ITEM 1. BUSINESS - ------- -------- GENERAL
Forest Laboratories, Inc. and its subsidiaries (collectively, "Forest" or the "Company") develop, manufacture and sell both branded and generic forms of ethical drug products which require a physician's prescription, as well as non-prescription pharmaceutical products sold over-the-counter. Forest's most important United States products consist of branded ethical drug specialties marketed directly, or "detailed," to physicians by the Company's Forest Pharmaceuticals and Forest Therapeutics salesforces and its controlled release line of generic products sold to wholesalers, chain drug stores and generic distributors. In recent years the Company has emphasized increased detailing to physicians of those branded ethical drugs it believes have the most potential for growth, and the introduction of new products acquired from other companies or developed by the Company.
Forest's products include those developed by Forest and those acquired from other pharmaceutical companies and integrated into Forest's marketing and distribution systems. See "Recent Developments."
Forest is a Delaware corporation organized in 1956, and its principal executive offices are located at 909 Third Avenue, New York, New York 10022 (telephone number (212-421-7850).
RECENT DEVELOPMENTS
CELEXA-TM-: In May 1997, Forest filed a New Drug Application (an "NDA") with the United States Food and Drug Administration ("FDA") for Celexa (citalopram), Forest's selective serotonin reuptake inhibitor for the treatment of depression. Citalopram is currently marketed in most European countries and is the leading antidepressant in several European markets. On May 12, 1998 the FDA found Celexa to be approvable and Forest expects to receive final approval to market Celexa following the determination of final labeling. Forest licenses the United States rights to Celexa from H. Lundbeck A/S, a privately held pharmaceutical company based in Copenhagen and the drug's originator.
In March 1998, Forest entered into an agreement with the Parke-Davis division of the Warner-Lambert Company providing for
the co-promotion of Celexa by Forest and the Parke-Davis salesforces for the three year period following the launch of the product. Parke-Davis will be paid a co-promotion fee during the co-promotion period and will receive a reduced fee for a three year period thereafter. Management believes that the additional promotional support by Parke-Davis, together with the efforts of Forest's recently expanded salesforces, will help assure the successful launch and marketing of Celexa in the United States.
Pursuant to an agreement dated July 1, 1997 among Forest and a private investor group, the investors have agreed to fund up to $60 million of the development, pre-launch and costs of expanding Forest's salesforces to promote Celexa over an approximate two-year period. Pursuant to the agreement, Forest is obligated to pay the investors royalties on sales of Celexa commencing 15 months after FDA approval at varying rates from 25% to 5%, depending on sales levels. Forest has the option to buy out all but a limited one percent royalty for a lump sum payment of $85,000,000. The investors also received five-year warrants to purchase 1,000,000 shares of Forest's common stock at a price of $25.725 per share.
STRATEGIC ALLIANCE WITH H. LUNDBECK A/S: On March 27, 1998, Forest entered into a strategic alliance with H. Lundbeck A/S ("Lundbeck")covering United States marketing rights to central nervous system products developed by Lundbeck. Lundbeck, founded in 1915, is a privately held pharmaceutical company based in Copenhagen specializing in the development of pharmaceutical compounds for the treatment of central nervous system disorders. Lundbeck is also the originator and Forest's licensor of Celexa.
The strategic alliance specifically provides for the license to Forest of marketing rights in the United States to three products presently under active development by Lundbeck: (1) an active enantiomer of Celexa, which will enter clinical trials later in 1998 and has patent protection in the United States until the year 2009; (2) Lu25-109, a selective muscarinic agonist for Alzheimer's Disease which is presently in Phase II/III clinical studies in the United States; and (3) Lu28-179, a new anxiolytic compound presently in a Phase I study. In addition, the alliance sets forth the terms for joint development of future products resulting from Lundbeck's research programs for marketing in the United States under the name of Forest- Lundbeck.
Forest paid Lundbeck $32 million for the United States rights to the compounds presently under development, which, together with related expenses, was written off as special research and development expenses in the fourth quarter of the fiscal year ended March 31, 1998. Lundbeck will receive on-going
license fees and product payments from the marketing of the strategic alliance products in the United States.
AEROBID-R-: In February 1998, Forest filed two supplemental NDA's relating to Aerobid, Forest's metered dose inhaled steroid for the treatment of asthma. One filing was for a once daily dosing of Aerobid; the second was for Aeropak, a combination of Aerobid with Aerochamber-R-, Forest's aerosol holding chamber for use with metered dose inhaled products. Management believes that both supplemental NDA's address the recognized problem of poor patient compliance in asthma therapy, and by improving patient compliance with a once-daily dosing regimen and optimizing the drug delivery system, should enhance Aerobid's position in this market.
TIAZAC-R-: In February 1998, the FDA approved the use of Tiazac for treating angina. Tiazac is Forest's once daily diltiazem (a calcium channel blocker) which received FDA approval in 1995 for the treatment of hypertension.
SYNAPTON-TM-: In November 1997, Forest filed an NDA for Synapton, an extended release acetylcholinesterase inhibitor for the treatment of the dementia caused by Alzheimer's Disease. The filing included four clinical trials which demonstrated statistically significant efficacy under the two primary clinical endpoints presently used by the FDA to evaluate drugs of this class.
MONUROL-R-: In April 1997, Forest commercially launched Monurol, Forest's single dose antibiotic for the treatment of uncomplicated urinary tract infections. Monurol is the only single dose antibiotic currently available in the United States for the treatment of urinary tract infections.
INFASURF-R-: In June 1991, the Company entered into a licensing agreement with ONY, Inc. ("ONY") for the marketing by the Company in the United States, the United Kingdom and Canada of the product Infasurf for the treatment of respiratory distress syndrome in premature infants. Such licensing arrangements were expanded in May 1992 to include worldwide rights to the product.
The FDA has approved the NDA for Infasurf, but has determined not to permit Forest to market the product until July 1998 as a result of the "orphan drug" status of Survanta-R-, a competing product marketed by Abbott Laboratories, within the meaning of the Orphan Drug Act. In addition, the Company has been notified by Abbott Laboratories that it considers that Infasurf infringes its Survanta patents. The Company believes,
following consultation with its patent counsel, that such claim is without merit. In March 1996, the Company and ONY commenced an action against Abbott Laboratories in the Federal District Court for the Western District of New York seeking a declaration that Infasurf does not infringe the Survanta patents and that the Survanta patents are invalid.
STOCK SPLIT; SHARE REPURCHASE PROGRAM: On March 25, 1998, Forest's common stock was split on a two-for-one basis by means of the payment of a 100% stock dividend. All share numbers set forth in this Report or in any financial statement or other document incorporated by reference herein have been restated to give effect to such stock split.
In December 1997, Forest's Board of Directors authorized an increase in Forest's share repurchase program of 4,000,000 shares, bringing such total authorization to 17,000,000 shares. Pursuant to the program, Forest may repurchase shares on the open market at prices prevailing from time to time. As of June 23, 1998, Forest has purchased 12,321,000 shares pursuant to this program. No date for completing the share repurchase program has been established.
NEW DIRECTORS: In February 1998, Forest's Board of Directors appointed Lester B. Salans, M.D. to serve on the Board of Directors. Dr. Salans was formerly Vice President Academic and Scientific Affairs and Vice President, Preclinical Research at Sandoz Pharmaceuticals. Dr. Salans also served as Director of the National Institute of Arthritis, Diabetes, Digestive and Kidney Diseases at the National Institutes of Health (NIH) and was Professor of Medicine and Dean of the Faculty of the Mount Sinai Medical School. Dr. Salans is currently Clinical Professor and member of the Clinical Attending Staff in Internal Medicine at Mount Sinai and a member of the Adjunct Faculty at Rockefeller University. Dr. Salans also serves as a consultant to the pharmaceutical industry.
The Board of Directors also appointed Phillip M. Satow, Executive Vice President and Kenneth E. Goodman, Executive Vice President - Operations and Chief Financial Officer as new members of the Board. Joseph M. Schor, Ph.D., retired Vice President - Scientific Affairs of the Company, resigned from the Board of Directors in February 1998.
PRINCIPAL PRODUCTS
The Company actively promotes in the United States those of its branded products which the Company's management believes have the most potential for growth and which enable its salesforces to concentrate on groups of physicians who are high
prescribers of its products. Such products include the respiratory products Aerobid, Aerochamber and Tessalon-R-, Tiazac, Forest's once-daily diltiazem for the treatment of hypertension and angina, the Climara-R- estrodiol transdermal system (which Forest co-markets with Berlex Laboratories, Inc.), Cervidil-R-, used for the initiation or continuation of cervical ripening and Monurol, a single-dose antibiotic for the treatment of uncomplicated urinary tract infections (See "Recent Developments").
Aerobid is a metered dose inhaled steroid used in the treatment of asthma. Sales of Aerobid accounted for 24.5% of Forest's sales for the fiscal year ended March 31, 1998 as compared to 20.6% and 33% for the fiscal years ended March 31, 1997 and 1996, respectively. Aerochamber is a spacer device used to improve the delivery of products administered by aerosol delivery, including Aerobid.
