assurance that these third
parties will not experience business disruption. If a number of these third
parties experience business disruption due to a Year 2000 computer problem, the
Company's results of operations and cash flows could be materially adversely
affected.
The Company is evaluating the need for contingency plans to address potential
business disruptions at these third parties. Contingency planning may include
increasing inventory levels, establishing secondary sources of supply and
manufacturing, modifying production schedules, and maintaining backup lines of
communications with our customers. Should the Company determine that important
third parties may experience business interruption, appropriate contingency
plans will be developed. However, it is unlikely that any contingency plan can
fully mitigate the impact of significant business disruptions among these third
parties.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
introduced a new currency called the "Euro". The conversion rates between the
Euro and the participating nations' existing legacy currencies were fixed
irrevocably as of January 1, 1999. Prior to full implementation of the new
currency on January 1, 2002, there will be a transition period during which
parties may, at their discretion, use either the legacy currencies or the Euro
for financial transactions.
The Company expects its affected subsidiaries to continue to operate primarily
in their respective legacy currencies through December, 2000. The majority of
the Company's affected subsidiaries currently can accommodate transactions for
customers or suppliers operating in either the legacy currency or the Euro.
Action plans are currently being implemented which are expected to result in
full compliance with all laws and regulations relating to the Euro conversion.
Such plans include the adaptation of information technology and
<PAGE>
21
other systems to accommodate Euro-denominated transactions as well as the
requirements of the transition period. The Company is also addressing the impact
of the Euro on its currency exchange-rate risk, taxation, contracts, competition
and pricing. While it is not possible to accurately predict the impact the Euro
will have on the Company's business or on the economy in general, management
currently does not anticipate that the Euro conversion will have a material
adverse impact on the Company's market risk with respect to foreign exchange,
its results of operations, or its financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's business and financial results are affected by fluctuations in
world financial markets. The Company evaluates its exposure to such risks on an
ongoing basis, and reviews its risk management policy to manage these risks to
an acceptable level, based on management's judgment of the appropriate trade-off
between risk, opportunity and costs. The Company does not hold any significant
amount of market risk sensitive instruments whose value is subject to market
price risk.
Interest Rate Risk: The Company does not hold financial instruments for trading
or speculative purposes. The financial assets of the Company are not subject to
significant interest rate risk due to their short duration. The financial
liabilities of the Company that are subject to interest rate risk are its
fixed-rate long-term debt (principally its 8-3/4% Senior Notes and its 9-1/4%
Senior Notes). The Company does not use any derivatives or similar instruments
to manage its interest rate risk. A 90 basis-point increase in interest rates
(approximately 10% of the Company's weighted-average interest rate on fixed-rate
debt) affecting the Company's financial instruments would have an immaterial
effect on the Company's pretax earnings for the three months ended March 31,
1999 and 1998. However, such a change would reduce the fair value of the
Company's fixed-rate debt instruments (principally its 8-3/4% and 9-1/4% Senior
Notes) by approximately $13,800,000 as of March 31, 1999.
<PAGE>
22
THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
This Quarterly Report on Form 10-Q 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
Quarterly Report on Form 10-Q 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 Quarterly Report on Form
10-Q 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, restrictions on the
exchange of currencies, limitations on foreign participation in local
enterprises, health-care regulations, price controls, and other restrictive
governmental conditions); the risk of operations in Eastern Europe, Russia,
Latin America, and China in light of the unstable economic, political and
regulatory conditions in such regions; the risk of potential claims against
certain of the Company's research compounds; 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 potential impact of the Euro
currency; the Company's ability to continue its expansion plan and to integrate
successfully any acquired companies; the Company's ability to maintain adequate
supply of products to meet customer demand; the Company's dependence on key
members of management; the results of lawsuits or the outcome of investigations
pending against the Company; 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>
23
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 6 of Notes to Consolidated Condensed Financial Statements
Item 2. CHANGES IN SECURITIES
In February 1999, the Company sold 1,141,498 shares of its common stock to
Schering-Plough for $27,000,000 in cash. The sale was pursuant to the terms of
the Stock Purchase Agreement made between the Company and Schering-Plough in
1995, in connection with the licensing to Schering-Plough of all oral forms of
ribavirin for the treatment of chronic hepatitis C in combination with
Schering-Plough's alpha interferon. Although the shares are initially
unregistered, under the terms of the agreement Schering-Plough is entitled to
certain registration rights.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Form of Asset Purchase Agreement by and between Hoffmann-La
Roche Inc., a New Jersey corporation, and ICN Pharmaceuticals,
Inc., a Delaware corporation, dated as of October 30, 1997
(supersedes Exhibit 10.1 to the Company's Form 10-Q Quarterly
Report for the period ended September 30, 1997).
10.2 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
(supersedes Exhibit 10.2 to the Company's Form 10-Q Quarterly
Report for the period ended September 30, 1997).
15.1 Review Report of Independent Accountants
15.2 Awareness Letter of Independent Accountants
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 1999:
Form 8-K dated March 18, 1999, reporting the Yugoslavian government's
seizure of the Company's 75% owned subsidiary, ICN Yugoslavia.
<PAGE>
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ICN PHARMACEUTICALS, INC.
Registrant
Date: May 14, 1999 /s/ Milan Panic
-------------------------------------------------
Milan Panic
Chairman of the Board and Chief Executive Officer
Date: May 14, 1999 /s/ John E. Giordani
-------------------------------------------------
John E. Giordani
Executive Vice President, Chief Financial Officer
and Corporate Controller
<PAGE>
25
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
10.1 Form of Asset Purchase Agreement by and between Hoffmann-La Roche
Inc., a New Jersey corporation, and ICN Pharmaceuticals, Inc., a
Delaware corporation, dated as of October 30, 1997.
10.2 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.
15.1 Review Report of Independent Accountants
15.2 Awareness Letter of Independent Accountants
27.1 Financial Data Schedule
Exhibit 10.1 ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into on October 30, 1997 by and between Hoffmann-La Roche Inc., a New Jersey
corporation, with offices at 340 Kingsland Street, Nutley, New Jersey 07110
("Seller") on the one hand and ICN Pharmaceuticals, Inc., a Delaware corporation
with offices at ICN Plaza, 3300 Hyland Avenue, Costa Mesa, California 92626
("Buyer").
This Agreement sets forth the terms and conditions upon which Buyer is
purchasing from Seller and Seller is selling to Buyer the Assets (as hereinafter
defined).
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, the parties hereto agree as follows:
1. DEFINITIONS
1.1 "Active Ingredient" means the pharmaceutical compounds known by
the chemical names fluorouracil, edrophonium chloride and levorphanol tartrate.
1.2 "Affiliate" of a party means any corporation or other business
entity controlled by, controlling or under common control with, such party. For
this purpose "control" shall mean direct or indirect beneficial ownership of
more than fifty percent (50%) of the voting securities of or income interest in
such corporation or other business entity; provided, however, that Genentech,
Inc., with offices located at 460 Point San Bruno Boulevard, South San
Francisco, California, 94080, shall not be considered an Affiliate of Seller.
1.3 "Assets" has the meaning ascribed to such term in Article 2.
1.4 "Assigned Agreements" has the meaning ascribed to such term in
Section 2.5.
1.5 "Buyer Indemnifiable Claims" has the meaning ascribed to such term
in Section 12.1.
1.6 "Buyer Labeling" means the printed labels, labeling and packaging
materials, including printed carton, container label and package inserts, used
by Buyer and bearing Buyer's name for each Product.
1.7 "cGMP's" means the then-current Good Manufacturing Practices
applicable to the manufacture of pharmaceutical products for human use in the
United States in accordance with FDA regulations.
1.8 "Closing" has the meaning ascribed to such term in Section 10.1.
1.9 "Closing Date" has the meaning ascribed to such term in Section
10.1.
1.10 "Closing Time" means 12:01 a.m. on the date of Closing.
1.11 "Confidentiality Agreement" has the meaning ascribed to such term
in Section 11.2.
1.12 "Copyrights" has the meaning ascribed to such term in Section
2.1.
1.13 "Damages" has the meaning ascribed to such term in Section
12.1.1.
1.14 "Data Bank Documents" has the meaning ascribed to such term in
Section 2.7.
1.15 "Disclosure Schedule" means the disclosure schedule delivered
prior to the Effective Date to Buyer by Seller or to Seller by Buyer in
connection with this Agreement. The sections of the Disclosure Schedule
correspond to the sections of this Agreement, but information disclosed in any
section of the Disclosure Schedule shall be deemed to be disclosed as to all
relevant sections of this Agreement, except as otherwise specifically provided
herein.
1.16 "DOJ" means the United States Department of Justice.
1.17 "Effective Date" means the execution date of this Agreement.
1.18 "FDA" means the United States Food and Drug Administration.
1.19 "FTC" means the United States Federal Trade Commission.
1.20 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder.
1.21 "Indemnified Party" has the meaning ascribed to such term in
Section 12.3.
1.22 "Indemnifying Party" has the meaning ascribed to such term in
Section 12.3.
1.23 "Intellectual Property" means the patents, the Know-How, the
Trademarks, and the Copyrights.
1.24 "Inventory" has the meaning ascribed to such term in Section 2.4.
1.25 "Inventory Statement" has the meaning ascribed to such term in
Section 9.3.1.
1.26 "Know-How" has the meaning ascribed to such term in Section 2.4.
1.27 "Law" means any federal, state, foreign, local or other law,
ordinance, rule, regulation, or governmental requirement or restriction of any
kind, and any rules, regulations, and orders promulgated thereunder.
1.28 "Material Adverse Effect" means a material adverse effect on the
Assets, taken as a whole.
1.29 "NDA" means a New Drug Application, as such term is defined by
the FDA.
1.30 "Patent Rights" means any patents or patent applications and any
and all divisions, continuations, continuations-in-part, reexaminations,
reissues, extensions, pending or granted supplementary protection, certificates,
substitutions, confirmations, registrations, revalidations, revisions, additions
and the like, of or to said patents and patent applications.
1.31 "Products" means the finished pharmaceutical products set forth
in the Registrations, including all dosage size and forms thereof.
1.32 "Product Transfer Date" shall mean October 1, 1997.
1.33 "Registrations" has the meaning ascribed to such term in Section
2.2
1.34 "Schedule" means a schedule included as part of the Disclosure
Schedule.
1.35 "Seller Indemnifiable Claims" has the meaning ascribed to such
term in Section 12.2.
1.36 "Seller Labeling" means the printed labels, labeling and
packaging materials, including printed carton, container label and package
inserts, currently used by Seller or its Affiliates for the Product.
1.37 "Seller Process" means, for each Product, the manufacturing
process approved in the NDA for such Product.
1.38 "Seller Supply Agreement" means the Supply Agreement entered into
on the Effective Date between Seller and Buyer concerning the supply of the
Product.
1.39 "Territory" means the United States of America, and its
possessions, including the Commonwealth of Puerto Rico and the United States
Virgin Islands.
1.40 "Trademarks" has the meaning ascribed to such term in Section
2.1.
<PAGE>
2. ASSETS BEING SOLD
Subject to the terms and conditions of this Agreement, at Closing,
Seller shall sell, transfer, assign, convey and deliver to Buyer, its successors
and assigns forever, all of the right, title, and interest of Seller in and to
the assets listed below in the Territory (collectively, the "Assets") and Buyer
shall assume all of the right, title, and interest of Seller in and to the
Assets and, all of the liabilities, obligations and responsibilities associated
therewith. Except as expressly stated herein, Seller does not intend to convey
and Buyer does not intend to purchase the right, title and interest of Seller in
and to any assets not listed in this Article 2 or which may be outside of the
Territory, or the obligations and responsibilities associated therewith.
2.1 Trademarks. The trademark/service mark registrations and
applications that are set forth on Schedule 2.1 and the goodwill symbolized by
such trademarks/service marks (the "Trademarks") , and any copyrights and any
unregistered trade dress that are owned by Seller which are associated solely
with the Products and used by Seller solely on or in association with such
Products (the "Copyrights"). "Trademarks" shall not include any
trademark/service marks outside of the Territory that are the same as or similar
to the Trademarks or the right to register any such trademarks-service marks.
Neither "Trademarks" nor "Copyrights" shall include copyrights, service marks
and trade dress used outside the Territory or that are primarily associated with
the divisions, companies or corporate entities of either Roche Products, Inc. or
Hoffmann-La Roche Inc., or their distributors or Affiliates.
2.2 Registrations. The NDAs that are set forth on Schedule 2.2 and the
regulatory files relating thereto (the "Registrations");
2.3 Manufacturing Technology and Know-How.
2.3.1. The manufacturing technology and know-how that is exclusively
used in the pharmaceutical manufacturing of the Products, including but not
limited to the Seller Processes, specifications and test methods for Products,
raw material, packaging, stability and other applicable specifications,
manufacturing and packaging instructions, master formula, validation reports
(process, analytical methods and cleaning) to the extent available, stability
data, analytical methods, records of complaints, annual product reviews to the
extent available, and other master documents necessary for the manufacture,
control, and release of the Product as conducted by, or on behalf of Seller (the
"Know-How");
2.3.2 A non-exclusive, perpetual, paid-up, irrevocable and
royalty-free license, with the right to sublicense, to use any pharmaceutical
manufacturing technology and know-how that are necessary or used in
manufacturing any Product (but not exclusively used therein) with such license
being restricted to use for purposes of manufacturing, using or selling Products
only in the Territory. In no event shall "Know-How" include any pharmaceutical
manufacturing technology and know-how relating to the manufacture, use or sale
of products other than as specified herein.
2.4 Inventory.
2.4.1 The inventory consisting of the Products that are owned by
Seller and that have been approved by the Parties as meeting specifications and
otherwise saleable in the ordinary and normal course of business as of October
1, 1997, the quantity and the location of which shall be agreed upon by the
parties prior to Closing. "Inventory" shall be as described in Schedule 2.4.1
and shall not include Products that have been shipped from the plant or a
warehouse directly to distributors, wholesalers, or customers prior to October
1, 1997. Subject to Article 3, Inventory shall be shipped FOB Seller's location
to a destination designated by Buyer in writing on or before Closing By the
closing date a physical inventory will be provided by Seller of finished goods.
The October 1 inventory shall be calculated based on this closing date inventory
plus units sold in October and November, less units produced in October and
November and adjusted for any units destroyed or samples distributed in October
and November.
2.5 Assigned Agreements .
2.5.1 Trademark Agreements. All of the Seller's rights, and all
liabilities, obligations and responsibilities associated with those agreements
set forth on Schedule 2.5.1 but only to the extent such agreements relate to the
Trademarks.
2.6 Manufacturing Information. Accurate and complete copies of
Seller's Manufacturing Worksheets and copies of Seller's Manufacturing Quality
Assurance Notebooks to the extent available, as well as relevant packaging
information.
2.7 Data Bank Documents. The right to obtain copies of and reference
the animal toxicology, animal mutagenicity, human clinical study and final
reports, and drug monograph/investigator brochures, listed on Schedule 2.7 (the
"Data Bank Documents").
2.8 Worldwide Safety Reports. A hard copy of Seller's Worldwide Safety
Reports with respect to Products, but Buyer shall have all responsibility and
shall pay all costs associated with converting such Worldwide Safety Reports
into the format from which Buyer can access that information.
2.9 Marketing Information. Copies of current and past advertising and
promotional materials, to the extent that they relate exclusively to the
Products, with the understanding that Buyer will reformat same to substitute its
name for that of HLR or RPI as the case may be.
2.10 Patent Rights All patent rights to those patents that are set
forth on Schedule 2.10, and the relevant files related thereto.
<PAGE>
3. PURCHASE PRICE
3.1 Purchase Price. Subject to the terms and conditions of this
Agreement, in reliance on the representations, warranties, covenants and
agreements of the Seller contained herein, and in consideration of the sale,
conveyance, assignment, transfer and delivery of the Assets provided for in
Article 2 hereof, Buyer will deliver at Closing the Purchase Price, consisting
of United States fifty-one million one hundred eight thousand dollars (US
$51,108,000). On request of Seller, the Parties shall consult not later than
five (5) days prior to Closing to define the mode of payment.
3.2 Inventory. In addition to the Purchase Price, any finished goods
Inventory in the Inventory Statement shall be purchased by Buyer from Seller at
the price per unit as set forth in Schedule 3.2. Payment shall be made within
sixty (60) days of Closing.
4. REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth on the Disclosure Schedule attached hereto as
Schedule 4, Seller hereby represents and warrants to the Buyer as follows:
4.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the New Jersey, with full
corporate power and authority to consummate the transactions contemplated
hereby.
4.2 Authority. The execution and delivery of this Agreement, and the
Supply Agreement, (collectively, the "Transaction Agreements") by Seller and the
consummation and performance of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate and
other proceedings, and each of the Transaction Agreements has been duly
authorized, executed, and delivered by Seller and, assuming the enforceability
against Buyer, constitutes the legal, valid and binding obligation of Seller,
enforceable in accordance with its terms, except as enforcement thereof may be
limited by general principles of equity and the effect of applicable bankruptcy,
insolvency, moratorium and other similar laws of general application relating to
or affecting creditors' rights generally, including, without limitation, the
effect of statutory or other laws regarding fraudulent conveyances and
preferential transfers.
4.3 Title to Assets. Except as set forth in Schedule 4.3, Seller has
good and marketable title to all the Assets it is obligated to convey hereunder,
and will convey good and marketable title at Closing, free and clear of any and
all liens, encumbrances, charges, claims, restrictions, pledges, security
interests, or impositions of any kind (including those of secured parties). None
of the Assets is leased, rented, licensed, or otherwise not owned by Seller.
4.4 No Violation or Conflict . The execution and delivery of the
Transaction Agreements by Seller and the performance of the Transaction
Agreements (and the transactions contemplated herein) by Seller or its
Affiliates (a) will not conflict with, violate or constitute or result in a
default under any Law, judgment, order, decree, the certificate of incorporation
or bylaws of Seller, or any material contract or agreement to which Seller is a
party or by which Seller is bound, except for any conflicts, violations or
defaults that are not, singly or in the aggregate, material to Seller's ability
to consummate the transactions contemplated hereby, 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.
4.5 Registrations. The Registrations are the only registrations
currently required by the FDA to sell and market the Products in the Territory.
All registrations listed on Schedule 2.2 are valid and held by Seller.
4.6 Inventory. As of Closing, the Inventory shall meet the
specifications therefor as set forth in the manufacturing documentation and
Registrations. The Inventory will be in good condition, properly stored and
usable and saleble in the ordinary course of business. The Inventory to be
purchased by Buyer shall in each case be sufficient to maintain a running
business for ninety (90) days. Since January 1, 1997, Seller has not made or
instituted any unusual or novel method of sale concerning the Products
inconsistent with past practices.
4.7 Taxes. As of Closing, there will be no liens for taxes upon the
Assets except for liens for current taxes not yet due and payable.
4.8 Absence of Certain Changes. As of the date hereof and as of the
Closing Date and except as otherwise disclosed on the Disclosure Schedule, there
has not been any material adverse change in the Assets and Seller is not aware
of any facts, circumstances, or proposed or contemplated events that would have
a Material Adverse Effect after Closing.
4.9 Violations of Law. The use of the Assets (i) does not violate or
conflict with any Law, any decree, judgment, order, or similar restriction in
the Territory in any material respect, and (ii) to the best of Seller's
knowledge, 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 not reasonably
likely to have, a Material Adverse Effect.
4.10 Restrictions . Except as listed or described on the Disclosure
Schedule, and except for consents the failure of which to obtain would not have
a Material Adverse Effect, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental agency is required to
be obtained or made by or with respect to Seller in connection with the
execution and delivery of this Agreement by Seller or the consummation by it of
the transactions contemplated hereby to be consummated by it, except for the
filing of a pre-merger notification report under the HSR Act.
4.11 Litigation. Except as set forth in the Disclosure Schedule, the
Assets are not the subject of (i) any outstanding judgment, order, writ,
injunction or decree of, or settlement agreement with, any person, corporation,
business entity, court, arbitrator or administrative or governmental authority
or agency, limiting, restricting or affecting the Assets in a way that would
have a Material Adverse Effect, or (ii) to the best of Seller's knowledge, any
pending or threatened claim, suit, proceeding, charge, inquiry, investigation or
action of any kind, and (iii) any court suits filed with respect to the Product
since January 1, 1991. To the best of Seller's knowledge, there are no claims,
actions, suits, proceedings or investigations pending or threatened by or
against Seller with respect to the transactions contemplated hereby, at law or
in equity or before or by any federal, state, municipal or other governmental
department, commission, board, agency, instrumentality or authority.
4.12 Limitation of Warranty and Disclaimers. Seller will not and does
not warrant that owners of products that are substantially similar to or
identical with the Products will not attempt to register and sell such products
in the Territory. Seller makes no representation or warranty as to the
prospects, financial or otherwise, of marketing the Products in the Territory.
EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT OR ANY OTHER TRANSACTION
AGREEMENT: (A) SELLER MAKES NO WARRANTY OF MERCHANTABILITY OF ANY OF THE ASSETS
OR OF THE FITNESS OF ANY OF THE ASSETS FOR ANY PURPOSE, AND (B) THE ASSETS ARE
TO BE SOLD PURSUANT TO THIS AGREEMENT IN AN "AS IS" CONDITION.
4.13 Sales. Net sales of Efudex in the territory for the twelve (12)
month period ending September 30, 1997 shall be no less than US $14,119,000.
4.14 Trademarks. Seller owns the Trademarks set forth in Schedule 2.1
which are formally registered. All Trademarks registrations set forth in Section
2.1 have been duly issued and have not been canceled, abandoned or otherwise
terminated to the best knowledge of Seller. Seller shall not be obligated to
maintain any Trademark after the Closing.
4.15 No Infringement of Third Party Rights. Except as set forth herein
or in the Disclosure Schedule, the use of the Products by Seller in the
Territory does not infringe any third party rights.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth on the Disclosure Schedule attached hereto as
Schedule 5, Buyer hereby represents and warrants to Seller as follows:
5.1 Organization. Buyer is a corporation duly organized, 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.
5.2 Authority. The execution and delivery of this Agreement by Buyer,
and the consummation and performance of the transactions contemplated hereby,
have been duly and validly authorized by all necessary corporate and other
proceedings, and this Agreement has been duly authorized, executed, and
delivered by Buyer and, assuming the enforceability against Seller, constitutes
the legal, valid and binding obligation of Buyer, enforceable in accordance with
its terms, except as enforcement thereof may be limited by general principles of
equity and the effect of applicable bankruptcy, insolvency, moratorium and other
similar laws of general application relating to or affecting creditors' rights
generally, including, without limitation, the effect of statutory or other laws
regarding fraudulent conveyances and preferential transfers.
5.3 Binding Effect. Each of the Transaction Agreements will, when
delivered at the Closing, have been duly authorized, executed and delivered by
Buyer and, assuming the enforceability against Seller, constitute the legal,
valid and binding obligation of Buyer, enforceable in accordance with their
respective terms, except as enforcement thereof may be limited by general
principles of equity and the effect of applicable bankruptcy, insolvency,
moratorium and other similar laws of general application relating to or
affecting creditors' rights generally, including, without limitation, the effect
of statutory or other laws regarding fraudulent conveyances and preferential
transfers.
5.4 No Violation or Conflict. The execution and delivery of the
Transaction Agreements by Buyer and the performance of the Transaction
Agreements (and the transactions contemplated herein) by Buyer do not and will
not conflict with, violate or constitute or result in a default under any Law,
judgment, order, decree, the articles of incorporation or bylaws of Buyer, or
any material contract or agreement to which Buyer is a party or by which Buyer
is bound.
5.5 No Government Restrictions. Except for consents the failure of
which to obtain would not have a Material Adverse Effect, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental agency is required to be obtained or made by or with respect to
Buyer in connection with the execution and delivery of this Agreement by Buyer
or the consummation by it of the transactions contemplated hereby to be
consummated by it, except for the filing of a pre-merger notification report
under the HSR Act.
5.6 Litigation. There are no claims, actions, suits, proceedings or
investigations pending or threatened by or against Buyer with respect to the
transactions contemplated hereby, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
agency, instrumentality or authority.
<PAGE>
6. SELLER'S COVENANTS
6.1 Use of Assets . Seller agrees that from the Effective Date until
the Closing Date that, except as specifically disclosed in Schedule 6.1 as of
the Effective Date or unless otherwise consented to by Buyer in writing, Seller
shall:
6.1.1 maintain the Assets in good status and condition normal wear and
tear excepted and not sell or dispose of any Assets except sales of Product in
the ordinary course of business;
6.1.2 not make or institute any unusual or novel methods of purchase,
sale, management, operation, or other business practice with regard to the
Assets;
6.1.3 not enter into any material contract or commitment, engage in
any transaction, extend credit or incur any obligation with respect to the
Assets, outside of the ordinary course of business;
6.1.4 not engage in any special pricing, rebate, allowance,
promotional or marketing programs inconsistent with past practices or for the
purpose of maintaining customer inventory levels of Product in excess of those
levels maintained in the past; and
6.1.5 promptly inform Buyer of any change in the Assets that could
have a Material Adverse Effect.
6.1.6 not act or omit to take any act which will cause a material
breach of any agreement impacting the Assets which would have a Material Adverse
Effect.
6.1.7 maintain insurance covering the Assets in such amounts and of
such kinds as are comparable to that in effect on the date of this Agreement, if
any;
6.1.8 shall not incur any indebtedness or liability which will or
likely would create a lien or other encumbrance against any of the Assets;
6.2 Compliance with Laws. Except as otherwise disclosed on the
Disclosure Schedule, Seller shall comply or begin to remedy such non-compliance
upon notification thereof in all material respects with all Laws and orders of
any court or federal, state, local or other governmental entity applicable to
the Assets except where such non-compliance will not have a Material Adverse
Effect.
6.3 Disclosure Supplements. From time to time prior to the Closing
Date, Seller will promptly inform Buyer, in writing, with respect to any matter
that may arise hereafter and that, if existing or occurring prior to the Closing
Date, would have been required to be set forth or described herein or in the
Disclosure Schedule.
6.4 Access. From and after the date hereof and up to Closing (except
as otherwise provided herein), Buyer and its authorized agents, officers, and
representatives shall have access to the Assets during normal business hours
upon reasonable prior notice and at a time and manner mutually agreed upon
between Buyer and Seller in order to conduct such examination and investigation
of the Assets as is reasonably necessary, provided that such examinations shall
not unreasonably interfere with Seller's operations and activities.
6.5 Further Assurances. Seller shall use all reasonable efforts to
implement the provisions of this Agreement, and for such purpose Seller, at the
request of Buyer, at or after Closing, will, without further consideration,
execute and deliver, or cause to be executed and delivered, to Buyer such
contract assignments, bills of sale, consents and other instruments in addition
to those required by this Agreement, in form and substance reasonably
satisfactory to Buyer, as Buyer may reasonably deem necessary or desirable to
implement any provision of this Agreement.
6.6 Non-Compete: Except for products currently marketed by Seller or
its affiliates, Seller covenants and agrees that for a period of five years
following the Closing Date, neither Seller nor any of its Affiliates will
directly or indirectly engage in the Territory in the manufacture, marketing and
distribution of products having both the same chemical substance and being
promoted for the same indication as the Products (hereinafter "Competing
Products"). Should, during the aforesaid five year period, either Seller or an
Affiliate of Seller as a consequence of an acquisition of a company or a
business acquire any Competing Products, Buyer shall have the right of first
refusal to acquire such Competing Products from Seller or its Affiliate at
conditions to be negotiated in good faith. Should Buyer not exercise its right
of first refusal or should subsequently held negotiations between Seller and
Buyer fail, Seller shall make good faith-efforts to divest the Competing
Products to a third party.
6.7 Audit: Seller shall engage reputable auditors to conduct an audit
of the Products and the Assets transferred under this Agreement, which is
required under Regulation S-X of the U.S. Securities and Exchange Commission,
which audit will be completed and delivered to Buyer within seventy (70) days of
the Closing Date. The cost of the audit shall be the obligation of Seller.
7. BUYER'S COVENANTS
7.1 Buyer Labeling. Following Closing, Buyer shall at its own expense
and as expeditiously as possible use all reasonable efforts to notify FDA of the
transfer and to obtain such FDA approvals necessary for Buyer Labeling for each
Product.
7.2 Further Assurances. Buyer shall use all reasonable efforts to
implement the provisions of this Agreement, and for such purpose Buyer, at the
request of Seller, at or after Closing, will, without further consideration,
execute and deliver, or cause to be executed and delivered, to Seller such
consents and other instruments in addition to those required by this Agreement,
in form and substance reasonably satisfactory to Seller, as Seller may
reasonably deem necessary or desirable to implement any provision of this
Agreement.