Sales of Lorcet-R-, a line of potent analgesics, accounted for 15.9% of sales for the fiscal year ended March 31, 1996. Sales of Tiazac, launched in 1996, accounted for 19.7% and 9.0% of sales for the fiscal years ended March 31, 1998 and 1997, respectively.
Forest's generic line emphasizes the Company's capability to produce difficult to formulate controlled release products which are sold in the United States by Forest's Inwood Laboratories, Inc. subsidiary. Inwood's most important products include Propranolol E.R., a controlled release beta blocker used in the treatment of hypertension, Indomethacin E.R., a controlled release non-steroidal anti-inflammatory drug used in the treatment of arthritis and Theochron-TM-, a controlled release theophylline tablet used in the treatment of asthma.
The Company's United Kingdom and Ireland subsidiaries sell both ethical products requiring a doctor's prescription and over-the-counter preparations. Their most important products include Sudocrem-R-, a topical preparation for the treatment of diaper rash, Colomycin-R-, an antibiotic used in the treatment of Cystic Fibrosis and Suscard-R- and Sustac-R-, sustained action nitroglyerin tablets in both buccal and oral form used in the treatment of angina pectoris, an ailment characterized by insufficient oxygenation of the heart muscle.
MARKETING
In the United States, Forest directly markets its products through its domestic salesforces, Forest Pharmaceuticals and Forest Therapeutics, currently numbering 860 persons, which detail products directly to physicians, pharmacies and managed
care organizations. Forest's salesforces were increased by approximately 32% during the fiscal year ended March 31, 1998 in anticipation of the launch of Celexa (see "Recent Developments"). Forest's salesforce was increased by approximately 45% during the fiscal year ended March 31, 1996 in connection with the launch of Tiazac and the acquisition of co-promotion rights to Climara. In the United Kingdom, the Company's Pharmax subsidiary's salesforce, currently 44 persons, markets its products directly. Forest's products are sold elsewhere through independent distributors.
COMPETITION
The pharmaceutical industry is highly competitive as to the sale of products, research for new or improved products and the development and application of competitive controlled release technologies. There are numerous companies in the United States and abroad engaged in the manufacture and sale of both proprietary and generic drugs of the kind sold by Forest and drugs utilizing controlled release technologies. Many of these companies have substantially greater financial resources than Forest. In addition, the marketing of pharmaceutical products is increasingly affected by the growing role of managed care organizations in the provision of health services. Such organizations negotiate with pharmaceutical manufacturers for highly competitive prices for pharmaceutical products in equivalent therapeutic categories, including certain of the Company's principal promoted products. Failure to be included or to have a preferred position in a managed care organization's drug formulary could result in decreased prescriptions of a manufacturer's products.
GOVERNMENT REGULATION
The pharmaceutical industry is subject to comprehensive government regulation which substantially increases the difficulty and cost incurred in obtaining the approval to market newly proposed drug products and maintaining the approval to market existing drugs. In the United States, products developed, manufactured or sold by Forest are subject to regulation by the FDA, principally under the Federal Food, Drug and Cosmetic Act, as well as by other federal and state agencies. The FDA regulates all aspects of the testing, manufacture, safety, labeling, storage, record keeping, advertising and promotion of new and old drugs, including the monitoring of compliance with good manufacturing practice regulations. Non-compliance with applicable requirements can result in fines and other sanctions, including the initiation of product seizures, injunction actions and criminal prosecutions based on practices that violate statutory requirements. In addition, administrative remedies can
involve voluntary recall of products as well as the withdrawal of approval of products in accordance with due process procedures. Similar regulations exist in most foreign countries in which Forest's products are manufactured or sold. In many foreign countries, such as the United Kingdom, reimbursement under national health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and increases if the ultimate consumer is to be eligible for reimbursement for the cost of such products.
During the past several years the FDA, in accordance with its standard practice, has conducted a number of inspections of the Company's manufacturing facilities. Following these inspections the FDA called the Company's attention to certain "Good Manufacturing Practices" compliance and record keeping deficiencies.
In March 1997, the FDA announced a proposed rule which could result in the withdrawal of approval to market metered dose inhaler formulations of corticosteroids (such as the Company's Aerobid product) containing chlorofluorocarbons ("CFC's") once three distinct non-CFC products are available in that therapeutic category. The Company is currently developing a non-CFC formulation of Aerobid and expects to complete its development in time to meet the proposed regulation.
The cost of human health care products continues to be a subject of investigation and action by governmental agencies, legislative bodies and private organizations in the United States and other countries. In the United States, most states have enacted generic substitution legislation requiring or permitting a dispensing pharmacist to substitute a different manufacturer's version of a drug for the one prescribed. Federal and state governments continue to press efforts to reduce costs of Medicare and Medicaid programs, including restrictions on amounts agencies will reimburse for the use of products. Under the Omnibus Budget Reconciliation Act of 1990 (OBRA), manufacturers must pay certain statutorily-prescribed rebates on Medicaid purchases for reimbursement on prescription drugs under state Medicaid plans. Federal Medicaid reimbursement for drug products of original NDA-holders is denied if less expensive generic versions are available from other manufacturers. In addition, the Federal government follows a diagnosis related group (DRG) payment system for certain institutional services provided under Medicare or Medicaid. The DRG system entitles a health care facility to a fixed reimbursement based on discharge diagnoses rather than actual costs incurred in patient treatment, thereby increasing the incentive for the facility to limit or control expenditures for many health care products.
Under the Prescription Drug User Fee Act of 1992, the FDA has imposed fees on various aspects of the approval, manufacture and sale of prescription drugs. In 1993, the Clinton Administration presented to Congress a proposal for reforming the United States healthcare system. Other healthcare reform proposals were also introduced in Congress. These proposals were highly regulatory and contain provisions which would affect the marketing of prescription drug products. None of these proposals were enacted; however, the debate as to reform of the health care system is expected to be protracted and the Company cannot predict the outcome or effect on the marketing of prescription drug products of the legislative process.
PRINCIPAL CUSTOMERS
McKesson Drug Company, Bergen Brunswig Corp. and Cardinal Distributors, Inc., national drug wholesalers, accounted for 13%, 12% and 11%, respectively, of Forest's consolidated net sales for the fiscal year ended March 31, 1998. For the year ended March 31, 1997, Bergen Brunswig Corp. and Cardinal Distributors, Inc. accounted for 10.4% and 10.2% of Forest's consolidated net sales. McKesson Drug Company accounted for 12% of Forest's consolidated net sales for the year ended March 31, 1996. No other customer accounted for 10% or more of Forest's consolidated net sales for those fiscal years.
ENVIRONMENTAL STANDARDS
Forest anticipates that the effects of compliance with federal, state and local laws and regulations relating to the discharge of materials into the environment will not have any material effect on capital expenditures, earnings or the competitive position of Forest.
RAW MATERIALS
The principal raw materials used by Forest for its various products are purchased in the open market. Most of these materials are obtainable and available from several sources in the United States and elsewhere in the world, although certain of Forest's products contain patented or other exclusively manufactured materials available from only a single source. Forest has not experienced any significant shortages in supplies of such raw materials.
PRODUCT LIABILITY INSURANCE
Forest currently maintains $150 million of product liability coverage per "occurrence" and in the aggregate.
Although in the past there have been claims asserted against Forest, none for which Forest has been found liable, there can be no assurance that all potential claims which may be asserted against Forest in the future would be covered by Forest's present insurance.
RESEARCH AND DEVELOPMENT
During the year ended March 31, 1998, Forest spent $79,150,000 for research and development, as compared to $40,689,000 and $34,197,000 in the fiscal years ended March 31, 1997 and 1996, respectively. Forest's research and development expense in the 1998 fiscal year included $32,250,000 for the license fee and related expenses of the license of the Lundbeck CNS products (see "Recent Developments") and otherwise consisted primarily of the conduct of clinical studies required to obtain approval of new products and the development of additional products.
EMPLOYEES
At March 31, 1998, Forest had a total of 1,854 employees.
PATENTS AND TRADEMARKS
Forest owns or licenses certain U.S. and foreign patents on many of its branded products and products in development, including, but not limited to, Aerobid, Tiazac, Celexa, Cervidil, Monurol, Synapton, Flumadine-R-, Forest's licensed oxycodone/ ibuprofen analgesic and Methoxatone (an anti-inflammatory compound being evaluated for use in head trauma and for other uses) and those products under development pursuant to the joint venture with Lundbeck (see "Recent Developments"), which patents expire through 2010. Forest believes these patents are or may become of significant benefit to its business. Additionally, Forest owns and licenses certain U.S. patents, and has pending U.S. and foreign patent applications, relating to various aspects of its Synchron-R- technology and to other controlled release technology, which patents expire through 2008. Forest believes that these patents are useful in its business, however, there are numerous patents and unpatented technologies owned by others covering other controlled release processes.
Forest owns various trademarks and trade names which it believes are of significant benefit to its business.
BACKLOG -- SEASONALITY
Backlog of orders is not considered material to Forest's business prospects. Forest's business is not seasonal in nature.
ITEM 2.
ITEM 2. PROPERTIES - ------- ---------- Forest owns a 150,000 square foot building on 28 acres in Commack, New York. This facility is used for packaging, warehousing, administration and sales training. Forest also owns five buildings and leases two buildings in and around Inwood, Long Island, New York, containing a total of approximately 145,000 square feet. The buildings are used for manufacturing, research and development, warehousing and administration. In addition, Forest leases approximately 23,000 square feet in Farmingdale, New York for use as a clinical laboratory testing facility.