7.3 Taxes. Buyer covenants and agrees to pay on a timely basis all
federal, state and local sales, transfer and use taxes and customs duties with
respect to the sale and purchase of the Assets, and Buyer covenants to reimburse
Seller for any such taxes and duties for which Seller is liable for payment
within twenty (20) business days of receiving notice from Seller of such
payment.
7.4 Operational Changes. Buyer shall not engage in any special
pricing, rebate allowance, promotional or marketing program or activities,
special returns policy or special restocking program that would impact the
normal course or level of expected returns with respect to Products sold prior
to Closing.
8. COVENANTS BY BUYER AND SELLER
8.1 Technology Transfer. Buyer and Seller shall work together to
commence transfer of the Know-How to Buyer promptly after Closing. Seller shall
use all reasonable efforts to assist Buyer in assuming manufacture of the
Products, provided, however, that Seller cannot ensure Buyer's ability to
successfully manufacture the Products. Seller shall have no obligation to
provide manufacturing support for any Product and Seller shall not be
responsible for any delay and other consequences, if Buyer elects to use a
process that is materially different from a Roche Process. If Buyer elects to
transfer a Roche Process, Seller shall provide reasonable access to Seller's
manufacturing facilities and for a period of up to two years up to 25
(twenty-five) total man-days of technical support free-of-charge. Thereafter,
Buyer shall reimburse Seller for providing such technical assistance at Seller's
then-standard hourly charge for rendering technical assistance, which as of the
date of this Agreement is US$ 150.00 (one hundred and fifty United States
Dollars) per hour, plus all reasonable out-of-pocket expenses incurred by Seller
in rendering such assistance. Seller's obligation to provide hands-on
manufacturing support for a transferred Product shall cease following successful
manufacture of the registration batch for such Product.
8.2 Supply Agreement . Buyer and Seller, or their respective
affiliates shall on or before Closing enter into the Supply Agreement attached
hereto as Exhibit A.
8.3 Stability Studies. As soon as possible following execution of this
Agreement, Buyer shall qualify appropriate testing sites for future stability
studies. Seller shall continue through completion all on-going stability studies
for the Products and provide Buyer with copies of the resulting data as
available.
8.4 Labeling. In accordance with Section 7.1, Buyer is responsible for
having Buyer Labeling submitted to the FDA as soon as possible following
Closing. Buyer may use the Seller Labeling on the Inventory until such Inventory
is exhausted. In addition, Buyer may use the Seller Labeling on each Product
manufactured by Seller or its Affiliates for Buyer until the earlier of the date
(i) the FDA approves the Buyer Labeling for use on such Product and Buyer, using
all reasonable efforts, has obtained sufficient supplies of materials with such
Labeling for use on such Product, or (ii) six (6) months following Closing,
provided, however, if at the end of such six (6) month period the FDA has not
yet approved the Buyer Labeling, then such six (6) month period shall be
extended for a period of time to be mutually agreed by the parties reasonably
required to obtain such approval, but in no event greater than an additional six
(6) months.
8.5 Use of Seller Trademarks. Other than the use of the Seller
Labeling as set forth in Section 8.4, or with respect to the Trademarks, Buyer
shall not have the right to use any trademarks, tradenames, or logos of Seller
without Seller's consent, and any such use must be approved by Seller in
advance.
8.6 Customers. All contracts governing the Products with customers of
Seller or Seller's Affiliates shall be terminated as to the Products upon
expiration of the applicable notice period, and customers shall be notified of
that termination upon Closing. Seller shall provide updated information to
assist Buyer in quantifying the impact of these terminations, provided, however,
no pricing information will be exchanged. Seller shall provide all necessary
information (except pricing information) regarding customers and contracts to
Buyer to assist in Buyer's determination of whether to enter into new contracts.
8.7 Assignment of Trademarks. At or prior to Closing, Buyer shall
prepare and Seller shall execute such assignment documents as Buyer may
reasonably request in order to record the assignment of the Trademarks. The
responsibility and expense of filing such documents and any actions required
ancillary thereto, shall be borne solely by Buyer. Notwithstanding anything
contained elsewhere herein, Buyer shall hold Seller and its Affiliates harmless
from and against any loss or damage, including but not limited to fees,
penalties, fines or third party claims, due to Buyer's failure to record any
assignment of any such Trademarks pursuant to this subsection, except if such
loss or damage is due to the conduct of the Seller.
8.8 Transfer of Registrations. At Closing, Buyer and Seller shall
execute such documents as Buyer may reasonably request in order to transfer the
Registrations. Buyer shall pay any user fees associated with any Product that
accrue after Closing, including user fees that accrue prior to transfer of such
Registrations. Notwithstanding anything contained elsewhere herein, Buyer shall
hold Seller and its Affiliates harmless from and against any loss or damage,
including but not limited to fees, penalties, fines or third party claims, due
to Buyer's failure to file any Registration pursuant to this subsection, except
if such loss or damage is due to the conduct of the Seller.
8.9 Access to Information. Buyer and Seller will, upon reasonable
prior notice, make available to the other party such information or records
relating to the Assets which is in its possession after Closing, to the extent
reasonably required for the purpose of assisting the other party in the
preparation of tax returns relating to the Assets, and prosecuting or defending
or preparing for the prosecution or defense of any action, suit, claim,
complaint, proceeding or investigation at any time brought by or pending against
Seller or Buyer relating to the Assets , other than in the case of litigation
between the parties hereto, such information or records (or copies thereof) in
their possession after Closing (except if such information or records are
protected by the attorney-client privilege and the provision thereof would
destroy such privilege). Buyer and Seller shall also provide each other with
periodic drug safety updates and other information related to the Products, as
more specifically set forth in Schedule 8.9 for so long as each party continues
to manufacture and sell products containing the Active Ingredient.
8.10 Customer Information. Buyer and Seller shall agree on the text of
a joint announcement informing the customers in the Territory of the transfer of
the Products to Buyer or its relevant Affiliate. Should it be appropriate for
any party to make an announcement on its own, it will have to be approved by the
other party, which approval will not be unreasonably withheld or delayed.
8.11 Press Releases. Neither the Seller nor the Buyer, 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. Unless
otherwise required by applicable law, the Purchase Price shall not be disclosed.
8.12 Government Filings.
8.12.1 Within three (3) business days after the Effective Date, Buyer
will, and Seller will, or will cause the ultimate parent entity of Seller to,
make such filings, together with a request for early termination, as may be
required by the HSR Act with respect to the consummation of the transactions
contemplated by this Agreement. Thereafter, Buyer will, and Seller will, or will
cause the ultimate parent entity of Seller to, each file or cause to be filed as
promptly as practicable with the FTC and the DOJ any supplemental information
that may be requested pursuant to the HSR Act. All such filings will comply in
all material respects with the requirements of the HSR Act.
8.12.2 Within three (3) business days following the Closing Date,
Seller shall notify the Health Care Financing Administration of the transfer of
the ownership of the products to Buyer.
8.13 Rebates. Seller or its Affiliates shall be responsible for any
rebate payments to non-Affiliates with respect to the Products, whether by
agreements, government mandate or otherwise, for all Products dispensed prior to
the Product Transfer Date and for a period of thirty (30) days thereafter, and
Buyer shall be responsible for any rebate payments with respect to the Products,
whether by agreements, government mandate or otherwise, for all Products
dispensed on or after thirty (30) days following the Product Transfer Date. With
respect to Products dispensed during the calendar quarter in which Closing
occurs, Seller shall be responsible for making such rebate payments, but the
amount of such payments shall be prorated between Buyer and Seller based on the
number of days remaining in said quarter as of thirty (30) days following the
Product Transfer Date, or the end of that calendar quarter, whichever is
earlier. If Seller or an Affiliate makes payment of rebates in its own name
(after the thirty day period above) due to governmental requirements pertaining
to Products for which Buyer is responsible, Buyer will reimburse Seller or its
Affiliate such amount within thirty (30) days following the date Seller or its
Affiliate notifies Buyer that Seller or its Affiliate has made such payments.
Buyer reserves the right to request Seller to audit at Buyer's expense
($150/hour) any particular rebate charge to determine whether the rebate should
be charged to Buyer or Seller under the terms hereof.
8.14 Contract Chargebacks. As of the Closing Date, Seller or its
Affiliates shall notify all parties with purchase contracts covering the
Products that said contract will terminate as to the Product in accordance with
its terms which in no case shall exceed sixty (60) days. Seller shall be
responsible for all costs and expenses with respect to claims under contract
chargebacks for the Product for chargeback requests for Product with an invoice
date prior to Closing or during a period of sixty (60) days following Closing.
8.15 Returns. Following the Closing Date, Seller shall be responsible
for the cost and proper handling of all returns in connection with Products sold
under Seller NDC code, with the exception of the Products specified in the
Inventory Statement, and Buyer shall be responsible for the cost and proper
handling of all returns in connection with Products sold under Buyer's NDC code,
as well as those lots of Product specified in Inventory Statement.
8.16 Cooperation. Prior to the Closing Date, the parties agree to each
designate a key contact person or persons to work out further details and
procedures as the need may arise for each subsection in Article 8. These contact
persons shall be guided by the principles in Article 8, and the parties agree to
good faith cooperation to share relevant information in order to facilitate the
respective Covenants set forth in Article 8. In the event the Closing Date
occurs in the middle of a calendar quarter, the parties agree to cooperate with
each other to facilitate the timely filing of any necessary government filings.
As part of this duty to cooperate, Buyer agrees to devote sufficient corporate
resources to this specialized field of rebates and chargebacks so that Seller is
not penalized in any way.
9. CONDITIONS PRECEDENT TO CLOSING
9.1 Conditions to Obligation of Buyer. The obligations of Buyer under
this Agreement to complete the transactions contemplated hereby are subject to
the satisfaction on or prior to the Closing Date of the following conditions
(all or any of which may be waived in whole or in part by Buyer):
9.1.1 Representations and Warranties. The representations and
warranties made by Seller in this Agreement shall have been true and correct in
all material respects as of the Closing Date with the same force and effect as
though said representations and warranties had been made on the Closing 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.
9.1.2 Performance. Seller 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 Closing.
9.1.3 Third Party Approvals . All governmental approvals and any other
consents or approvals of third parties necessary for Seller to execute and
deliver this Agreement and perform its obligations hereunder shall have been
obtained and, in the case of any regulatory approval (including under the HSR
Act), all notice and waiting periods with respect thereto shall have expired or
terminated and all conditions contained in any such approval required to be
satisfied prior to consummation of the transactions contemplated hereby shall
have been satisfied, and Seller shall have delivered to Buyer copies or other
evidence of such approvals.
9.1.4 No Adverse Change. During the period from the Effective Date to
the Closing Date there shall not have occurred or been discovered, and there
shall not exist on the Closing 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 Effect.
9.1.5 Officer's Certificate. Seller shall have delivered to Buyer a
certificate, dated the Closing Date and executed by an officer of Seller,
certifying to the fulfillment of all conditions set forth in this Section 9.1.
9.1.6 Certificate of Good Standing. Seller shall have delivered to
Buyer a certificate of good standing for Seller issued by the State of New
Jersey and the Republic of Panama dated within thirty (30) business days prior
to the Closing Date ("Seller Certificate of Good Standing").
9.1.7 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 Effect.
9.1.8 Delivery of Other Documents. Buyer shall have received (a) if
authorization and approval of the Board of Directors of Seller is required, a
certified copy of the resolutions of the Board of Directors of Seller, in effect
as of the Closing Date, authorizing and approving the execution, delivery and
performance by Seller of this Agreement and (b) such additional documents
evidencing or certifying satisfaction of the conditions specified in this
Section 9.1 as reasonably may be requested by Buyer.
9.1.9 Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Buyer and Buyer's counsel, and Seller
shall have made available to Buyer for examination the originals or true and
correct copies of all documents which Buyer may reasonably request in connection
with the transactions contemplated by this Agreement.
9.2 Conditions to Obligations of Seller. The obligations of Seller
under this Agreement to complete the transactions contemplated hereby at Closing
are subject to the satisfaction on or prior to the Closing Date of the following
conditions (all or any of which may be waived in whole or in part by Seller):
9.2.1 Representations and Warranties. The representations and
warranties made by Buyer in this Agreement shall have been true and correct in
all material respects as of the Closing Date with the same force and effect as
though said representations and warranties had been made on the Closing 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.
9.2.2 Performance. Buyer 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 Closing.
9.2.3 Third Party Approvals . All governmental approvals and any other
consents or approvals of third parties necessary for Buyer to execute and
deliver this Agreement and perform its obligations hereunder shall have been
obtained and, in the case of any regulatory approval (including under the HSR
Act), all notice and waiting periods with respect thereto shall have expired or
terminated and all conditions contained in any such approval required to be
satisfied prior to consummation of the transactions contemplated hereby shall
have been satisfied, and Buyer shall have delivered to Seller copies or other
evidence of such approvals.
9.2.4 Officer's Certificate. Buyer shall have delivered to Seller a
certificate, dated the date of Closing and executed by an officer of Buyer,
certifying to the fulfillment of all conditions specified in this Section 9.2.
9.2.5 Certificate of Good Standing. Buyer shall have delivered to
Seller a certificate of good standing for Buyer issued by the State of Delaware
dated within thirty (30) business days prior to the Closing Date ("Buyer
Certificate of Good Standing").
9.2.6 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 Effect.
9.2.7 Delivery of Other Documents. Seller shall have received (a) a
certified copy of the resolutions of the Board of Directors of Buyer, in effect
as of the Closing Date, authorizing and approving the execution, delivery and
performance by Buyer of this Agreement and (b) such additional documents
evidencing or certifying satisfaction of the conditions specified in this
Section 9.2 as reasonably may be requested by Seller.
9.2.8 Proceedings and Instruments Satisfactory. Proceedings and
Instruments Satisfactory. All proceedings, corporate or other, to be taken in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Seller and Seller's counsel, and Buyer shall have made available to
Seller for examination the originals or true and correct copies of all documents
which Seller may reasonably request in connection with the transactions
contemplated by this Agreement.
9.3 Other Conditions. In addition to the conditions set forth in
Sections 9.1 and 9.2 above, the obligations of the parties to be performed at
the Closing are subject to the satisfaction on or prior to the Closing Date of
the following conditions:
9.3.1 Inventory Statement. Seller and Buyer shall have agreed upon and
delivered the Inventory Statement described in Section 2.4 and Article 3 above,
which shall detail the Closing Inventory and any additional Inventory.
9.3.2 Supply Agreement. Seller and Buyer, or their Affiliates, shall
have executed the Supply Agreement.