Forest Pharmaceuticals, Inc. ("FPI"), a wholly owned subsidiary of the Company, owns two facilities in Cincinnati, Ohio aggregating approximately 108,000 square feet. In St. Louis, Missouri, FPI owns facilities of 22,000 square feet and 87,000 square feet and leases a facility of 63,000 square feet. These facilities are used for manufacturing, warehousing and administration. FPI has recently purchased 26 acres of land and a 145,000 square foot building in St. Louis, Missouri and has contracted to expand the building by an additional 150,000 square feet. When complete, FPI will use this facility for warehousing, distribution and administration and intends to sell its 87,000 square foot facility and not renew its 63,000 square foot facility lease which expires in April 1999.
Pharmax owns an approximately 95,000 square foot complex in the London suburb of Bexley, England, which houses its plant and administrative and central marketing offices. Approximately 15,000 square feet of such space is leased by Pharmax to other tenants.
Forest's Tosara subsidiary owns an 18,000 square foot manufacturing and distribution facility located in an industrial park in Dublin, Ireland. Forest Ireland, a newly-formed subsidiary of Forest, has recently completed the development, together with the Development Authority of the Republic of Ireland, of an approximately 86,000 square foot manufacturing and distribution facility located in Dublin, Ireland. The facility will be used for the manufacture and distribution of products in the U.S. and Europe, including the manufacture of Celexa tablets.
Forest presently leases approximately 90,000 square feet of executive office space at 909 Third Avenue, New York, New York. The lease is for a sixteen (16) year term, subject to 2 five year renewal options.
Management believes that the above-described properties are sufficient for Forest's present and anticipated needs.
Net rentals for leased space for the fiscal year ended March 31, 1998 aggregated approximately $2,977,000 and for the fiscal year ended March 31, 1997 aggregated approximately $2,953,000.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - ------ ----------------- The Company is a defendant in actions filed in various federal district courts alleging certain violations of the Federal anti-trust laws in the marketing of pharmaceutical products. In each case, the actions were filed against many pharmaceutical manufacturers and suppliers and allege price discrimination and conspiracy to fix prices in the sale of pharmaceutical products. The actions were brought by various pharmacies (both individually and, with respect to certain claims, as a class action) and seek injunctive relief and monetary damages. The Judicial Panel on Multi-District Litigation has ordered these actions coordinated (and, with respect to those actions brought as class actions, consolidated) in the Federal District Court for the Northern District of Illinois (Chicago) under the caption "In re Brand Name Prescription Drugs Antitrust Litigation." On April 4, 1996, motions for summary judgment filed by the manufacturer defendants (including the Company) with respect to conspiracy claims alleged in those actions were denied by the Court. Certain manufacturer defendants (but not the Company) reached a settlement of the federal class action which received court approval in June 1996, pursuant to which they agreed to pay an aggregate of approximately $350 million and make certain commitments with regard to pricing practices. A trial of the federal class action is scheduled for September 1998.
Similar actions alleging price discrimination and conspiracy claims under state law are pending against many pharmaceutical manufacturers, including the Company, in 12 state courts and the District of Columbia. Such actions include actions purported to be brought on behalf of consumers, as well as those brought by retail pharmacists.
While the Company believes these actions are without merit, there can be no assurance that these cases will not result
in the payment of damages or the entering into of injunctive relief which could have an adverse effect upon the Company's marketing or pricing policies.
In March 1996, the Company was informed that the Federal Trade Commission has begun an investigation of the existence of concerted action among 22 pharmaceutical manufacturers, including the Company, with respect to pricing practices. The Company believes that no such concerted activity has taken place involving the Company and intends to cooperate with the FTC's investigation.
See "Item 1, Business, Recent Developments" for a description of an action commenced by the Company against Abbott Laboratories seeking a declaration that Infasurf does not infringe certain patent rights of Abbott.
The Company is not subject to any other material pending legal proceedings, other than ordinary routine claims incidental to its business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ ------------------------------- Not Applicable.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON - ------- EQUITY AND RELATED STOCKHOLDER MATTERS ------------------------------ The information required by this item is incorporated by reference to page 28 of the Annual Report.
Forest has never paid cash dividends on its Common Stock and does not expect to pay such dividends in the foreseeable future. Management presently intends to retain all available funds for the development of its business and for use as working capital. Future dividend policy will depend upon Forest's earnings, capital requirements, financial condition and other relevant factors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The information required by this item is incorporated by reference to page 14 of the Annual Report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND - ------- ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------- The information required by this item is incorporated by reference to pages 12 and 13 of the Annual Report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND - ------- SUPPLEMENTARY DATA ------------------------ The information required by this item is incorporated by reference to pages 15 through 27 of the Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS - ------- WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ------------------------------ Not Applicable.
PART III --------
In accordance with General Instruction G(3), the information called for by Part III (Items 10 through 13) is incorporated by reference from Forest's definitive proxy statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with Forest's 1998 Annual Meeting of Stockholders.
PAGE
PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES -------- AND REPORTS ON FORM 8-K ---------------------------------------
(a) 1. Financial statements. The following consolidated financial statements of Forest Laboratories, Inc. and subsidiaries included in the Annual Report are incorporated by reference herein in Item 8:
Report of Independent Certified Public Accountants
Consolidated balance sheets - March 31, 1998 and 1997
Consolidated statements of operations - years ended March 31, 1998, 1997 and 1996
Consolidated statements of shareholders' equity - years ended March 31, 1998, 1997 and 1996
Consolidated statements of cash flows - years ended March 31, 1998, 1997 and 1996
Notes to consolidated financial statements
2. Financial statement schedules. The following consolidated financial statement schedule of Forest Laboratories, Inc. and Subsidiaries is included herein:
Report of Independent Certified Public Accountants S-1
Schedule II Valuation and qualifying accounts S-2
-
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
3. Exhibits:
(3)(a) Articles of Incorporation of Forest, as amended. Incorporated by reference from the Current Report
on Form 8-K dated March 9, 1981 filed by Forest, from Registration Statement on Form S-1 (Registration No. 2-97792) filed by Forest on May 16, 1985, from Forest's definitive proxy statement filed pursuant to Regulation 14A with respect to Forest's 1987, 1988 and 1993 Annual Meetings of Shareholders and from the Current Report on Form 8-K dated March 15, 1988.
(3)(b) By-laws of Forest. Incorporated by reference to Forest's Current Report on Form 8-K dated October 11, 1994.
(10) Material Contracts ------------------ 10.1 Benefit Continuation Agreement dated as of December 1, 1989 between Forest and Howard Solomon. Incorporated by reference to Forest's Annual Report on Form 10-K for the fiscal year ended March 31, 1990 (the "1990 l0-K").
10.2 Benefit Continuation Agreement dated as of May 27, 1990 between Forest and Kenneth E. Goodman. Incorporated by reference to the 1990 10-K.
10.3 Benefit Continuation Agreement dated as of April 1, 1995 between Forest and Phillip M. Satow. Incorporated by reference to Forest's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 (the "1995 10-K").
10.4 Option Agreement dated December 10, 1990 between Forest and Howard Solomon. Incorporated by reference to Forest's Annual Report on Form 10-K for the fiscal year ended March 31, 1991 (the "1991 10-K").
10.5 Option Agreement dated December 10, 1990 between Forest and Kenneth E. Goodman. Incorporated by reference to the 1991 10-K.
10.6 Option Agreement dated December 10, 1990 between Forest and Phillip M. Satow. Incorporated by reference to the 1991 10-K.
10.7 Split Dollar Life Insurance Agreement dated March 29, 1994 between Forest and Howard Solomon. Incorporated by reference to Forest's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 (the "1994 10-K").
10.8 Split Dollar Life Insurance Agreement dated March 29, 1994 between Forest and Phillip M. Satow. Incorporated by reference to the 1994 10-K.
10.9 Split Dollar Life Insurance Agreement dated March 29, 1994 between Forest and Kenneth E. Goodman. Incorporated by reference to the 1994 10-K.
10.10 Employment Agreement dated as of September 30, 1994 by and between Forest and Howard Solomon. Incorporated by reference to 1995 10-K.
10.11 Employment Agreement dated as of September 30, 1994 by and between Forest and Phillip M. Satow. Incorporated by reference to the 1995 10-K.
10.12 Employment Agreement dated as of September 30, 1994 by and between Forest and Kenneth E. Goodman. Incorporated by reference to the 1995 10-K.
10.13 Employment Agreement dated as of October 24, 1995 by and between Forest and Dr. Lawrence S. Olanoff. Incorporated by reference to Forest's Annual Report on Form 10-K for the fiscal year ended March 31, 1996.