10. THE CLOSING
10.1 The Closing . Subject to the satisfaction of all of the
conditions to each party's obligations set forth in Article 9 hereof (or, with
respect to any condition not satisfied, the waiver in writing thereof by the
party or parties for whose benefit the condition exists), the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
9:00 a.m. (local time) as soon as possible following the expiration or
termination of all required waiting periods under the HSR Act or December 1,
1997, whichever is later (the "Closing Date") at the offices of Buyer or its
Affiliate or at such other time, date and place as the parties hereto may agree
in writing. The transfer of the Assets shall be deemed to have occurred as of
the Closing Time.
10.2 Deliveries by Seller. At Closing, Seller shall deliver to Buyer
in form reasonably satisfactory to Buyer, each properly executed and dated as of
the Closing Date, where appropriate:
10.2.1 A general conveyance of the Assets;
10.2.2 Seller Certificate of Good Standing;
10.2.3 Secretary's Certificate certifying that the Board of Directors
of Seller has authorized this Agreement;
10.2.4 Officer's Certificate described in Section 9.1.5;
10.2.5 the statement of the quantity and location of inventory
described in Section 2.4;
10.2.6 completed disclosure schedules required hereunder;
10.2.7 the Supply Agreement
10.2.8 a receipt for the Purchase Price;
10.2.9 the NDA's including all correspondence with FDA related to the
Products; and
10.2.10 transfer of ownership letters to FDA;
10.3 Deliveries by Buyer. At Closing, Buyer shall deliver or cause to
be delivered to Seller:
10.3.1 The Initial Purchase Price payable in accordance with Article
3;
10.3.2 Buyer Certificate of Good Standing;
10.3.3 Secretary's Certificate certifying that the Board of Directors
of Buyer has authorized this Agreement.
10.3.4 Officer's Certificate described in Section 9.2.4; and
10.3.5 the Supply Agreement with Seller,
10.4 Effects of Closing. Upon Closing the ownership of the Assets as
well as the full responsibility for the use of the Assets and the full
responsibility for the conduct of the business comprising the use of the Assets
shall pass from Seller to Buyer. Seller shall remain exclusively responsible for
the conduct of the Business prior to Closing (including any consequences
therefrom which may appear after the Closing). Buyer shall be exclusively
responsible for the conduct of the Business from Closing. Buyer acknowledges
that as per the Closing the product liability insurance of Seller and its
Affiliates will terminate and Buyer shall be responsible for proper insurance of
the product liability and other risks relating to the Products.
Within sixty (60) days of Closing, Seller shall remit to Buyer a sum
representing the net proceeds of sales to customers of the Products between
October 1, 1997 and Closing. This sum shall account for historical rates of
product returns, contract chargebacks, rebates and any other offsets on these
sales, as well as allow Seller a 5% fee for distribution, general and
administrative and collection costs.
At the Closing the License Agreement and the Manufacturing Agreement
between Hoffmann-La Roche Inc. ("HLR Inc.") and ICN., both dated July 1, 1988,
as well as the related Transfer Agreement between HLR Inc. and ICN dated
November 1, 1996 pertaining to the transfer of the manufacturing of Tensilon
shall terminate with respect to Tensilon effective October 1, 1997 to the extent
superseded by this Agreement, in particular the license and the royalty
provisions, it being understood that the provisions pertaining to the transfer
of the manufacturing from HLR Inc. to ICN shall continue to apply and that HLR
Inc. shall continue to supply Tensilon to ICN until completion of the transfer
of manufacturing pursuant to the Transfer Agreement. In the event that a third
party toll manufacturer manufactures these Products for Hoffmann-La Roche Inc.,
the pertaining toll manufacturing agreement(s) shall be assigned to and assumed
by Buyer at Closing effective as per the Effective Date on the same terms now
existing, provided such terms are commercially reasonable, subject to any
necessary consent of the toll manufacturer.
Similarly, at the Closing the License Agreement and the Supply
Agreement between Hoffmann-La Roche Limited ("Roche Canada.") and ICN Canada
Limited ("ICN Canada"), both dated July 1, 1988 shall terminate with respect to
Tensilon effective October 1, 1997 to the extent superseded by this Agreement,
in particular the license and the royalty provisions, it being understood that
Roche Canada or an Affiliate of Roche Canada shall continue to supply Tensilon
for the period provided by this Agreement.
The Closing shall further have the other effects provided for in this
Agreement.
11. TERMINATION
11.1 Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing Date:
11.1.1 By the mutual written consent of Seller and Buyer;
11.1.2 By either Seller or Buyer, if Closing shall not have occurred
on or before March 1, 1998, unless such date has been extended by mutual
agreement in writing;
11.1.3 By either Seller or Buyer, if consummation of the transactions
contemplated hereby shall violate any non-appealable final order, decree or
judgment of any court or governmental agency having competent jurisdiction.
11.1.4 By either Seller or Buyer 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 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, except that in no event shall either party be
required to Close if any of the conditions in Article 9 have not be satisfied;
11.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 11.1, all further obligations of Seller and Buyer under this
Agreement shall terminate without further liability of Seller or Buyer except
for (a) the obligations of the parties under the Confidentiality Agreement and
(b) the obligations of Buyer and Seller under Sections 8.13, 14 and 15.2.
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 hereunder.
12. INDEMNIFICATION
12.1 Remedy for Breach.
12.1.1 General Principle: After the Closing, the sole and exclusive
remedy of Buyer and Seller for any breach or inaccuracy of any representation or
warranty or any breach of any covenant under this Agreement by the other party
hereto shall be the indemnities contained in this Article 12.
12.1.2 Notice: Any claims that a party may have arising out of the
other party's breach of its representations and warranties or breach of a
covenant hereunder shall be notified to the other party promptly, but in no
event later than 90 (ninety) days after having reasonably sufficient knowledge
of the existence of a potential claim, by written notice describing the claim in
reasonable detail then known. Failure to give such notice on time shall not
affect the other party's indemnification obligations hereunder except to the
extent it is prejudiced thereby.
12.1.3 Survival of representations and warranties: The
representations, warranties, covenants of Seller and Buyer contained in this
Agreement shall survive the Closing Date, but any claim for breach of
representations and warranties or of a covenant shall be entitled to
indemnification hereunder only if written notice of such claim is given to the
other party hereto no later than 18 (eighteen) months following Closing Date
except that Buyer's right to notify claims with respect to the following matters
shall only terminate as follows:
a) Claims for breach of warranties and representations concerning
Litigation (Art. 4.11) insofar as such Litigation relates to product liability
matters shall be notified to Seller no later than 5 (five) years following the
Closing Date;
b) Claims for breach of warranties and representations concerning
Trademarks (Art. 4.13) shall be notified to Seller no later than 2 (two) years
following the Closing Date;
c) Claims for breach of warranties and representations concerning
taxes (Art. 4.7) may be notified to the Seller until the expiration of the
applicable statutes of limitations for taxes relevant to such claims.
It is understood that if and when either party has done the
notification for the pertaining matter within the applicable notification time,
it may start court proceedings pursuant to Art. 14 at any time within one year
of the date such claim was duly notified. Seller and Buyer shall agree to use
all reasonable efforts to mitigate any loss or damage for which they may seek
indemnification under this Article 12.
12.2 Indemnification by Seller:
12.2.1 Claims: Subject to the limitations set forth in Article 12.2.2
to the fullest extent permitted under applicable law, Seller shall indemnify
Buyer and its Affiliates against and agrees to hold Buyer and its Affiliates
harmless from any and all damage, loss, liability, third party claims, and
expense (collectively, "Damages") (including, without limitation, reasonable
expenses of investigation and attorneys' fees and expenses in connection with
any action, suit or proceeding brought against Buyer or its Affiliates) incurred
or suffered by Buyer or its Affiliates arising out of (a) any misrepresentation
or breach of a warranty or covenant made by Seller herein, (b) the maintenance
of the Assets by Seller prior to Closing or (c) the conduct of the Business by
Seller or its Affiliates prior to Closing (collectively, "Indemnifiable
Claims").
12.2.2 Limitations: Notwithstanding anything to the contrary set forth
elsewhere herein, Buyer and its Affiliates shall not be entitled to
indemnification hereunder with respect to any Indemnifiable Claim brought under
Article 12.2.1 unless the amount of Damages with respect to such Indemnifiable
Claim exceeds US$ 30,000. However, Seller shall in no event be required to pay
Buyer and its Affiliates more than half of the Purchase Price (Art. 3.1) in
respect of aggregate damages asserted pursuant to Article 12.2.1 (a) and (b)
except that the aforesaid limitation in respect of aggregate damages shall not
apply to any Indemnifiable Claim based on breach of Seller's warranties and
representations concerning Litigation in the field of product liability.
12.2.3 Form of Indemnification: Indemnification by Seller to Buyer
shall, at Seller's option, be effected in ICN Shares, valued at the Guaranteed
Price as of the Guaranty Date next preceding such indemnification plus pro rata
6% p.a., and/or cash. To effect any such payment, Seller shall surrender to ICN
one or more certificates representing such number of shares of Common Stock
and/or, at Seller's option, Preferred Stock as shall represent the aggregate
value of the amount of any such indemnification payment and ICN shall promptly
thereupon issue to Seller new certificates representing such number of shares of
Common Stock and/or Preferred Stock retained by Seller.
12.3 Indemnification of Buyer. Buyers shall indemnify Seller and it
Affiliates against and agrees to hold Seller and its Affiliates harmless from
any and all Damages (including without limitation, reasonable expenses of
investigation and attorneys' fees and expenses in connection with any action,
suit or proceeding brought against Seller or its Affiliates) incurred or
suffered by Seller or its Affiliates arising out of (a) any misrepresentation or
breach of warranty or covenant made by Buyer herein; or (b) the conduct of the
Business by Buyer and its Affiliates after Closing (collectively, "Indemnifiable
Claims"). Notwithstanding the foregoing, Buyer shall in no event be required to
pay Seller and its Affiliates more than half of the Purchase Price (Art 3.1) in
respect of aggregate damages asserted pursuant to Article 12.3 (a) and (b),
except that the aforesaid limitation shall no apply to Buyer's obligation to pay
the Purchase Price under Art. 3.1 above and the Inventory under Art. 3.5 above
and all provisions related to these payments, including but not limited to all
obligations of Buyer relating to the shares of common Stock and Preferred Stock
set forth in this Agreement and its Exhibits.
12.4 Notice: A party seeking indemnification pursuant to Article 12.2
or 12.3 (an "Indemnified Party") shall give prompt notice to the party from whom
such indemnification is sought (the "Indemnifying Party) of the assertion of any
claim, or the commencement of any action, suit or proceeding, in respect of
which indemnity is or may be sought hereunder (whether or not the limits set
forth in Article 12.2.2 have been exceeded) and will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request, but no failure to give such notice shall relieve the Indemnifying Party
of any liability hereunder (except to the extent the Indemnifying Party has
suffered actual prejudice thereby).
12.5 Participation in Defense: The Indemnifying Party may, at its
expense, participate in or assume the defense of any such actions, suit or
proceeding involving a third party. In such case the Indemnified Party shall
have the right (but not the duty) to participate in the defense thereof, and to
employ counsel, at its own expense, separate from counsel employed by the
Indemnifying Party in any such action and to participate in the defense thereof.
The Indemnifying Party shall be liable for the fees and expenses of one firm as
counsel (and appropriate local counsel) employed by the Indemnified Party if the
Indemnifying Party has not assumed the defense thereof. Whether or not the
Indemnifying Party chooses to defend or prosecution thereof and shall furnish
such records, information and testimony, and attend such conferences, discovery
proceedings, hearings, trials and appeals, as may be reasonably requested in
connection therewith.
12.6 Settlements: The Indemnifying Party shall not be liable under
this Article for any settlement effected without its consent of any claim,
litigation or proceedings in respect of which indemnity may be sought hereunder,
unless the Indemnifying Party refuses to acknowledge liability for
indemnification under this Article 12 and/or declines to defend the Indemnified
Party in such claim, litigation or proceeding.
<PAGE>
13. NOTICES
Any notice required or permitted to be given hereunder shall be deemed
sufficient if sent by United States mail or overnight courier, or delivered by
hand to Seller or Buyer at the respective addresses set forth below or at such
other address as either party hereto may designate. If delivered by overnight
courier, notice shall be deemed given when it has been signed for. If delivered
by hand, notice shall be deemed given when received. If delivered by U.S. Mail,
notice shall be deemed given five (5) business days following the postmark date.
if to Buyer, to:
ICN Pharmaceuticals, Inc.
1330 Hyland Avenue
Costa Mesa, California 92626
Attn: President
With a copy to General Counsel
if to Seller, to:
Hoffmann-La Roche Inc.
340 Kingsland Street
Nutley, New Jersey 07110
Attn: General Counsel
14. ARBITRATION AND GOVERNING LAW
14.1 Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order to preserve the status
quo or prevent irreparable harm pending the selection and confirmation of a
panel of arbitrators, any dispute, controversy, or claims arising under, out of
or relating to this Agreement (and subsequent amendments thereof), its valid
conclusion, binding effect, interpretation, performance, breach or termination,
including tort claims, shall be referred to and finally determined by
arbitration, to the exclusion of any courts of law, in accordance with the Rules
of Arbitration of the International Chamber of Commerce as in force at the time
when initiating the arbitration. The arbitral tribunal shall consist of three
arbitrators. The place of arbitration shall be Paris, France. The language to be
used in the arbitral proceedings shall be English. The arbitration decision
shall be final and binding upon the parties and the parties agree that any award
granted pursuant to such decision may be entered forthwith in any court of
competent jurisdiction. This arbitration clause and any award rendered pursuant
to it shall be governed by the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitration Awards signed in New York on 10 June, 1958.
The party to whom a favorable ruling is awarded shall be entitled to
reimbursement of all its reasonable costs and expenses in arbitration by the
other party.
14.2 The present Agreement shall be subject to the substantive law of
Switzerland (regardless of its or any other jurisdiction's choice of law
principles).
15. ADDITIONAL TERMS
15.1 Brokers. Buyer represents to Seller that it has not employed any
investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or any
commission from Seller upon consummation of the transactions contemplated
hereby. Seller represents to Buyer that it has not employed any such Person in
such connection who might be entitled to a fee or any commission from Buyer upon
consummation of the transactions contemplated hereby.
15.2 Expenses. Except as otherwise expressly provided in this
Agreement, all legal, accounting and other costs and expenses incurred in
connection herewith and the transactions contemplated hereby shall be paid by
the party incurring such expenses.
15.3 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
assigns; provided that this Agreement may not be assigned by any party except to
an Affiliate of such party without the prior written consent of the other party
other than in connection with the reincorporation of such party in another
jurisdiction.