10.14 Employment Agreement dated June 24, 1998 between Forest and Elaine Hochberg.
10.15 Employment Agreement dated January 16, 1995 between Forest and Mary Prehn.
10.16 Employment Agreement dated February 23, 1998 between Forest and Raymond Stafford.
10.17 Development and Marketing Agreement dated July 1, 1997 by and among Forest Laboratories, Inc. and FRXC Corp.
13 Portions of the Registrant's Annual Report to Stockholders.
22 List of Subsidiaries. Incorporated by reference to Exhibit 22 to the 1988 10-K.
23 Consent of BDO Seidman, LLP
27 Financial Data Schedule.
PAGE
SIGNATURES ----------
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, Forest has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 29, 1998
FOREST LABORATORIES, INC. -------------------------
By: /s/Howard Solomon --------------------------- Howard Solomon, President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Forest and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE ------------------- OFFICER: -------
/s/ Howard Solomon President, Chief June 29, 1998 ------------------------- Executive Officer Howard Solomon and Director
PRINCIPAL FINANCIAL ------------------- AND ACCOUNTING OFFICER: ----------------------
/s/ Kenneth E. Goodman Executive Vice June 29, 1998 ------------------------- President, Operations Kenneth E. Goodman and Chief Financial Officer and Director
DIRECTORS
/s/ Phillip M. Satow Executive Vice June 29, 1998 ---------------------------- President and Director Phillip M. Satow
/s/ George S. Cohan Director June 29, 1998 ---------------------------- George S. Cohan
/s/William J. Candee, III Director June 29, 1998 ---------------------------- William J. Candee, III
/s/ Dan L. Goldwasser Director June 29, 1998 ---------------------------- Dan L. Goldwasser
/s/ Lester B. Salans Director June 29, 1998 - ----------------------------- Lester B. Salans
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS - --------------------------------------------------
Board of Directors and Shareholders Forest Laboratories, Inc.
The audits referred to in our report dated April 30, 1998, relating to the consolidated financial statements of Forest Laboratories, Inc. and Subsidiaries, which is referred to in Item 8 of this Form 10-K, include the audits of the accompanying financial statement schedule. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion of this financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all material respects, the information set forth therein.
/s/BDO SEIDMAN, LLP - --------------------------- BDO Seidman, LLP
New York, New York April 30, 1998
S-1
S-2
EXHIBIT 13
As of June 5, 1998 there were 2,269 stockholders of record of the Company's common stock.
No dividends were paid on common shares in any period.
A. Basic net income (loss) per share was computed by dividing net income (loss) by the weighted average number of common shares outstanding during each year. Diluted net income (loss) per share includes the potential dilution that could occur if options and warrants outstanding were included in the weighted average number of common shares outstanding for the period. All amounts give effect to the March 1998 100% stock dividend and the adoption in December 1997 of SFAS No. 128, "Earnings Per Share" (refer to Note 1 of the Company's notes to consolidated financial statements).
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED FINANCIAL STATEMENTS --------------------------------- YEARS ENDED MARCH 31, 1998, 1997 AND 1996 -----------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------
Board of Directors and Shareholders Forest Laboratories, Inc. New York, New York
We have audited the accompanying consolidated balance sheets of Forest Laboratories, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Forest Laboratories, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York April 30, 1998
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION: The consolidated financial statements include the accounts of Forest Laboratories, Inc. (the "Company") and its subsidiaries, all of which are wholly owned. The Company accounts for investments in unconsolidated affiliates which are 50% or less owned under the equity method. All significant intercompany accounts and transactions have been eliminated.
CASH EQUIVALENTS: Cash equivalents consist of short-term, highly liquid investments (primarily municipal bonds with interest rates that are re-set weekly) which are readily convertible into cash at par value (cost).
INVENTORIES: Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out basis.
MARKETABLE SECURITIES: Marketable securities are stated at fair market value or historical cost in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", and consist of investments in municipal bonds maturing through 2000 and a bond of the Commonwealth of Puerto Rico maturing in 2002.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION: Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets primarily by the straight-line method.
INTANGIBLE ASSETS: The excess of cost of investment over the fair value of net assets of subsidiaries at the time of acquisition is being amortized using the straight-line method over 25 to 40 years. The costs of obtaining license agreements, product rights and other intangible assets are being amortized using the straight-line method over the estimated lives of the assets, 10 to 40 years.
REVENUE RECOGNITION: Sales are recorded in the period the merchandise is shipped. Provisions for estimated sales allowances, returns and losses are accrued at the time revenues are recognized.
RESEARCH AND DEVELOPMENT: Expenditures for research and development are charged to expense as incurred.
SAVINGS AND PROFIT SHARING PLAN: Substantially all non-bargaining unit employees of the Company's domestic subsidiaries may participate in the savings and profit sharing plan after becoming eligible (as defined). Profit sharing contributions are primarily at the discretion of the Company. The savings plan contributions include a matching contribution made by the Company. Savings and profit sharing contributions amounted to $5,600,000, $4,100,000 and $3,145,000 for 1998, 1997 and 1996, respectively.
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE: During 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (ASFAS No. 128"), "Earnings Per Share," which provides for the calculation of "basic" and "diluted" earnings per share. This statement is effective for financial statements issued for periods ending after December 15, 1997. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options and warrants. As required by this statement, all periods presented have been restated to comply with the provisions of SFAS No. 128. The two-for-one stock split effected as a 100% stock dividend in March 1998 has been reflected retroactively for all outstanding common stock.
INCOME TAXES: The Company accounts for income taxes on the liability method. Under the liability method, deferred income taxes are provided on the differences in bases of assets and liabilities between financial reporting and tax returns using enacted tax rates.
USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company reviews all significant estimates affecting the financial statements on a recurring basis and records the effect of any adjustments when necessary.
LONG-LIVED ASSETS: Long-lived assets, such as goodwill, intangible assets and property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. No impairment losses have been necessary through March 31, 1998.
STOCK-BASED COMPENSATION: The Company accounts for its stock option awards under the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. The Company makes pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied as required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of cash, accounts receivable, accounts payable, accrued expenses and income taxes payable are reasonable estimates of their fair value because of the short maturity of these items.
RECLASSIFICATIONS: Certain amounts as previously reported have been reclassified to conform to current year classifications.
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
1. SUMMARY SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT ACCOUNTING STANDARDS: In June 1997, the Financial Accounting Standards Board issued two new disclosure standards. Results of operations and financial position will be unaffected by the implementation of these new standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income", established standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related Information", which supersedes SFAS No. 14, AFinancial Reporting for Segments of a Business Enterprise", establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company in deciding how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for fiscal years beginning after December 15, 1997 and require comparative information for earlier years to be restated. These standards are not expected to materially impact the Company's disclosures when they are adopted.
2. EARNINGS PER SHARE:
A reconciliation of shares used in calculating basic and diluted earnings per share follows (in thousands):
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
4. BUSINESS OPERATIONS: (CONTINUED)
The Company sells primarily in the United States and European markets. Operating profit (loss) is net sales less operating expenses, and does not include contract revenue, other income, unallocated expenses or income taxes (benefit).
Three customers accounted for 13%, 12% and 11%, respectively, of the Company's consolidated net sales for the year ended March 31, 1998. Two customers each accounted for 10% of the Company=s consolidated net sales for the year ended March 31, 1997 and one customer accounted for 12% of the Company=s consolidated net sales for the year ended March 31, 1996.
5. INVENTORIES:
Inventories consist of the following:
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
6. MARKETABLE SECURITIES:
The composition of the investment portfolio at March 31, was:
The contractual maturities of debt securities at March 31, 1998, regardless of their balance sheet classification, consist of the following:
The net unrealized holding loss at March 31, 1998, 1997 and 1996 of $300, $463 and $1,445, respectively, from available-for-sale securities is included in Shareholders' equity: Other.
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
7. OTHER ASSETS:
License agreements, product rights and other intangible assets consist of the following:
8. ACCRUED EXPENSES:
Accrued expenses consist of the following:
9. COMMITMENTS:
LEASES: The Company leases manufacturing, office and warehouse facilities, equipment and automobiles under operating leases expiring through 2010. Rent expense approximated $7,196,000 for 1998, $7,115,000 for 1997 and $4,158,000 for 1996. Aggregate minimum rentals under noncancellable leases are as follows:
YEAR ENDING MARCH 31, (IN THOUSANDS) 1999 $ 7,657 2000 6,273 2001 5,039 2002 3,352 2003 3,134 Thereafter 24,285 ------- $49,740 =======
FOREST LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. COMMITMENTS: (CONTINUED) -----------
ROYALTY AGREEMENTS: In 1986, the Company entered into an agreement for research and development (the "1986 Prutech Agreement") with Prutech Research and Development Partnership ("Prutech"). In accordance with the provisions of this agreement, the Company granted Prutech a nonexclusive license to certain of the Company's controlled release technologies for the purpose of developing controlled release forms of physostigmine. Prutech contracted with the Company to perform research necessary to develop the product. In addition, Prutech granted the Company options to acquire exclusive manufacturing and marketing rights to the product if it is successfully developed. Under the agreement, the Company will pay to Prutech an initial royalty on sales of the product of 7%, decreasing to 2%, through December 31, 1999. No royalties have been incurred under this agreement.
In connection with the acquisition of the product license of Tiazac (refer to Note 3), the Company entered into a license agreement. The license agreement provides for an 8% royalty on net sales, as defined. Royalties under this agreement amounted to $7,530,000 for 1998, $2,003,000 for 1997 and $1,043,000 for 1996. The license agreement also required the Company to spend $15,000,000 in advertising and on samples, as defined, in 1996 and 1997.
In connection with the acquisition of the Climara Patch Product (refer to Note 3), the Company will receive a co-promotion fee based on 50% of co-promotion income, as defined. For fiscal year 1998, co-promotion income exceeded co-promotion expense resulting in income of $6,489,000. For fiscal years 1997 and 1996, co-promotion expenses incurred exceeded co-promotion income resulting in a loss of $1,904,000 and $1,076,000, respectively. These amounts have been included in contract revenue (expense).
10. SHAREHOLDERS' EQUITY:
PREFFERRED STOCK PURCHASE RIGHTS: On September 30, 1994, the Company's Board of Directors declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of the Company's common stock, par value $.10 per share. Each Right will entitle the holder to buy one one-hundredth of a share of authorized Series A Junior Participating Preferred Stock, par value $1.00 per share ("Series A Preferred Stock") at an exercise price of $250 per Right, subject to adjustment. Prior to becoming exercisable, the Rights are evidenced by the certificates representing the common stock and may not be traded apart from the common stock. The Rights become exercisable on the tenth day after public announcements that a person or group has acquired, or obtained the right to acquire, 20% or more of the Company's outstanding common stock, or an announcement of a tender offer that would result in a beneficial ownership by a person or group of 20% or more of the Company's common stock.
FOREST LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDERS EQUITY: (CONTINUED)
If, after the Rights become exercisable, the Company is a party to certain merger or business combination transactions, or transfers 50% or more of its assets or earning power, or if an acquirer engages in certain self-dealing transactions, each Right (except for those held by the acquirer) will entitle its holder to buy a number of shares of the Company's Series A Preferred Stock or, in certain circumstances, a number of shares of the acquiring company's common stock, in either case having a value equal to two-and-one-half times the exercise price of the Right. The Rights may be redeemed by the Company at any time up to ten days after a person or group acquires 20% or more of the Company's common stock at a redemption price of $.001 per Right. The Rights will expire on September 30, 2004.
The Company has reserved 500,000 shares of Series A Preferred Stock for the exercise of the Rights.
STOCK OPTIONS: The Company has various Employee Stock Option Plans whereby options to purchase an aggregate of 15,000,000 shares of common stock have been or remain to be issued to employees of the Company and its subsidiaries at prices not less than the fair market value of the common stock at the date of grant. Both incentive and non-qualified options may be issued under the plans. The options are exercisable up to the tenth anniversary of the date of issuance, subject to acceleration upon termination of employment.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to provide pro forma information regarding net income and earnings per share as if compensation cost for the Company's stock option plans had been determined in accordance with the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants: dividend yield of zero for all three years; expected volatility of 29.61% in 1998, 35.37% in 1997 and 35.37% in 1996; risk-free interest rates between 5.75% and 6.5% in 1998, 6.5% in 1997 and 6.5% in 1996; and expected lives of four to seven years for all three years.
Under the accounting provisions of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
10. SHAREHOLDERS' EQUITY: (CONTINUED)
The following table summarizes information about stock options outstanding at March 31, 1998:
Transactions under the stock option plans and individual non-qualified options not under the plans are summarized as follows:
At March 31, 1998, 1997 and 1996, 422,494, 1,852,444 and 2,057,690 shares, respectively, were available for grant.
FOREST LABORATORIES, INC. ------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------ 10. SHAREHOLDERS' EQUITY: (CONTINUED)
In connection with the private investors group arrangement (refer to Note 12), the Company issued five-year warrants to the investors to purchase an aggregate of 1,000,000 shares of the Company=s common stock at $25.73 per share.
In connection with the acquisition of product rights in fiscal 1995, the Company issued 560,000 warrants, which expire on July 7, 2004, at an exercise price of $22.86 per share which was equal to the then fair market value of the Company's common stock.
Included in the caption Shareholders' equity: Other are the cumulative effects of foreign currency translation adjustments and the unrealized holding loss from available-for-sale securities (net of taxes).
11. CONTINGENCIES:
The Company is subject to product liability and other claims which management does not believe will have a material effect on the financial position, operations or liquidity of the Company.
The Company is a defendant in actions filed in various federal district courts alleging certain violations of the Federal anti-trust laws in the marketing of pharmaceutical products. In each case, the actions were filed against many pharmaceutical manufacturers and suppliers and allege price discrimination and conspiracy to fix prices in the sale of pharmaceutical products. The actions were brought by various pharmacies (both individually and, with respect to certain claims, as a class action) and seek injunctive relief and monetary damages. The Judicial Panel on Multi-District Litigation has ordered these actions coordinated (and, with respect to those actions brought as class actions, consolidated) in the Federal District Court for the Northern District of Illinois (Chicago) under the caption "In re Brand Name Prescription Drugs Antitrust Litigation." Similar actions alleging price discrimination claims under state law are pending against many pharmaceutical manufacturers, including the Company, in 12 state courts and the District of Columbia. Such actions include actions purported to be brought on behalf of consumers, as well as those brought by retail pharmacists. Certain manufacturer defendants (but not the Company) reached a settlement of the Federal class action which received court approval in June 1996, pursuant to which they agreed to pay an aggregate of approximately $350 million and make certain commitments with regard to pricing practices. A trial of the Federal class action is scheduled for September 1998. While the Company believes these actions are without merit, there can be no assurance that these cases will not result in the payment of damages or the entering into of injunctive relief which could have an adverse effect upon the Company's marketing or pricing policies. In March 1996, the Company was informed that the Federal Trade Commission has begun an investigation of the existence of concerted action among 22 pharmaceutical manufacturers, including the Company, with respect to pricing practices. The Company believes that no such concerted activity has taken place involving the Company and intends to cooperate with the FTC's investigation.
FOREST LABORATORIES, INC. ------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
11. CONTINGENCIES: (CONTINUED)
Abbott Laboratories ("Abbott") notified the Company that it considers that Infasurf, a lung surfactant licensed by the Company from ONY, Inc. ("ONY"), infringes on the patents on Abbott's Survanta-R- surfactant product. In response, the Company and ONY commenced an action against Abbott seeking a declaration that Infasurf does not infringe the Survanta patents and that the Survanta patents are invalid. The Company believes, following consultation with its patent counsel, that Abbott's claim is without merit.
12. DEVELOPMENT AND MARKETING AGREEMENT:
On March 27, 1998, the Company entered into an agreement with the Parke-Davis division of the Warner-Lambert Company to co-promote Celexa, a selective serotonin reuptake inhibitor for the treatment of depression. The term of the agreement is three years upon commencement of physician detailing by the salesforces of Parke-Davis and the Company followed by a residual period for an additional three years. The Company shall pay to Parke-Davis each contract year a co-promotion fee (as defined).
On July 1, 1997, the Company arranged for a private investor group to reimburse the Company for up to $60,000,000 of expenses, over an approximate two-year period, in connection with Celexa's development and marketing. At the date of the agreement, the Company had only recently submitted the product for FDA approval and there could be no assurances as to the approval and/or marketing success of the product. In exchange for the investment, the investors will receive royalties on Celexa's sales commencing fifteen months after FDA approval at varying rates from twenty-five percent to five percent, depending on sales levels. The Company has an option to buy out all but a limited one percent royalty for $85,000,000. The investor group bears all of the financial risks of any amounts so funded. The funded amounts which totaled approximately $21,600,000 in fiscal 1998 are being recorded as contract revenue as they are earned, of which $11,738,000 is included in accounts receivable at March 31, 1998.
In lieu of higher royalty rates, the Company has also issued five-year warrants to the investors to purchase an aggregate of 1,000,000 shares of the Company's common stock at $25.73 per share (refer to Note 10).
13. OTHER INCOME:
Other income consists of the following:
FOREST LABORATORIES, INC. ------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
13. OTHER INCOME: (CONTINUED)
During the last two quarters of fiscal 1998, the Company received payments amounting to $10,000,000 from the settlement in its arbitration with Pharmacia & Upjohn, Inc. with respect to the Company's claimed option to negotiate for the rights to Detrol, Pharmacia & Upjohn, Inc.'s treatment for urinary incontinence. Pursuant to the terms of settlement, the Company may receive future payments which are dependent upon certain events, including product approvals and sales of Detrol with a maximum payment to the Company of $25,000,000. The payments received were included in other income, net of $2,306,000 of related expenses.
14. INCOME TAXES:
The Company and its mainland U.S. subsidiaries file a consolidated federal income tax return.
Income (loss) before income tax expense (benefit) includes income from foreign operations of $4,451,000, $5,982,000 and $3,540,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
The Company has tax holidays in Ireland which expire in 2010, and Puerto Rico which expired primarily in 1997. The net impact of these tax holidays in 1998 and 1996, was to increase net income and net income per share (diluted) by approximately $2,343,000 and $.03 and $2,131,000 and $.02, respectively. In 1997 the effect was to decrease the net loss and net loss per share (diluted) by approximately $1,149,000 and $.01 per share.
The provision for income taxes (benefit) consists of the following:
FOREST LABORATORIES, INC. ------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
14. INCOME TAXES: (CONTINUED)
No provision has been made for income taxes on the undistributed earnings of the Company's foreign subsidiaries of approximately $49,666,000 at March 31,1998 as the Company intends to indefinitely reinvest such earnings.