15.4 Exhibits and Schedules. The Exhibits and Schedules attached to
this Agreement and the principles and conditions incorporated in such Exhibits
and Schedules shall be deemed integral parts of this Agreement and all
references in this Agreement to this Agreement shall encompass such Exhibits and
Schedules and the principles and conditions incorporated in such Exhibits and
Schedules.
15.5 Entire Agreement. This Agreement, the exhibits hereto, and the
Disclosure Schedule (including Disclosure Supplements, if any) embody the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersede and replace all previous negotiations, understandings,
representations, writings, and contract provisions and rights relating to the
subject matter hereof.
15.6 Amendments; No Waiver. No provision of this Agreement may be
amended, revoked or waived except by a writing signed and delivered by an
authorized officer of each party. No failure or delay on the part of either
party in exercising any right hereunder will operate as a waiver of, or impair,
any such right. No single or partial exercise of any such right will preclude
any other or further exercise thereof or the exercise of any other right. No
waiver of any such right will be deemed a waiver of any other right hereunder.
15.7 Counterparts. This Agreement may be executed in one or more
counterparts all of which shall together constitute one and the same instrument
and shall become effective when a counterpart has been signed by Buyer and
delivered to Seller and a counterpart has been signed by Seller and delivered to
Buyer.
15.8 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable and (b) in the event that any of the provisions
hereof are held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, (i) such invalid, void or otherwise unenforceable
provisions shall be automatically replaced by other provisions that are as
similar as possible in terms to such invalid, void or otherwise unenforceable
provisions but are valid and enforceable and (ii) the remaining provisions shall
remain enforceable to the fullest extent permitted by law, provided that the
rights and interests of the parties hereto shall not be materially affected.
15.9 Captions. Captions herein are inserted for convenience of
reference only and shall be ignored in the construction or interpretation of
this Agreement. Unless the context requires otherwise, all references herein to
Articles and Sections are to the articles and sections of this Agreement.
IN WITNESS WHEREOF, this Agreement has been signed by duly authorized
representatives of each of the parties hereto as of the date first above
written.
HOFFMANN-LA ROCHE INC. ICN PHARMACEUTICLS, INC.
By: /s/ Ed Thiele By: /s/ Bill A. MacDonald
----------------------------- ---------------------------
Name: Ed Thiele Name: Bill A. MacDonald
----------------------------- ---------------------------
Title: Vice President Title: Executive Vice President
----------------------------- ---------------------------
Date: October 30, 1997 Date: October 30, 1997
----------------------------- ---------------------------
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into on
October 30, 1997 by and between Roche Products Inc. a Panamanian corporation
with offices at Calle Aquilino de la Guardia, No. 8, Edificio Igra, Panama,
Republica de Panama ("Seller") on the one hand and ICN Pharmaceuticals, Inc., a
Delaware corporation with offices at ICN Plaza, 3300 Hyland Avenue, Costa Mesa,
California 92626 ("Buyer").
This Agreement sets forth the terms and conditions upon which Buyer is
purchasing from Seller and Seller is selling to Buyer the Assets (as hereinafter
defined).
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, the parties hereto agree as follows:
1. DEFINITIONS
1.1 "Active Ingredient" means the pharmaceutical compound known by the
chemical names chlordiazepoxide hydrochloride
1.2 "Affiliate" of a party means any corporation or other business
entity controlled by, controlling or under common control with, such party. For
this purpose "control" shall mean direct or indirect beneficial ownership of
more than fifty percent (50%) of the voting securities of or income interest in
such corporation or other business entity; provided, however, that Genentech,
Inc., with offices located at 460 Point San Bruno Boulevard, South San
Francisco, California, 94080, shall not be considered an Affiliate of Seller.
1.3 "Assets" has the meaning ascribed to such term in Article 2.
1.4 "Assigned Agreements" has the meaning ascribed to such term in
Section 2.5.
1.5 "Buyer Indemnifiable Claims" has the meaning ascribed to such term
in Section 12.1.
1.6 "Buyer Labeling" means the printed labels, labeling and packaging
materials, including printed carton, container label and package inserts, used
by Buyer and bearing Buyer's name for each Product.
1.7 "cGMP's" means the then-current Good Manufacturing Practices
applicable to the manufacture of pharmaceutical products for human use in the
United States in accordance with FDA regulations.
1.8 "Closing" has the meaning ascribed to such term in Section 10.1.
1.9 "Closing Date" has the meaning ascribed to such term in Section
10.1.
1.10 "Closing Time" means 12:01 a.m. on the date of Closing.
1.11 "Confidentiality Agreement" has the meaning ascribed to such term
in Section 11.2.
1.12 "Copyrights" has the meaning ascribed to such term in Section
2.1.
1.13 "Damages" has the meaning ascribed to such term in Section
12.1.1.
1.14 "Data Bank Documents" has the meaning ascribed to such term in
Section 2.7.
1.15 "Disclosure Schedule" means the disclosure schedule delivered
prior to the Effective Date to Buyer by Seller or to Seller by Buyer in
connection with this Agreement. The sections of the Disclosure Schedule
correspond to the sections of this Agreement, but information disclosed in any
section of the Disclosure Schedule shall be deemed to be disclosed as to all
relevant sections of this Agreement, except as otherwise specifically provided
herein.
1.16 "DOJ" means the United States Department of Justice.
1.17 "Effective Date" means the execution date of this Agreement.
1.18 "FDA" means the United States Food and Drug Administration.
1.19 "FTC" means the United States Federal Trade Commission.
1.20 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder.
1.21 "Indemnified Party" has the meaning ascribed to such term in
Section 12.3.
1.22 "Indemnifying Party" has the meaning ascribed to such term in
Section 12.3.
1.23 "Intellectual Property" means the patents, the Know-How, the
Trademarks, and the Copyrights.
1.24 "Inventory" has the meaning ascribed to such term in Section 2.4.
1.25 "Inventory Statement" has the meaning ascribed to such term in
Section 9.3.1.
1.26 "Know-How" has the meaning ascribed to such term in Section 2.4.
1.27 "Law" means any federal, state, foreign, local or other law,
ordinance, rule, regulation, or governmental requirement or restriction of any
kind, and any rules, regulations, and orders promulgated thereunder.
1.28 "Material Adverse Effect" means a material adverse effect on the
Assets, taken as a whole.
1.29 "NDA" means a New Drug Application, as such term is defined by
the FDA.
1.30 "Patent Rights" means any patents or patent applications and any
and all divisions, continuations, continuations-in-part, reexaminations,
reissues, extensions, pending or granted supplementary protection, certificates,
substitutions, confirmations, registrations, revalidations, revisions, additions
and the like, of or to said patents and patent applications.
1.31 "Products" means the finished pharmaceutical products set forth
in the Registrations, including all dosage size and forms thereof.
1.32 "Product Transfer Date" shall mean October 1, 1997.
1.33 "Registrations" has the meaning ascribed to such term in Section
2.2
1.34 "Schedule" means a schedule included as part of the Disclosure
Schedule.
1.35 "Seller Indemnifiable Claims" has the meaning ascribed to such
term in Section 12.2.
1.36 "Seller Labeling" means the printed labels, labeling and
packaging materials, including printed carton, container label and package
inserts, currently used by Seller or its Affiliates for the Product.
1.37 "Seller Process" means, for each Product, the manufacturing
process approved in the NDA for such Product.
1.38 "Seller Supply Agreement" means the Supply Agreement entered into
on the Effective Date between Seller and Buyer concerning the supply of the
Product.
1.39 "Territory" means the United States of America, and its
possessions, including the Commonwealth of Puerto Rico and the United States
Virgin Islands.
1.40 "Trademarks" has the meaning ascribed to such term in Section
2.1.
<PAGE>
2. ASSETS BEING SOLD
Subject to the terms and conditions of this Agreement, at Closing,
Seller shall sell, transfer, assign, convey and deliver to Buyer, its successors
and assigns forever, all of the right, title, and interest of Seller in and to
the assets listed below in the Territory (collectively, the "Assets") and Buyer
shall assume all of the right, title, and interest of Seller in and to the
Assets and, all of the liabilities, obligations and responsibilities associated
therewith. Except as expressly stated herein, Seller does not intend to convey
and Buyer does not intend to purchase the right, title and interest of Seller in
and to any assets not listed in this Article 2 or which may be outside of the
Territory, or the obligations and responsibilities associated therewith.
2.1 Trademarks. The trademark/service mark registrations and
applications that are set forth on Schedule 2.1 and the goodwill symbolized by
such trademarks/service marks (the "Trademarks") , and any copyrights and any
unregistered trade dress that are owned by Seller which are associated solely
with the Products and used by Seller solely on or in association with such
Products (the "Copyrights"). "Trademarks" shall not include any
trademark/service marks outside of the Territory that are the same as or similar
to the Trademarks or the right to register any such trademarks-service marks.
Neither "Trademarks" nor "Copyrights" shall include copyrights, service marks
and trade dress used outside the Territory or that are primarily associated with
the divisions, companies or corporate entities of either Roche Products, Inc. or
Hoffmann-La Roche Inc., or their distributors or Affiliates.
2.2 Registrations. The NDAs that are set forth on Schedule 2.2 and the
regulatory files relating thereto (the "Registrations");
2.3 Manufacturing Technology and Know-How.
2.3.1. The manufacturing technology and know-how that is exclusively
used in the pharmaceutical manufacturing of the Products, including but not
limited to the Seller Processes, specifications and test methods for Products,
raw material, packaging, stability and other applicable specifications,
manufacturing and packaging instructions, master formula, validation reports
(process, analytical methods and cleaning) to the extent available, stability
data, analytical methods, records of complaints, annual product reviews to the
extent available, and other master documents necessary for the manufacture,
control, and release of the Product as conducted by, or on behalf of Seller (the
"Know-How");
2.3.2 A non-exclusive, perpetual, paid-up, irrevocable and
royalty-free license, with the right to sublicense, to use any pharmaceutical
manufacturing technology and know-how that are necessary or used in
manufacturing any Product (but not exclusively used therein) with such license
being restricted to use for purposes of manufacturing, using or selling Products
only in the Territory. In no event shall "Know-How" include any pharmaceutical
manufacturing technology and know-how relating to the manufacture, use or sale
of products other than as specified herein.
2.4 Inventory.
2.4.1 The inventory consisting of the Products that are owned by
Seller and that have been approved by the Parties as meeting specifications and
otherwise saleable in the ordinary and normal course of business as of October
1, 1997, the quantity and the location of which shall be agreed upon by the
parties prior to Closing. "Inventory" shall be as described in Schedule 2.4.1
and shall not include Products that have been shipped from the plant or a
warehouse directly to distributors, wholesalers, or customers prior to October
1, 1997. Subject to Article 3, Inventory shall be shipped FOB Seller's location
to a destination designated by Buyer in writing on or before Closing By the
closing date a physical inventory will be provided by Seller of finished goods.
The October 1 inventory shall be calculated based on this closing date inventory
plus units sold in October and November less units produced in October and
November and adjusted for any units destroyed or samples distributed in October
and November.
2.5 Assigned Agreements .
2.5.1 Trademark Agreements. All of the Seller's rights, and all
liabilities, obligations and responsibilities associated with those agreements
set forth on Schedule 2.5.1 but only to the extent such agreements relate to the
Trademarks.
2.6 Manufacturing Information. Accurate and complete copies of
Seller's Manufacturing Worksheets and copies of Seller's Manufacturing Quality
Assurance Notebooks to the extent available, as well as relevant packaging
information.
2.7 Data Bank Documents. The right to obtain copies of and reference
the animal toxicology, animal mutagenicity, human clinical study and final
reports, and drug monograph/investigator brochures, listed on Schedule 2.7 (the
"Data Bank Documents").
2.8 Worldwide Safety Reports. A hard copy of Seller's Worldwide Safety
Reports with respect to Products, but Buyer shall have all responsibility and
shall pay all costs associated with converting such Worldwide Safety Reports
into the format from which Buyer can access that information.
2.9 Marketing Information. Copies of current and past advertising and
promotional materials, to the extent that they relate exclusively to the
Products, with the understanding that Buyer will reformat same to substitute its
name for that of HLR or RPI as the case may be.
2.10 Patent Rights All patent rights to those patents that are set
forth on Schedule 2.10, and the relevant files related thereto.
<PAGE>
3. PURCHASE PRICE
3.1 Purchase Price. Subject to the terms and conditions of this
Agreement, in reliance on the representations, warranties, covenants and
agreements of the Seller contained herein, and in consideration of the sale,
conveyance, assignment, transfer and delivery of the Assets provided for in
Article 2 hereof, Buyer will deliver at Closing the Purchase Price, consisting
of United States thirty seven million nine hundred thousand dollars (US
$37,900,000). On request of Seller, the Parties shall consult not later than
five (5) days prior to Closing to define the mode of payment.
3.2 Inventory. In addition to the Purchase Price, any finished goods
Inventory in the Inventory Statement shall be purchased by Buyer from Seller at
the price per unit as set forth in Schedule 3.2. Payment shall be made within
sixty (60) days of Closing.
4. REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth on the Disclosure Schedule attached hereto as
Schedule 4, Seller hereby represents and warrants to the Buyer as follows:
4.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the Republic of Panama, with
full corporate power and authority to consummate the transactions contemplated
hereby.
4.2 Authority. The execution and delivery of this Agreement, and the
Supply Agreement, (collectively, the "Transaction Agreements") by Seller and the
consummation and performance of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate and
other proceedings, and each of the Transaction Agreements has been duly
authorized, executed, and delivered by Seller and, assuming the enforceability
against Buyer, constitutes the legal, valid and binding obligation of Seller,
enforceable in accordance with its terms, except as enforcement thereof may be
limited by general principles of equity and the effect of applicable bankruptcy,
insolvency, moratorium and other similar laws of general application relating to
or affecting creditors' rights generally, including, without limitation, the
effect of statutory or other laws regarding fraudulent conveyances and
preferential transfers.
4.3 Title to Assets. Except as set forth in Schedule 4.3, Seller has
good and marketable title to all the Assets it is obligated to convey hereunder,
and will convey good and marketable title at Closing, free and clear of any and
all liens, encumbrances, charges, claims, restrictions, pledges, security
interests, or impositions of any kind (including those of secured parties). None
of the Assets is leased, rented, licensed, or otherwise not owned by Seller.
4.4 No Violation or Conflict . The execution and delivery of the
Transaction Agreements by Seller and the performance of the Transaction
Agreements (and the transactions contemplated herein) by Seller or its
Affiliates (a) will not conflict with, violate or constitute or result in a
default under any Law, judgment, order, decree, the certificate of incorporation
or bylaws of Seller, or any material contract or agreement to which Seller is a
party or by which Seller is bound, except for any conflicts, violations or
defaults that are not, singly or in the aggregate, material to Seller's ability
to consummate the transactions contemplated hereby, 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.
4.5 Registrations. The Registrations are the only registrations
currently required by the FDA to sell and market the Products in the Territory.
All registrations listed on Schedule 2.2 are valid and held by Seller.
4.6 Inventory. As of Closing, the Inventory shall meet the
specifications therefor as set forth in the manufacturing documentation and
Registrations. The Inventory will be in good condition, properly stored and
usable and salable in the ordinary course of business. The Inventory to be
purchased by Buyer shall in each case be sufficient to maintain a running
business for ninety (90) days. Since January 1, 1997, Seller has not made or
instituted any unusual or novel method of sale concerning the Products
inconsistent with past practices.
4.7 Taxes. As of Closing, there will be no liens for taxes upon the
Assets except for liens for current taxes not yet due and payable.
4.8 Absence of Certain Changes. As of the date hereof and as of the
Closing Date and except as otherwise disclosed on the Disclosure Schedule, there
has not been any material adverse change in the Assets and Seller is not aware
of any facts, circumstances, or proposed or contemplated events that would have
a Material Adverse Effect after Closing.
4.9 Violations of Law. The use of the Assets (i) does not violate or
conflict with any Law, any decree, judgment, order, or similar restriction in
the Territory in any material respect, and (ii) to the best of Seller's
knowledge, 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 not reasonably
likely to have, a Material Adverse Effect.
4.10 Restrictions . Except as listed or described on the Disclosure
Schedule, and except for consents the failure of which to obtain would not have
a Material Adverse Effect, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental agency is required to
be obtained or made by or with respect to Seller in connection with the
execution and delivery of this Agreement by Seller or the consummation by it of
the transactions contemplated hereby to be consummated by it, except for the
filing of a pre-merger notification report under the HSR Act.
4.11 Litigation. Except as set forth in the Disclosure Schedule, the
Assets are not the subject of (i) any outstanding judgment, order, writ,
injunction or decree of, or settlement agreement with, any person, corporation,
business entity, court, arbitrator or administrative or governmental authority
or agency, limiting, restricting or affecting the Assets in a way that would
have a Material Adverse Effect, or (ii) to the best of Seller's knowledge, any
pending or threatened claim, suit, proceeding, charge, inquiry, investigation or
action of any kind, and (iii) any court suits filed with respect to the Product
since January 1, 1991 . To the best of Seller's knowledge, there are no claims,
actions, suits, proceedings or investigations pending or threatened by or
against Seller with respect to the transactions contemplated hereby, at law or
in equity or before or by any federal, state, municipal or other governmental
department, commission, board, agency, instrumentality or authority.
4.12 Limitation of Warranty and Disclaimers. Seller will not and does
not warrant that owners of products that are substantially similar to or
identical with the Products will not attempt to register and sell such products
in the Territory. Seller makes no representation or warranty as to the
prospects, financial or otherwise, of marketing the Products in the Territory.
EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT OR ANY OTHER TRANSACTION
AGREEMENT: (A) SELLER MAKES NO WARRANTY OF MERCHANTABILITY OF ANY OF THE ASSETS
OR OF THE FITNESS OF ANY OF THE ASSETS FOR ANY PURPOSE, AND (B) THE ASSETS ARE
TO BE SOLD PURSUANT TO THIS AGREEMENT IN AN "AS IS" CONDITION.
4.13 Sales. Net sales of Librium in the territory for the twelve (12)
month period ending September 30, 1997 shall be no less than US$ 6,469,000.
4.14 Trademarks. Seller owns the Trademarks set forth in Schedule 2.1
which are formally registered. All Trademarks registrations set forth in Section
2.1 have been duly issued and have not been canceled, abandoned or otherwise
terminated to the best knowledge of Seller. Seller shall not be obligated to
maintain any Trademark after the Closing.
4.15 No Infringement of Third Party Rights. Except as set forth herein
or in the Disclosure Schedule, the use of the Products by Seller in the
Territory does not infringe any third party rights.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth on the Disclosure Schedule attached hereto as
Schedule 5, Buyer hereby represents and warrants to Seller as follows:
5.1 Organization. Buyer is a corporation duly organized, 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.
5.2 Authority. The execution and delivery of this Agreement by Buyer,
and the consummation and performance of the transactions contemplated hereby,
have been duly and validly authorized by all necessary corporate and other
proceedings, and this Agreement has been duly authorized, executed, and
delivered by Buyer and, assuming the enforceability against Seller, constitutes
the legal, valid and binding obligation of Buyer, enforceable in accordance with
its terms, except as enforcement thereof may be limited by general principles of
equity and the effect of applicable bankruptcy, insolvency, moratorium and other
similar laws of general application relating to or affecting creditors' rights
generally, including, without limitation, the effect of statutory or other laws
regarding fraudulent conveyances and preferential transfers.
5.3 Binding Effect. Each of the Transaction Agreements will, when
delivered at the Closing, have been duly authorized, executed and delivered by
Buyer and, assuming the enforceability against Seller, constitute the legal,
valid and binding obligation of Buyer, enforceable in accordance with their
respective terms, except as enforcement thereof may be limited by general
principles of equity and the effect of applicable bankruptcy, insolvency,
moratorium and other similar laws of general application relating to or
affecting creditors' rights generally, including, without limitation, the effect
of statutory or other laws regarding fraudulent conveyances and preferential
transfers.
5.4 No Violation or Conflict. The execution and delivery of the
Transaction Agreements by Buyer and the performance of the Transaction
Agreements (and the transactions contemplated herein) by Buyer do not and will
not conflict with, violate or constitute or result in a default under any Law,
judgment, order, decree, the articles of incorporation or bylaws of Buyer, or
any material contract or agreement to which Buyer is a party or by which Buyer
is bound.
5.5 No Government Restrictions. Except for consents the failure of
which to obtain would not have a Material Adverse Effect, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental agency is required to be obtained or made by or with respect to
Buyer in connection with the execution and delivery of this Agreement by Buyer
or the consummation by it of the transactions contemplated hereby to be
consummated by it, except for the filing of a pre-merger notification report
under the HSR Act.
5.6 Litigation. There are no claims, actions, suits, proceedings or
investigations pending or threatened by or against Buyer with respect to the
transactions contemplated hereby, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
agency, instrumentality or authority.
6. SELLER'S COVENANTS
6.1 Use of Assets . Seller agrees that from the Effective Date until
the Closing Date that, except as specifically disclosed in Schedule 6.1 as of
the Effective Date or unless otherwise consented to by Buyer in writing, Seller
shall:
6.1.1 maintain the Assets in good status and condition normal wear and
tear excepted and not sell or dispose of any Assets except sales of Product in
the ordinary course of business;
6.1.2 not make or institute any unusual or novel methods of purchase,
sale, management, operation, or other business practice with regard to the
Assets;
6.1.3 not enter into any material contract or commitment, engage in
any transaction, extend credit or incur any obligation with respect to the
Assets, outside of the ordinary course of business;
6.1.4 not engage in any special pricing, rebate, allowance,
promotional or marketing programs inconsistent with past practices or for the
purpose of maintaining customer inventory levels of Product in excess of those
levels maintained in the past; and
6.1.5 promptly inform Buyer of any change in the Assets that could
have a Material Adverse Effect.
6.1.6 not act or omit to take any act which will cause a material
breach of any agreement impacting the Assets which would have a Material Adverse
Effect.
6.1.7 maintain insurance covering the Assets in such amounts and of
such kinds as are comparable to that in effect on the date of this Agreement, if
any;
6.1.8 shall not incur any indebtedness or liability which will or
likely would create a lien or other encumbrance against any of the Assets;
6.2 Compliance with Laws. Except as otherwise disclosed on the
Disclosure Schedule, Seller shall comply or begin to remedy such non-compliance
upon notification thereof in all material respects with all Laws and orders of
any court or federal, state, local or other governmental entity applicable to
the Assets except where such non-compliance will not have a Material Adverse
Effect.
6.3 Disclosure Supplements. From time to time prior to the Closing
Date, Seller will promptly inform Buyer, in writing, with respect to any matter
that may arise hereafter and that, if existing or occurring prior to the Closing
Date, would have been required to be set forth or described herein or in the
Disclosure Schedule.
6.4 Access. From and after the date hereof and up to Closing (except
as otherwise provided herein), Buyer and its authorized agents, officers, and
representatives shall have access to the Assets during normal business hours
upon reasonable prior notice and at a time and manner mutually agreed upon
between Buyer and Seller in order to conduct such examination and investigation
of the Assets as is reasonably necessary, provided that such examinations shall
not unreasonably interfere with Seller's operations and activities.
6.5 Further Assurances. Seller shall use all reasonable efforts to
implement the provisions of this Agreement, and for such purpose Seller, at the
request of Buyer, at or after Closing, will, without further consideration,
execute and deliver, or cause to be executed and delivered, to Buyer such
contract assignments, bills of sale, consents and other instruments in addition
to those required by this Agreement, in form and substance reasonably
satisfactory to Buyer, as Buyer may reasonably deem necessary or desirable to
implement any provision of this Agreement.
6.6 Non-Compete: Except for products currently marketed by Seller or
its affiliates, , Seller covenants and agrees that for a period of five years
following the Closing Date, neither Seller nor any of its Affiliates will
directly or indirectly engage in the Territory in the manufacture, marketing and
distribution of products having both the same chemical substance and being
promoted for the same indication as the Products (hereinafter "Competing
Products"). Should, during the aforesaid five year period, either Seller or an
Affiliate of Seller as a consequence of an acquisition of a company or a
business acquire any Competing Products, Buyer shall have the right of first
refusal to acquire such Competing Products from Seller or its Affiliate at
conditions to be negotiated in good faith. Should Buyer not exercise its right
of first refusal or should subsequently held negotiations between Seller and
Buyer fail, Seller shall make good faith-efforts to divest the Competing
Products to a third party.
6.7 Audit: Seller shall engage reputable auditors to conduct an audit
of the Products and the Assets transferred under this Agreement, which is
required under Regulation S-X of the U.S. Securities and Exchange Commission,
which audit will be completed and delivered to Buyer within seventy (70) days of
the Closing Date. The cost of the audit shall be the obligation of Seller.
7. BUYER'S COVENANTS
7.1 Buyer Labeling. Following Closing, Buyer shall at its own expense
and as expeditiously as possible use all reasonable efforts to notify FDA of the
transfer and to obtain such FDA approvals necessary for Buyer Labeling for each
Product.
7.2 Further Assurances. Buyer shall use all reasonable efforts to
implement the provisions of this Agreement, and for such purpose Buyer, at the
request of Seller, at or after Closing, will, without further consideration,
execute and deliver, or cause to be executed and delivered, to Seller such
consents and other instruments in addition to those required by this Agreement,
in form and substance reasonably satisfactory to Seller, as Seller may
reasonably deem necessary or desirable to implement any provision of this
Agreement.
7.3 Taxes. Buyer covenants and agrees to pay on a timely basis all
federal, state and local sales, transfer and use taxes and customs duties with
respect to the sale and purchase of the Assets, and Buyer covenants to reimburse
Seller for any such taxes and duties for which Seller is liable for payment
within twenty (20) business days of receiving notice from Seller of such
payment.
7.4 Operational Changes. Buyer shall not engage in any special
pricing, rebate allowance, promotional or marketing program or activities,
special returns policy or special restocking program that would impact the
normal course or level of expected returns with respect to Products sold prior
to Closing.
8. COVENANTS BY BUYER AND SELLER
8.1 Technology Transfer. Buyer and Seller shall work together to
commence transfer of the Know-How to Buyer promptly after Closing. Seller shall
use all reasonable efforts to assist Buyer in assuming manufacture of the
Products, provided, however, that Seller cannot ensure Buyer's ability to
successfully manufacture the Products. Seller shall have no obligation to
provide manufacturing support for any Product and Seller shall not be
responsible for any delay and other consequences, if Buyer elects to use a
process that is materially different from a Roche Process. If Buyer elects to
transfer a Roche Process, Seller shall provide reasonable access to Seller's
manufacturing facilities and for a period of up to two years up to 25
(twenty-five) total man-days of technical support free-of-charge. Thereafter,
Buyer shall reimburse Seller for providing such technical assistance at Seller's
then-standard hourly charge for rendering technical assistance, which as of the
date of this Agreement is US$ 150.00 (one hundred and fifty United States
Dollars) per hour, plus all reasonable out-of-pocket expenses incurred by Seller
in rendering such assistance. Seller's obligation to provide hands-on
manufacturing support for a transferred Product shall cease following successful
manufacture of the registration batch for such Product.
8.2 Supply Agreement . Buyer and Seller, or their respective
affiliates shall on or before Closing enter into the Supply Agreement attached
hereto as Exhibit A.
8.3 Stability Studies. As soon as possible following execution of this
Agreement, Buyer shall qualify appropriate testing sites for future stability
studies. Seller shall continue through completion all on-going stability studies
for the Products and provide Buyer with copies of the resulting data as
available.
8.4 Labeling. In accordance with Section 7.1, Buyer is responsible for
having Buyer Labeling submitted to the FDA as soon as possible following
Closing. Buyer may use the Seller Labeling on the Inventory until such Inventory
is exhausted. In addition, Buyer may use the Seller Labeling on each Product
manufactured by Seller or its Affiliates for Buyer until the earlier of the date
(i) the FDA approves the Buyer Labeling for use on such Product and Buyer, using
all reasonable efforts, has obtained sufficient supplies of materials with such
Labeling for use on such Product, or (ii) six (6) months following Closing,
provided, however, if at the end of such six (6) month period the FDA has not
yet approved the Buyer Labeling, then such six (6) month period shall be
extended for a period of time to be mutually agreed by the parties reasonably
required to obtain such approval, but in no event greater than an additional six
(6) months.
8.5 Use of Seller Trademarks. Other than the use of the Seller
Labeling as set forth in Section 8.4, or with respect to the Trademarks, Buyer
shall not have the right to use any trademarks, tradenames, or logos of Seller
without Seller's consent, and any such use must be approved by Seller in
advance.
8.6 Customers. All contracts governing the Products with customers of
Seller or Seller's Affiliates shall be terminated as to the Products upon
expiration of the applicable notice period, and customers shall be notified of
that termination upon Closing. Seller shall provide updated information to
assist Buyer in quantifying the impact of these terminations, provided, however,
no pricing information will be exchanged. Seller shall provide all necessary
information (except pricing information) regarding customers and contracts to
Buyer to assist in Buyer's determination of whether to enter into new contracts.