The reasons for the difference between the provision for income taxes (benefit) and expected federal income taxes at statutory rates are as follows:
Net deferred income taxes consist of the following:
FOREST LABORATORIES, INC. -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------
15. QUARTERLY FINANCIAL DATA (UNAUDITED): (IN THOUSANDS, EXCEPT PER SHARE DATA)
During the last two quarters of fiscal 1998, the Company received payments amounting to $10,000,000 from the settlement in its arbitration with Pharmacia & Upjohn, Inc. with respect to the Company's claimed option to negotiate for the rights to Detrol, Pharmacia & Upjohn, Inc.'s treatment for urinary incontinence (refer to Note 13.) The payments received were recorded in other income, net of $2,306,000 of related expenses.
During the fourth quarter of fiscal 1998, the Company entered into an agreement with Lundbeck, for the United States marketing rights to certain products under development by Lundbeck. The Company recognized a $32,250,000 charge for the agreement and has recorded the charge as purchased research and development expense in the last quarter of fiscal 1998 (refer to Note 3.)
During the first quarter of fiscal 1997, the Company reported a net non- recurring gain of $19,149,000 or $12,687,000 ($.14 per diluted share) after taxes. The gain resulted from the sale of the Company's approximate 22% equity holding in Biovail Corporation International which resulted in a gain of $26,399,000 or $17,019,000 ($.18 per diluted share) after taxes partially offset by non-recurring charges of $7,250,000 or $4,332,000 ($.05 per diluted share) after tax for expenses relating to the closing of certain of the Company's facilities and for a reserve for the estimated cost of settlement of certain litigations.
During the third fiscal quarter of 1997, the Company announced that it had decided to eliminate trade incentives for all of its branded products in order to reduce high trade inventory levels, principally of Aerobid, and thus improve profit margins in future periods. As a result of this policy change, distributors deferred purchases of products in order to reduce their inventories to minimal levels. Lower sales resulting from this policy change, as well as lower sales of Lorcet due to generic competition and lower prices received for the Company's generic product line, were principally responsible for the losses reported during the last two quarters of fiscal 1997.
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------
FINANCIAL CONDITION AND LIQUIDITY ---------------------------------
Net current assets decreased by $44,328,000 during fiscal 1998. During the year the Company purchased an additional 3,293,000 shares of the Company's common stock at a cost of $70,109,000. During the third quarter, the Company announced that its Board of Directors had authorized the purchase, from time to time, of an additional 4,000,000 shares of outstanding common stock bringing the total authorization to 17,000,000 shares. At March 31, 1998, the Company had repurchased a total of 12,321,000 shares at a cost of $239,502,000. As a result of sales returning to more normal levels (refer to Results of Operations below), inventories declined $9,821,000, net of a buildup of Celexa inventory, the Company's selective serotonin reuptake inhibitor for depression, which the Company anticipates will be launched during the second quarter of fiscal 1999, and trade accounts receivable increased $6,020,000. Other accounts receivable increased $13,548,000 primarily from the Company's arrangement with a private investor group to reimburse the Company for up to $60,000,000 of expenses, over an approximate two-year period, in connection with development and marketing costs for Celexa. The increase in deferred income taxes - current was due to various sales allowances that are not currently deductible for tax purposes. Accrued expenses at March 31, 1998 include $32,250,000 for an arrangement the Company entered into with H. Lundbeck A/S of Denmark for the United States marketing rights to certain products under development by Lundbeck. The amount was charged to purchased research and development but is not currently deductible for tax purposes, resulting in the increases in deferred income taxes - noncurrent and income taxes payable.
Management believes that current cash levels, coupled with funds to be generated by ongoing operations, will continue to provide adequate liquidity to facilitate potential acquisitions of products, capital investments and the share repurchase program.
RESULTS OF OPERATIONS ---------------------
In December 1996, the Company announced that it had decided to eliminate trade incentives for all of its branded products in order to reduce high trade inventory levels, principally of Aerobid, and thus improve profit margins in future periods. The result of this policy change was that distributors deferred purchases of products until such time as they had reduced their inventories to minimal levels, resulting in lower sales. Lower sales resulting from this policy change were principally responsible for the losses reported during the last two quarters of the 1997 fiscal year and the modest earnings reported in the first quarter of the current fiscal year. During the last three quarters of the current fiscal year, sales were not adversely affected by the destocking of wholesalers' inventories. The Company believes that sales now more closely reflect prescription demand for its products.
Net sales for fiscal 1998 increased $146,341,000 from fiscal 1997 which was adversely affected by the destocking of wholesalers' inventories as discussed above. During the year, as sales returned to more normal levels, the Company's principal promoted products, particularly Aerobid and Tiazac, experienced higher unit sales and accounted for most of the increase. Aerobid, which returned to normal
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------
levels during the second quarter of the current fiscal year, accounted for $47,142,000 of the increase in fiscal 1998, despite a decline in prescriptions for the product as a result of new competitive products in the inhaled steroid market. Tiazac, Cervidil and the Company's other promoted products contributed $70,541,000, principally all of which was due to volume increases. The Company's older and less promoted products added $41,152,000 to the net sales increase, also due principally to volume increases following fiscal 1997's reduced sales levels. These increases were offset by a $12,494,000 decline in sales of the Company's generic products as a result of continuing price and volume competition, a trend which the Company expects will continue in future years. Net sales for fiscal 1997 decreased $166,138,000 from fiscal 1996 due principally to the Company's decision to eliminate trade incentives on all of its branded products, as discussed above. $146,342,000 of the decrease was attributable to volume declines and $19,796,000 was due to price declines. The principal volume declines, amounting to $126,949,000, resulted from lower sales of Aerobid, Lorcet-R- and the Company's generic products. Other unpromoted products accounted for the remaining net volume decline of $19,393,000, which was also due to distributors reducing inventory levels. The principal price declines resulted from heightened pricing competition in the Company's generic business.
Contract revenue (expense) for fiscal 1998 includes $21,613,000 from the Company's arrangement with a private investor group to reimburse the Company for certain expenses incurred in connection with Celexa. This arrangement was not in effect in prior years. The remainder of the increase was a result of co-promotion income on sales of Climara, now exceeding co-promotion expenses as compared to losses in prior years.
Non-recurring income in fiscal 1997 represents a net non-recurring gain from the sale of the Company's equity holding in Biovail Corporation International of $26,399,000 partially offset by non- recurring charges of $7,250,000 for expenses relating to the closing of certain of the Company's facilities and for the estimated cost of settlement of certain litigation.
Other income for fiscal 1998 includes $10,000,000 less $2,306,000 of related expenses from the settlement with Pharmacia & Upjohn, Inc. with respect to the Company's claimed option to negotiate for the rights to Detrol-R-. The Company may receive the remaining $15,000,000 of the settlement, subject to the achievement of certain sales objectives for Detrol, over the next five quarters.
Cost of sales as a percentage of sales was 24% in fiscal 1998, 31% in fiscal 1997 and 20% in fiscal 1996. As a result of sales returning to more normal levels during the current period, the proportion of high margin branded products to total product sales increased significantly and together with improved overhead absorption from higher production levels, resulted in improved profit margins. The increase during fiscal 1997 was due primarily to lower sales of high margin branded products which was a result of trade inventory reductions, a higher percentage of low margin generic product sales which were not affected by trade inventory reductions, lower prices received on generic products due to heightened competition, and under absorbed overhead which resulted from lower production levels needed to support lower sales.
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -----------------------------------------------------------
AND RESULTS OF OPERATIONS -------------------------
Selling, general and administrative expense increased $14,873,000 during fiscal 1998. The increase was principally due to costs incurred in conjunction with the upcoming launch of Celexa, including a further expansion during the current fiscal year of the Company's salesforce by approximately 200 representatives. These increased expenses, together with the research and development expenses related to Celexa, were reimbursed by the private investor group as discussed above. The increase during fiscal 1997 reflected the full year's impact of the expansion of the Company's U.S. salesforce by 200 representatives during that fiscal year and for costs incurred in conjunction with the launches of Tiazac and Monurol and for a write-down of accounts receivable owed to the Company by Foxmeyer Drug.
The increases in research and development expense during the periods presented were due to costs associated with conducting clinical trials in order to obtain approval for new products and from staff increases and associated costs required to support an increased number of products under development and submitted to the FDA. During the 1998 fiscal year, particular emphasis was placed on clinical studies and new formulations for Aerobid and on clinical studies for Celexa.
Purchased research and development of $32,250,000 resulted from the Company's license of three products from H. Lundbeck A/S which are in early stages of development.
Income tax expense as a percentage of income before taxes was 33% in fiscal 1998, as compared to 36%, which was the Company's effective tax rate prior to last year's net loss. The lower effective rate was due principally to a decrease in proportion of the Company's profit derived from fully taxable operations, as compared to tax-exempt operations, and tax-free interest income and from increases in the amounts of tax credits.
The Company expects to continue its profitability into fiscal 1999 as sales of current products continue at normal levels following the reduction of trade inventories. The continuing decline in the generic market should be offset by increases in the sales of recently launched and growing products, such as Cervidil and Tiazac, as well as from new products, such as Celexa, when they are brought to market.
At March 31, 1998, primarily all computer systems and software (the "Systems") of the Company's U.S. operations are Year 2000 compliant. Presently, the Company=s European subsidiaries are preparing to replace existing Systems that are not Year 2000 compliant. The Company anticipates that all Systems will be compliant by the end of 1999. Management believes that the cost to modify these Systems is immaterial.
Inflation has not had a material effect on the Company's operations for the periods presented.
FOREST LABORATORIES, INC. AND SUBSIDIARIES ------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------
FORWARD LOOKING STATEMENTS Except for the historical information -------------------------- contained herein, the Management Discussion and other portions of this annual report contain forward looking statements that involve a number or risks and uncertainties, including the difficulty of predicting FDA approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, the timely development and launch of new products and the risk factors listed from time to time in the Company's SEC reports, including the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
EXHIBIT 10.14
EMPLOYMENT AGREEMENT --------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a Delaware corporation (the "Company") and ELAINE HOCKBERG (the "Executive"), dated as of the 24th day of June 1997.
The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions: ------------------- (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, ----------------- a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such Iindividual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Consolidation"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to ------------------ continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period").
4. Terms of Employment. ------------------- (a) Position and Duties. ------------------- (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties, and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive thereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executives responsibilities to the Company.
(b) Compensation. ------------ (i) Base Salary. During the Employment Period, ------------ the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a Monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term, "affiliated companies" shall include any company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base ------------- Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the highest aggregate amount awarded to the Executive under all annual bonus, incentive and other similar plans of the Company with respect to any of the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. --------------------------------------- During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices and policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the ------------------------- Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, -------- the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as is effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment ----------------- Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the ------------------------ Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment -------- Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
5. Termination of Employment. -------------------------
(a) Death or Disability. The Executive's employment ------------------- shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the ----- Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continues failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is naturally and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful, unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be ----------- terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the ---------------------- Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" --------------------- means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason: Other Than for Cause, Death or ------------------------------------------------ Disability. If, during the Employment Period, ---------- the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (i) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest of earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the"Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination.
(ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits").
b) Death. If the Executive's employment is ----- terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is ---------- terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.
(d) Cause: Other than for Good Reason. If the ------------------------------------- Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z)
Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment of provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement ------------------------- shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make ---------------- the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Reductions of Payments. ------------------------------- (a) Anything in this Agreement to the contrary not- withstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit of the Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code. For purposes of this Section 9 present value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall be made by BDO Seidman (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination or such earlier time as is requested by the Company. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. The Executive shall determine which and how much of the Agreement Payments (or, at the election of the Executive, other payments) shall be eliminated or reduced consistent with the requirements of this Section 9, provided that, if the Executive does not make such determination within ten business days of the receipt of the calculations made by the Accounting Firm, the Company shall elect which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 9 and shall notify the Executive promptly of such election. Within five business days thereafter, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Executive to the Company (or if paid by the Executive to the Company shall be returned to the Executive) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold ------------------------ in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than
by acts by the Executive or representatives of the Executive in violation of this Agreement), After termination of the Executive's employment with the Company, the Executive shall not, without prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
11. Successors. ---------- (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assigned by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representative.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Elaine Hochberg 73 Christopher Street Montclair, N.J. 07042
If to the Company:
Forest Laboratories, Inc. Attention: President 909 Third Avenue New York, New York 10022
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
i. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
ii. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
iii. The Executive and the Company acknowledge that, except as may otherwise be provided under any written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section i(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
--------------------------- ELAINE HOCHBERG
FOREST LABORATORIES, INC. By:
----------------------------- KENNETH E GOODMAN Vice President-Finance
EXHIBIT 10.15
EMPLOYMENT AGREEMENT --------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a Delaware corporation (the "Company") and MARY PREHN (the "Executive"), dated as of the 16th day of January 1995.
The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions: ------------------- (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, ----------------- a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such Iindividual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Consolidation"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to ------------------ continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period").
4. Terms of Employment. ------------------- (a) Position and Duties. ------------------- (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties, and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive thereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executives responsibilities to the Company.
(b) Compensation. ------------ (i) Base Salary. During the Employment Period, ------------ the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a Monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term, "affiliated companies" shall include any company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base ------------- Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the highest aggregate amount awarded to the Executive under all annual bonus, incentive and other similar plans of the Company with respect to any of the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. --------------------------------------- During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices and policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the ------------------------- Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, -------- the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as is effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment ----------------- Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the ------------------------ Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment -------- Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
5. Termination of Employment. -------------------------
(a) Death or Disability. The Executive's employment ------------------- shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the ----- Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continues failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is naturally and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful, unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be ----------- terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the ---------------------- Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" --------------------- means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason: Other Than for Cause, Death or ------------------------------------------------ Disability. If, during the Employment Period, ---------- the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (i) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest of earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the"Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination.
(ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits").
b) Death. If the Executive's employment is ----- terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is ---------- terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.
(d) Cause: Other than for Good Reason. If the ------------------------------------- Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z)
Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment of provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement ------------------------- shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make ---------------- the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Reductions of Payments. ------------------------------- (a) Anything in this Agreement to the contrary not- withstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit of the Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code. For purposes of this Section 9 present value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall be made by BDO Seidman (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination or such earlier time as is requested by the Company. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. The Executive shall determine which and how much of the Agreement Payments (or, at the election of the Executive, other payments) shall be eliminated or reduced consistent with the requirements of this Section 9, provided that, if the Executive does not make such determination within ten business days of the receipt of the calculations made by the Accounting Firm, the Company shall elect which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 9 and shall notify the Executive promptly of such election. Within five business days thereafter, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Executive to the Company (or if paid by the Executive to the Company shall be returned to the Executive) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold ------------------------ in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than
by acts by the Executive or representatives of the Executive in violation of this Agreement), After termination of the Executive's employment with the Company, the Executive shall not, without prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
11. Successors. ---------- (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assigned by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representative.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Mary Prehn 4 McGuire Lane Croton-on-Hudson, NY 10520
If to the Company:
Forest Laboratories, Inc. Attention: President 909 Third Avenue New York, New York 10022
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
i. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
ii. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
iii. The Executive and the Company acknowledge that, except as may otherwise be provided under any written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section i(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
--------------------------- MARY PREHN
FOREST LABORATORIES, INC. By:
----------------------------- KENNETH E GOODMAN Vice President-Finance
EXHIBIT 10.16
EMPLOYMENT AGREEMENT --------------------
AGREEMENT by and between FOREST LABORATORIES, INC. Company, a Delaware corporation (the "Company") and RAYMOND STAFFORD (the "Executive"), dated as of the 23rd day of February 1998.
The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions: ------------------- (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, ----------------- a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such Iindividual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Consolidation"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to ------------------ continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period").
4. Terms of Employment. ------------------- (a) Position and Duties. ------------------- (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties, and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive thereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executives responsibilities to the Company.
(b) Compensation. ------------ (i) Base Salary. During the Employment Period, ------------ the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a Monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term, "affiliated companies" shall include any company controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base ------------- Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the highest aggregate amount awarded to the Executive under all annual bonus, incentive and other similar plans of the Company with respect to any of the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. --------------------------------------- During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices and policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the ------------------------- Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, -------- the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as is effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment ----------------- Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the ------------------------ Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment -------- Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
5. Termination of Employment. -------------------------
(a) Death or Disability. The Executive's employment ------------------- shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the ----- Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continues failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is naturally and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful, unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be ----------- terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the ---------------------- Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" --------------------- means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination. ------------------------------------------- (a) Good Reason: Other Than for Cause, Death or ------------------------------------------------ Disability. If, during the Employment Period, ---------- the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (i) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest of earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the"Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination.
(ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits").
b) Death. If the Executive's employment is ----- terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is ---------- terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.
(d) Cause: Other than for Good Reason. If the ------------------------------------- Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z)
Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment of provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement ------------------------- shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make ---------------- the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Reductions of Payments. ------------------------------- (a) Anything in this Agreement to the contrary not- withstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit of the Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code. For purposes of this Section 9 present value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall be made by BDO Seidman (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination or such earlier time as is requested by the Company. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. The Executive shall determine which and how much of the Agreement Payments (or, at the election of the Executive, other payments) shall be eliminated or reduced consistent with the requirements of this Section 9, provided that, if the Executive does not make such determination within ten business days of the receipt of the calculations made by the Accounting Firm, the Company shall elect which and how much of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 9 and shall notify the Executive promptly of such election. Within five business days thereafter, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Executive to the Company (or if paid by the Executive to the Company shall be returned to the Executive) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold ------------------------ in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than
by acts by the Executive or representatives of the Executive in violation of this Agreement), After termination of the Executive's employment with the Company, the Executive shall not, without prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
11. Successors. ---------- (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assigned by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representative.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Raymond Stafford Tosara Products Limited Baldoyle Industrial Estate Grange Road Dublin 13 Ireland
If to the Company:
Forest Laboratories, Inc. Attention: President 909 Third Avenue New York, New York 10022
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
i. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
ii. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
iii. The Executive and the Company acknowledge that, except as may otherwise be provided under any written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section i(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
--------------------------- RAYMOND STAFFORD
FOREST LABORATORIES, INC. By:
----------------------------- KENNETH E GOODMAN Vice President-Finance
EXHIBIT 10.17
DEVELOPMENT AND MARKETING AGREEMENT dated this 1st day of ----------------------------------- July, 1997 by and between FRXC COMPANY, INC., a corporation ------------------ organized under the laws of the State of Delaware having its
principal executive offices c/o Princes Gate Investors II, LP,
1585 Broadway, New York, New York 10036 ("Newco") and FOREST
LABORATORIES, INC., a corporation organized under the laws of the
State of Delaware having its principal executive offices at 909
Third Avenue, New York, New York 10022 ("Forest").