8.7 Assignment of Trademarks. At or prior to Closing, Buyer shall
prepare and Seller shall execute such assignment documents as Buyer may
reasonably request in order to record the assignment of the Trademarks. The
responsibility and expense of filing such documents and any actions required
ancillary thereto, shall be borne solely by Buyer. Notwithstanding anything
contained elsewhere herein, Buyer shall hold Seller and its Affiliates harmless
from and against any loss or damage, including but not limited to fees,
penalties, fines or third party claims, due to Buyer's failure to record any
assignment of any such Trademarks pursuant to this subsection, except if such
loss or damage is due to the conduct of the Seller.
8.8 Transfer of Registrations. At Closing, Buyer and Seller shall
execute such documents as Buyer may reasonably request in order to transfer the
Registrations. Buyer shall pay any user fees associated with any Product that
accrue after Closing, including user fees that accrue prior to transfer of such
Registrations. Notwithstanding anything contained elsewhere herein, Buyer shall
hold Seller and its Affiliates harmless from and against any loss or damage,
including but not limited to fees, penalties, fines or third party claims, due
to Buyer's failure to file any Registration pursuant to this subsection, except
if such loss or damage is due to the conduct of the Seller.
8.9 Access to Information. Buyer and Seller will, upon reasonable
prior notice, make available to the other party such information or records
relating to the Assets which is in its possession after Closing, to the extent
reasonably required for the purpose of assisting the other party in the
preparation of tax returns relating to the Assets, and prosecuting or defending
or preparing for the prosecution or defense of any action, suit, claim,
complaint, proceeding or investigation at any time brought by or pending against
Seller or Buyer relating to the Assets , other than in the case of litigation
between the parties hereto, such information or records (or copies thereof) in
their possession after Closing (except if such information or records are
protected by the attorney-client privilege and the provision thereof would
destroy such privilege). Buyer and Seller shall also provide each other with
periodic drug safety updates and other information related to the Products, as
more specifically set forth in Schedule 8.9 for so long as each party continues
to manufacture and sell products containing the Active Ingredient.
8.10 Customer Information. Buyer and Seller shall agree on the text of
a joint announcement informing the customers in the Territory of the transfer of
the Products to Buyer or its relevant Affiliate. Should it be appropriate for
any party to make an announcement on its own, it will have to be approved by the
other party, which approval will not be unreasonably withheld or delayed.
8.11 Press Releases. Neither the Seller nor the Buyer, 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. Unless
otherwise required by applicable law, the Purchase Price shall not be disclosed.
8.12 Government Filings.
8.12.1 Within three (3) business days after the Effective Date, Buyer
will, and Seller will, or will cause the ultimate parent entity of Seller to,
make such filings, together with a request for early termination, as may be
required by the HSR Act with respect to the consummation of the transactions
contemplated by this Agreement. Thereafter, Buyer will, and Seller will, or will
cause the ultimate parent entity of Seller to, each file or cause to be filed as
promptly as practicable with the FTC and the DOJ any supplemental information
that may be requested pursuant to the HSR Act. All such filings will comply in
all material respects with the requirements of the HSR Act.
8.12.2 Within three (3) business days following the Closing Date,
Seller shall notify the Health Care Financing Administration of the transfer of
the ownership of the products to Buyer.
8.13 Rebates. Seller or its Affiliates shall be responsible for any
rebate payments to non-Affiliates with respect to the Products, whether by
agreements, government mandate or otherwise, for all Products dispensed prior to
the Product Transfer Date and for a period of thirty (30) days thereafter, and
Buyer shall be responsible for any rebate payments with respect to the Products,
whether by agreements, government mandate or otherwise, for all Products
dispensed on or after thirty (30) days following the Product Transfer Date. With
respect to Products dispensed during the calendar quarter in which Closing
occurs, Seller shall be responsible for making such rebate payments, but the
amount of such payments shall be prorated between Buyer and Seller based on the
number of days remaining in said quarter as of thirty (30) days following the
Product Transfer Date, or the end of that calendar quarter, whichever is
earlier. If Seller or an Affiliate makes payment of rebates in its own name
(after the thirty day period above) due to governmental requirements pertaining
to Products for which Buyer is responsible, Buyer will reimburse Seller or its
Affiliate such amount within thirty (30) days following the date Seller or its
Affiliate notifies Buyer that Seller or its Affiliate has made such payments.
Buyer reserves the right to request Seller to audit at Buyer's expense
($150/hour), any particular rebate charge to determine whether the rebate should
be charged to Buyer or Seller under the terms hereof.
8.14 Contract Chargebacks. As of the Closing Date, Seller or its
Affiliates shall notify all parties with purchase contracts covering the
Products that said contract will terminate as to the Product in accordance with
its terms which in no case shall exceed sixty (60) days. Seller shall be
responsible for all costs and expenses with respect to claims under contract
chargebacks for the Product for chargeback requests for Product with an invoice
date prior to Closing or during a period of sixty (60) days following Closing.
8.15 Returns. Following the Closing Date, Seller shall be responsible
for the cost and proper handling of all returns in connection with Products sold
under Seller NDC code, with the exception of the Products specified in the
Inventory Statement, and Buyer shall be responsible for the cost and proper
handling of all returns in connection with Products sold under Buyer's NDC code,
as well as those lots of Product specified in Inventory Statement.
8.16 Cooperation. Prior to the Closing Date, the parties agree to each
designate a key contact person or persons to work out further details and
procedures as the need may arise for each subsection in Article 8. These contact
persons shall be guided by the principles in Article 8, and the parties agree to
good faith cooperation to share relevant information in order to facilitate the
respective Covenants set forth in Article 8. In the event the Closing Date
occurs in the middle of a calendar quarter, the parties agree to cooperate with
each other to facilitate the timely filing of any necessary government filings.
As part of this duty to cooperate, Buyer agrees to devote sufficient corporate
resources to this specialized field of rebates and chargebacks so that Seller is
not penalized in any way.
9. CONDITIONS PRECEDENT TO CLOSING
9.1 Conditions to Obligation of Buyer. The obligations of Buyer under
this Agreement to complete the transactions contemplated hereby are subject to
the satisfaction on or prior to the Closing Date of the following conditions
(all or any of which may be waived in whole or in part by Buyer):
9.1.1 Representations and Warranties. The representations and
warranties made by Seller in this Agreement shall have been true and correct in
all material respects as of the Closing Date with the same force and effect as
though said representations and warranties had been made on the Closing 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.
9.1.2 Performance. Seller 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 Closing.
9.1.3 Third Party Approvals . All governmental approvals and any other
consents or approvals of third parties necessary for Seller to execute and
deliver this Agreement and perform its obligations hereunder shall have been
obtained and, in the case of any regulatory approval (including under the HSR
Act), all notice and waiting periods with respect thereto shall have expired or
terminated and all conditions contained in any such approval required to be
satisfied prior to consummation of the transactions contemplated hereby shall
have been satisfied, and Seller shall have delivered to Buyer copies or other
evidence of such approvals.
9.1.4 No Adverse Change. During the period from the Effective Date to
the Closing Date there shall not have occurred or been discovered, and there
shall not exist on the Closing 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 Effect.
9.1.5 Officer's Certificate. Seller shall have delivered to Buyer a
certificate, dated the Closing Date and executed by an officer of Seller,
certifying to the fulfillment of all conditions set forth in this Section 9.1.
9.1.6 Certificate of Good Standing. Seller shall have delivered to
Buyer a certificate of good standing for Seller issued by the State of New
Jersey and the Republic of Panama dated within thirty (30) business days prior
to the Closing Date ("Seller Certificate of Good Standing").
9.1.7 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 Effect.
9.1.8 Delivery of Other Documents. Buyer shall have received (a) if
authorization and approval of the Board of Directors of Seller is required, a
certified copy of the resolutions of the Board of Directors of Seller, in effect
as of the Closing Date, authorizing and approving the execution, delivery and
performance by Seller of this Agreement and (b) such additional documents
evidencing or certifying satisfaction of the conditions specified in this
Section 9.1 as reasonably may be requested by Buyer.
9.1.9 Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Buyer and Buyer's counsel, and Seller
shall have made available to Buyer for examination the originals or true and
correct copies of all documents which Buyer may reasonably request in connection
with the transactions contemplated by this Agreement.
9.2 Conditions to Obligations of Seller. The obligations of Seller
under this Agreement to complete the transactions contemplated hereby at Closing
are subject to the satisfaction on or prior to the Closing Date of the following
conditions (all or any of which may be waived in whole or in part by Seller):
9.2.1 Representations and Warranties. The representations and
warranties made by Buyer in this Agreement shall have been true and correct in
all material respects as of the Closing Date with the same force and effect as
though said representations and warranties had been made on the Closing 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.
9.2.2 Performance. Buyer 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 Closing.
9.2.3 Third Party Approvals . All governmental approvals and any other
consents or approvals of third parties necessary for Buyer to execute and
deliver this Agreement and perform its obligations hereunder shall have been
obtained and, in the case of any regulatory approval (including under the HSR
Act), all notice and waiting periods with respect thereto shall have expired or
terminated and all conditions contained in any such approval required to be
satisfied prior to consummation of the transactions contemplated hereby shall
have been satisfied, and Buyer shall have delivered to Seller copies or other
evidence of such approvals.
9.2.4 Officer's Certificate. Buyer shall have delivered to Seller a
certificate, dated the date of Closing and executed by an officer of Buyer,
certifying to the fulfillment of all conditions specified in this Section 9.2.
9.2.5 Certificate of Good Standing. Buyer shall have delivered to
Seller a certificate of good standing for Buyer issued by the State of Delaware
dated within thirty (30) business days prior to the Closing Date ("Buyer
Certificate of Good Standing").
9.2.6 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 Effect.
9.2.7 Delivery of Other Documents. Seller shall have received (a) a
certified copy of the resolutions of the Board of Directors of Buyer, in effect
as of the Closing Date, authorizing and approving the execution, delivery and
performance by Buyer of this Agreement and (b) such additional documents
evidencing or certifying satisfaction of the conditions specified in this
Section 9.2 as reasonably may be requested by Seller.
9.2.8 Proceedings and Instruments Satisfactory. Proceedings and
Instruments Satisfactory. All proceedings, corporate or other, to be taken in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Seller and Seller's counsel, and Buyer shall have made available to
Seller for examination the originals or true and correct copies of all documents
which Seller may reasonably request in connection with the transactions
contemplated by this Agreement.
9.3 Other Conditions. In addition to the conditions set forth in
Sections 9.1 and 9.2 above, the obligations of the parties to be performed at
the Closing are subject to the satisfaction on or prior to the Closing Date of
the following conditions:
9.3.1 Inventory Statement. Seller and Buyer shall have agreed upon and
delivered the Inventory Statement described in Section 2.4 and Article 3 above,
which shall detail the Closing Inventory and any additional Inventory.
9.3.2 Supply Agreement. Seller and Buyer, or their Affiliates, shall
have executed the Supply Agreement.
10. THE CLOSING
10.1 The Closing . Subject to the satisfaction of all of the
conditions to each party's obligations set forth in Article 9 hereof (or, with
respect to any condition not satisfied, the waiver in writing thereof by the
party or parties for whose benefit the condition exists), the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
9:00 a.m. (local time) as soon as possible following the expiration or
termination of all required waiting periods under the HSR Act or December 1,
1997, whichever is later (the "Closing Date") at the offices of Buyer or its
Affiliate or at such other time, date and place as the parties hereto may agree
in writing. The transfer of the Assets shall be deemed to have occurred as of
the Closing Time.
10.2 Deliveries by Seller. At Closing, Seller shall deliver to Buyer
in form reasonably satisfactory to Buyer, each properly executed and dated as of
the Closing Date, where appropriate:
10.2.1 A general conveyance of the Assets;
10.2.2 Seller Certificate of Good Standing;
10.2.3 Secretary's Certificate certifying that the Board of Directors
of Seller has authorized this Agreement;
10.2.4 Officer's Certificate described in Section 9.1.5;
10.2.5 the statement of the quantity and location of inventory
described in Section 2.4;
10.2.6 completed disclosure schedules required hereunder;
10.2.7 the Supply Agreement
10.2.8 a receipt for the Purchase Price;
10.2.9 the NDA's including all correspondence with FDA related to the
Products; and
10.2.10 transfer of ownership letters to FDA;
10.3 Deliveries by Buyer. At Closing, Buyer shall deliver or cause to
be delivered to Seller:
10.3.1 The Initial Purchase Price payable in accordance with Article
3;
10.3.2 Buyer Certificate of Good Standing;
10.3.3 Secretary's Certificate certifying that the Board of Directors
of Buyer has authorized this Agreement.
10.3.4 Officer's Certificate described in Section 9.2.4; and
10.3.5 the Supply Agreement with Seller,
10.4 Effects of Closing. Upon Closing the ownership of the Assets as
well as the full responsibility for the use of the Assets and the full
responsibility for the conduct of the business comprising the use of the Assets
shall pass from Seller to Buyer. Seller shall remain exclusively responsible for
the conduct of the Business prior to Closing (including any consequences
therefrom which may appear after the Closing). Buyer shall be exclusively
responsible for the conduct of the Business from Closing. Buyer acknowledges
that as per the Closing the product liability insurance of Seller and its
Affiliates will terminate and Buyer shall be responsible for proper insurance of
the product liability and other risks relating to the Products.
Within sixty (60) days of Closing, Seller shall remit to Buyer a sum
representing the net proceeds of sales to customers of the Products between
October 1, 1997 and Closing. This sum shall account for historical rates of
product returns, contract chargebacks, rebates and any other offsets on these
sales, as well as allow Seller a 5% fee for distribution, general and
administrative and collection costs.
The Closing shall further have the other effects provided for in this Agreement.
<PAGE>
11. TERMINATION
11.1 Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing Date:
11.1.1 By the mutual written consent of Seller and Buyer;
11.1.2 By either Seller or Buyer, if Closing shall not have occurred
on or before March 1, 1998, unless such date has been extended by mutual
agreement in writing;
11.1.3 By either Seller or Buyer, if consummation of the transactions
contemplated hereby shall violate any non-appealable final order, decree or
judgment of any court or governmental agency having competent jurisdiction.
11.1.4 By either Seller or Buyer 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 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, except that in no event shall either party be
required to Close if any of the conditions in Article 9 have not be satisfied;
11.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 11.1, all further obligations of Seller and Buyer under this
Agreement shall terminate without further liability of Seller or Buyer except
for (a) the obligations of the parties under the Confidentiality Agreement and
(b) the obligations of Buyer and Seller under Sections 8.13, 14 and 15.2.
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 hereunder.
12. INDEMNIFICATION
12.1 Remedy for Breach.
12.1.1 General Principle: After the Closing, the sole and exclusive
remedy of Buyer and Seller for any breach or inaccuracy of any representation or
warranty or any breach of any covenant under this Agreement by the other party
hereto shall be the indemnities contained in this Article 12.
12.1.2 Notice: Any claims that a party may have arising out of the
other party's breach of its representations and warranties or breach of a
covenant hereunder shall be notified to the other party promptly, but in no
event later than 90 (ninety) days after having reasonably sufficient knowledge
of the existence of a potential claim, by written notice describing the claim in
reasonable detail then known. Failure to give such notice on time shall not
affect the other party's indemnification obligations hereunder except to the
extent it is prejudiced thereby.
12.1.3 Survival of representations and warranties: The
representations, warranties, covenants of Seller and Buyer contained in this
Agreement shall survive the Closing Date, but any claim for breach of
representations and warranties or of a covenant shall be entitled to
indemnification hereunder only if written notice of such claim is given to the
other party hereto no later than 18 (eighteen) months following Closing Date
except that Buyer's right to notify claims with respect to the following matters
shall only terminate as follows:
a) Claims for breach of warranties and representations concerning
Litigation (Art. 4.11) insofar as such Litigation relates to product liability
matters shall be notified to Seller no later than 5 (five) years following the
Closing Date;
b) Claims for breach of warranties and representations concerning
Trademarks (Art. 4.13) shall be notified to Seller no later than 2 (two) years
following the Closing Date;
c) Claims for breach of warranties and representations concerning
taxes (Art. 4.7) may be notified to the Seller until the expiration of the
applicable statutes of limitations for taxes relevant to such claims.
It is understood that if and when either party has done the
notification for the pertaining matter within the applicable notification time,
it may start court proceedings pursuant to Art. 14 at any time within one year
of the date such claim was duly notified. Seller and Buyer shall agree to use
all reasonable efforts to mitigate any loss or damage for which they may seek
indemnification under this Article 12.
12.2 Indemnification by Seller:
12.2.1 Claims: Subject to the limitations set forth in Article 12.2.2
to the fullest extent permitted under applicable law, Seller shall indemnify
Buyer and its Affiliates against and agrees to hold Buyer and its Affiliates
harmless from any and all damage, loss, liability, third party claims, and
expense (collectively, "Damages") (including, without limitation, reasonable
expenses of investigation and attorneys' fees and expenses in connection with
any action, suit or proceeding brought against Buyer or its Affiliates) incurred
or suffered by Buyer or its Affiliates arising out of (a) any misrepresentation
or breach of a warranty or covenant made by Seller herein, (b) the maintenance
of the Assets by Seller prior to Closing or (c) the conduct of the Business by
Seller or its Affiliates prior to Closing (collectively, "Indemnifiable
Claims").
12.2.2 Limitations: Notwithstanding anything to the contrary set forth
elsewhere herein, Buyer and its Affiliates shall not be entitled to
indemnification hereunder with respect to any Indemnifiable Claim brought under
Article 12.2.1 unless the amount of Damages with respect to such Indemnifiable
Claim exceeds US$ 30,000. However, Seller shall in no event be required to pay
Buyer and its Affiliates more than half of the Purchase Price (Art. 3.1) in
respect of aggregate damages asserted pursuant to Article 12.2.1 (a) and (b)
except that the aforesaid limitation in respect of aggregate damages shall not
apply to any Indemnifiable Claim based on breach of Seller's warranties and
representations concerning Litigation in the field of product liability.
12.2.3 Form of Indemnification: Indemnification by Seller to Buyer
shall, at Seller's option, be effected in ICN Shares, valued at the Guaranteed
Price as of the Guaranty Date next preceding such indemnification plus pro rata
6% p.a., and/or cash. To effect any such payment, Seller shall surrender to ICN
one or more certificates representing such number of shares of Common Stock
and/or, at Seller's option, Preferred Stock as shall represent the aggregate
value of the amount of any such indemnification payment and ICN shall promptly
thereupon issue to Seller new certificates representing such number of shares of
Common Stock and/or Preferred Stock retained by Seller.
12.3 Indemnification of Buyer. Buyers shall indemnify Seller and it
Affiliates against and agrees to hold Seller and its Affiliates harmless from
any and all Damages (including without limitation, reasonable expenses of
investigation and attorneys' fees and expenses in connection with any action,
suit or proceeding brought against Seller or its Affiliates) incurred or
suffered by Seller or its Affiliates arising out of (a) any misrepresentation or
breach of warranty or covenant made by Buyer herein; or (b) the conduct of the
Business by Buyer and its Affiliates after Closing (collectively, "Indemnifiable
Claims"). Notwithstanding the foregoing, Buyer shall in no event be required to
pay Seller and its Affiliates more than half of the Purchase Price (Art 3.1) in
respect of aggregate damages asserted pursuant to Article 12.3 (a) and (b),
except that the aforesaid limitation shall no apply to Buyer's obligation to pay
the Purchase Price under Art. 3.1 above and the Inventory under Art. 3.5 above
and all provisions related to these payments, including but not limited to all
obligations of Buyer relating to the shares of common Stock and Preferred Stock
set forth in this Agreement and its Exhibits.
12.4 Notice: A party seeking indemnification pursuant to Article 12.2
or 12.3 (an "Indemnified Party") shall give prompt notice to the party from whom
such indemnification is sought (the "Indemnifying Party) of the assertion of any
claim, or the commencement of any action, suit or proceeding, in respect of
which indemnity is or may be sought hereunder (whether or not the limits set
forth in Article 12.2.2 have been exceeded) and will give the Indemnifying Party
such information with respect thereto as the Indemnifying Party may reasonably
request, but no failure to give such notice shall relieve the Indemnifying Party
of any liability hereunder (except to the extent the Indemnifying Party has
suffered actual prejudice thereby).
12.5 Participation in Defense: The Indemnifying Party may, at its
expense, participate in or assume the defense of any such actions, suit or
proceeding involving a third party. In such case the Indemnified Party shall
have the right (but not the duty) to participate in the defense thereof, and to
employ counsel, at its own expense, separate from counsel employed by the
Indemnifying Party in any such action and to participate in the defense thereof.
The Indemnifying Party shall be liable for the fees and expenses of one firm as
counsel (and appropriate local counsel) employed by the Indemnified Party if the
Indemnifying Party has not assumed the defense thereof. Whether or not the
Indemnifying Party chooses to defend or prosecution thereof and shall furnish
such records, information and testimony, and attend such conferences, discovery
proceedings, hearings, trials and appeals, as may be reasonably requested in
connection therewith.
12.6 Settlements: The Indemnifying Party shall not be liable under
this Article for any settlement effected without its consent of any claim,
litigation or proceedings in respect of which indemnity may be sought hereunder,
unless the Indemnifying Party refuses to acknowledge liability for
indemnification under this Article 12 and/or declines to defend the Indemnified
Party in such claim, litigation or proceeding.
13. NOTICES
Any notice required or permitted to be given hereunder shall be deemed
sufficient if sent by United States mail or overnight courier, or delivered by
hand to Seller or Buyer at the respective addresses set forth below or at such
other address as either party hereto may designate. If delivered by overnight
courier, notice shall be deemed given when it has been signed for. If delivered
by hand, notice shall be deemed given when received. If delivered by U.S. Mail,
notice shall be deemed given five (5) business days following the postmark date.
if to Buyer, to:
ICN Pharmaceuticals, Inc.
1330 Hyland Avenue
Costa Mesa, California 92626
Attn: President
With a copy to General Counsel
if to Seller, to:
Roche Products Inc.
Calle Aquilino de la Guardia, No. 8
Edificio Igra
Panama, Republica de Panama
Attn: Manager
with a copy to:
Hoffmann-La Roche Inc.
340 Kingsland Street
Nutley, New Jersey 07110
Attn: General Counsel
14. ARBITRATION AND GOVERNING LAW
14.1 Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order to preserve the status
quo or prevent irreparable harm pending the selection and confirmation of a
panel of arbitrators, any dispute, controversy, or claims arising under, out of
or relating to this Agreement (and subsequent amendments thereof), its valid
conclusion, binding effect, interpretation, performance, breach or termination,
including tort claims, shall be referred to and finally determined by
arbitration, to the exclusion of any courts of law, in accordance with the Rules
of Arbitration of the International Chamber of Commerce as in force at the time
when initiating the arbitration. The arbitral tribunal shall consist of three
arbitrators. The place of arbitration shall be Paris, France. The language to be
used in the arbitral proceedings shall be English. The arbitration decision
shall be final and binding upon the parties and the parties agree that any award
granted pursuant to such decision may be entered forthwith in any court of
competent jurisdiction. This arbitration clause and any award rendered pursuant
to it shall be governed by the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitration Awards signed in New York on 10 June, 1958.
The party to whom a favorable ruling is awarded shall be entitled to
reimbursement of all its reasonable costs and expenses in arbitration by the
other party.
14.2 The present Agreement shall be subject to the substantive law of
Switzerland (regardless of its or any other jurisdiction's choice of law
principles).
15. ADDITIONAL TERMS
15.1 Brokers. Buyer represents to Seller that it has not employed any
investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or any
commission from Seller upon consummation of the transactions contemplated
hereby. Seller represents to Buyer that it has not employed any such Person in
such connection who might be entitled to a fee or any commission from Buyer upon
consummation of the transactions contemplated hereby.
15.2 Expenses. Except as otherwise expressly provided in this
Agreement, all legal, accounting and other costs and expenses incurred in
connection herewith and the transactions contemplated hereby shall be paid by
the party incurring such expenses.
15.3 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
assigns; provided that this Agreement may not be assigned by any party except to
an Affiliate of such party without the prior written consent of the other party
other than in connection with the reincorporation of such party in another
jurisdiction.
15.4 Exhibits and Schedules. The Exhibits and Schedules attached to
this Agreement and the principles and conditions incorporated in such Exhibits
and Schedules shall be deemed integral parts of this Agreement and all
references in this Agreement to this Agreement shall encompass such Exhibits and
Schedules and the principles and conditions incorporated in such Exhibits and
Schedules.
15.5 Entire Agreement. This Agreement, the exhibits hereto, and the
Disclosure Schedule (including Disclosure Supplements, if any) embody the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersede and replace all previous negotiations, understandings,
representations, writings, and contract provisions and rights relating to the
subject matter hereof.
15.6 Amendments; No Waiver. No provision of this Agreement may be
amended, revoked or waived except by a writing signed and delivered by an
authorized officer of each party. No failure or delay on the part of either
party in exercising any right hereunder will operate as a waiver of, or impair,
any such right. No single or partial exercise of any such right will preclude
any other or further exercise thereof or the exercise of any other right. No
waiver of any such right will be deemed a waiver of any other right hereunder.
15.7 Counterparts. This Agreement may be executed in one or more
counterparts all of which shall together constitute one and the same instrument
and shall become effective when a counterpart has been signed by Buyer and
delivered to Seller and a counterpart has been signed by Seller and delivered to
Buyer.
15.8 Severability. The parties agree that (a) the provisions of this
Agreement shall be severable and (b) in the event that any of the provisions
hereof are held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, (i) such invalid, void or otherwise unenforceable
provisions shall be automatically replaced by other provisions that are as
similar as possible in terms to such invalid, void or otherwise unenforceable
provisions but are valid and enforceable and (ii) the remaining provisions shall
remain enforceable to the fullest extent permitted by law, provided that the
rights and interests of the parties hereto shall not be materially affected.
15.9 Captions. Captions herein are inserted for convenience of
reference only and shall be ignored in the construction or interpretation of
this Agreement. Unless the context requires otherwise, all references herein to
Articles and Sections are to the articles and sections of this Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by duly authorized
representatives of each of the parties hereto as of the date first above
written.
ROCHE PRODUCTS INC. ICN PHARMACEUTICALS, INC.
By: /s/ Robert Aleman By: /s/ Bill A. MacDonald
--------------------------- ---------------------------
Name: Robert Aleman Name: Bill A. MacDonald
------------------------ -------------------------
Title: Assistant Secretary Title: Executive Vice President
------------------------ -------------------------
Date: October 30, 1997 Date: October 30, 1997
-------------------------- -------------------------
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
ICN Pharmaceuticals, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of ICN
Pharmaceuticals, Inc. and subsidiaries as of March 31, 1999 and the related
consolidated condensed statements of income, comprehensive income and cash flows
for the three month periods ended March 31, 1999 and 1998. These consolidated
condensed financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated March 4,
1999, which included an emphasis of matter paragraph related to the Company's
change in method of accounting for ICN Yugoslavia, a previously consolidated
subsidiary, as more fully described in Notes 2 and 14 to the consolidated
statements, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the consolidated
condensed balance sheet as of December 31, 1998, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Newport Beach, California
May 7, 1999
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
May 14, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: ICN Pharmaceuticals, Inc. Registrations on Form S-8 (File No. 33-56971),
Form S-4 (File No. 333-63721) and Form S-3 (File Nos. 333-10661 and
333-49665)
We are aware that our report dated May 7, 1999, on our review of interim
financial information of ICN Pharmaceuticals, Inc. for the three month period
ended March 31, 1999 and included in the Company's quarterly report on Form 10-Q
for the period then ended is incorporated by reference in the Registrations on
Form S-8 (File No. 33-56971), Form S-4 (File No. 333-63721) and on Form S-3
(File Nos. 333-10661 and 333-49665). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Newport Beach, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ICN
Pharmaceuticals, Inc.'s March 31, 1999 Consolidated Condensed Financial
Statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 110,847
<SECURITIES> 0
<RECEIVABLES> 230,717
<ALLOWANCES> (46,778)
<INVENTORY> 123,141
<CURRENT-ASSETS> 445,463
<PP&E> 384,297
<DEPRECIATION> (59,495)
<TOTAL-ASSETS> 1,355,117
<CURRENT-LIABILITIES> 184,750
<BONDS> 0
0
1
<COMMON> 774
<OTHER-SE> 608,218
<TOTAL-LIABILITY-AND-EQUITY> 1,355,117
<SALES> 160,246
<TOTAL-REVENUES> 176,074
<CGS> 66,396
<TOTAL-COSTS> 66,396
<OTHER-EXPENSES> 2,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,100
<INCOME-PRETAX> 26,059
<INCOME-TAX> 4,780
<INCOME-CONTINUING> 22,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,619
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