R E C I T A L S :
A. Forest develops, manufactures and markets
pharmaceutical products. Pursuant to a License and Supply
Agreement (the "Lundbeck License") dated October 3, 1995 between
Forest Laboratories (Ireland) Limited, a wholly-owned subsidiary
of Forest, and H. Lundbeck A/S, Forest, through its wholly-owned
subsidiary, has been granted the exclusive right and license
under the patents and technology referred to therein to develop,
market, use and distribute finished pharmaceutical products
containing the compound Citalopram as their only active
ingredient in the United States of America and its territories,
for use in the treatment of depression and certain other
disorders. Pursuant to the Lundbeck License, Forest is obligated
to use its best efforts to obtain regulatory approval to market
Citalopram in the United States and to market Citalopram,
including the undertaking of all required research, development
and marketing activities.
B. Newco has been formed to fund a portion of the
research, development and pre- and post-launch marketing efforts
of Forest with respect to Citalopram, in consideration of which
Forest has agreed to pay certain royalties to Newco in respect of
the net sales of the Product (as hereinafter defined) following
the receipt of necessary regulatory approval to market
Citalopram, and to provide other consideration to Newco, all in
accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual terms and conditions hereinafter set forth, the parties
hereto do hereby agree as follows:
1. Definitions. -----------
As used herein, the following terms shall have the
respective meanings set forth below:
1.1 "Act" shall mean the Federal Food and Drug Act and
regulations promulgated thereunder.
1.2 "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with the
person with respect to whom such status is at issue.
1.3 "Commencement Date" shall mean the first to occur
of (i) the first day of the first month which is at least fifteen
months after the FDA approves the NDA or (ii) April 1, 2000, if
such FDA approval has been received by such date, or the first
day of the first month following the date of receipt of such FDA
approval if thereafter.
1.4 "Contract Year" means the 12 month period
beginning on the Commencement Date and each successive 12 month
period thereafter.
1.5 "FDA" shall mean the United States Food and Drug
Administration or any successor agency having comparable
jurisdiction.
1.6 "Net Sales" of the Product shall mean the proceeds
from sales of the Product (but, for purposes of Section 4.4, only
sales of Licensed Product) by Forest, its Affiliates or sub-licensees and their
Affiliates to persons other than Affiliates of Forest or its
sublicensees, and recorded in accordance with generally
accepted accounting principles, less (i) allowances for
returns, rebates, chargebacks and discounts actually given to
customers in the ordinary course of business and (ii) taxes and
duties (other than income taxes) collected on such sales,
including, without limitation, taxes or charges under the Medical
Prescription Drug Rebate and Improved Access to Medicines
requirements of the Omnibus Budget Reconciliation Act of 1990 and
comparable federal and state requirements, as now or hereafter in
effect.
1.7 "NDA" shall mean a New Drug Application filed with
the FDA in respect of the Licensed Product, and all amendments or
supplements thereto.
1.8 "Product" shall mean any product that contains
Citalopram or an enantiomer of Citalopram as an active ingredient
(alone or together with one or more other active ingredients),
any product produced in reliance upon the Lundbeck License, or,
during the first five Contract Years, any product which is a
selective serotonin reuptake inhibitor approved for the treatment
of depression. "Licensed Product" shall mean a Product marketed
pursuant to the Lundbeck License as in effect as of the date
hereof.
1.9 "quarter" shall refer to each calendar quarter
during the term hereof.
1.10 "Territory" shall mean the United States of
America and its permanent territorial possessions as at the date
of the Lundbeck License.
2. Development Activities. ----------------------
2.1 Forest agrees to use its best efforts to obtain
all approvals (including an approved NDA) necessary or desirable
to commercialize the Product in the Territory and to market,
promote and distribute the Product in the Territory and to engage
in a program of pre-launch and post-launch marketing and
promotional programs designed to maximize the commercial
potential for the Product in the Territory. As used herein,
"best efforts" includes all financial commitments and capital
expenditures necessary to fund any and all development and
marketing costs not covered by the Contract Price. A budget and
timetable for development, marketing and promotional programs
currently believed to be required to obtain approval of the NDA
and to successfully launch and market the Product in light of
current market conditions is annexed hereto as Schedule A (the
"Development and Marketing Plan"). The Development and Marketing
Plan will be subject to change by Forest from time to time in
light of the progress and results of the development work and
Forest's assessment of market conditions; provided that no such
change shall increase the Contract Price (as defined below)
without the prior written approval of Newco. Forest will make
available the services of its scientific, regulatory, marketing
and other personnel as may reasonably be required to perform
Forest's obligations hereunder and shall be entitled to use sub-contractors
in Forest's reasonable discretion.
2.2 Newco agrees to fund Forest's costs incurred in
the performance of the Development and Marketing Plan on a
quarterly basis to a maximum aggregate cumulative amount of US
$60,000,000 (the "Contract Price"), subject to the further terms
and conditions hereof. The Contract Price shall be paid in
quarterly installments in arrears commencing with the quarter
ending September 30, 1997 up to the amounts for each quarter set
forth on Schedule 2.2 hereto. Within 30 days following the end
of each quarter, Newco shall receive a statement of the costs
incurred (the "Development Costs") and work performed, specified
in reasonable detail, under the Development and Marketing Plan
for the immediately preceding quarter, together with a
certificate of the Chief Financial Officer of Forest which
certifies the incurrence of the costs and performance of the work
described therein. Development Costs shall include only Forest's
direct costs incurred in connection with the Development and
Marketing Plan together with an allowance for overheads of 25% of
such direct costs. Payments of the Contract Price shall be made
within 10 business days after receipt of such statement to which
such payment relates by wire transfer to a bank account
designated by Forest. Payments of the Contract Price made later
than 20 business days following such due date will accrue
interest at an annual rate equal to the Prime Rate as published
in The Wall Street Journal, Eastern Edition, in effect from time ----------------------- to time during the period from the due date to the date of
payment. Such interest shall be payable at the same time as the
payment to which it relates and shall be calculated daily on the
basis of a year of 365 days and the actual number of days
elapsed.
2.3 In the event that the Development Costs for any
quarter are less than as set forth on Schedule 2.2 for such
quarter, the amount by which such costs are less than the
scheduled costs shall be added to the scheduled payments for the
immediately following quarter. In addition, Forest shall have
the right to defer payments required by Schedule 2.2 to quarters
beyond such schedule in light of the progress of work under the
Development and Marketing Plan, but may not defer such payments
beyond April 1, 2000.
2.4 The parties acknowledge that the research and
development activities necessary to obtain an approved NDA and
the launch and successful marketing of new pharmaceutical
products are subject to many risks and uncertainties and there
can be no assurance that any of the objectives contemplated by
this Agreement or by the Development and Marketing Plan can be
successfully achieved. Newco agrees that, subject to Newco's
rights under Section 2.5, payment of the Contract Price in the
manner set forth herein is not contingent upon the successful
achievement of such objectives and shall be deemed earned by
Forest and non-refundable as each installment is required to be
paid hereunder and the failure by Forest to achieve such
objectives shall not be deemed a breach of any term or condition
of this Agreement.
2.5 Newco shall have the option, but shall not be
required, to terminate its obligations to pay any installment of
the Contract Price in the event that Newco shall reasonably
determine at any time, in light of developments in the review of
the NDA by the FDA, that it is unlikely that the FDA will approve
the NDA in a reasonable period of time, giving due regard to
customary time periods for FDA review and for preparation of
responses to matters raised by the FDA. Newco may exercise this
option by providing written notice to Forest which sets forth the
basis for Newco's determination with reasonable specificity. In
the event that Newco exercises the option set forth in this
Section, Newco shall remain entitled, following the Commencement
Date, to the royalty payments provided by Section 3 (or, in the
event Forest exercises the Purchase Option (as hereinafter
defined), the Interest Holders shall remain entitled to the
royalty payments provided by Section 4), but in each such case
only to the extent vested based upon the percentage of the
Contract Price paid or required to be paid to Forest as of the
date of exercise of such option by Newco as set forth on Schedule
2.5.
2.6 Forest agrees to maintain a cost accounting system
and books, records and files to enable Forest to provide Newco
with complete and accurate information regarding all aspects of
the Development and Marketing Plan and expenditures of the
Development Costs. Newco shall have the right, upon reasonable
advance notice during normal business hours to request an audit
(with auditors reasonably acceptable to Forest) of the financial
and technical books and records of Forest relating to the
Development and Marketing Plan, the work performed thereunder and
the Development Costs incurred. Newco shall hold such
information in the strictest confidence and shall use such
information solely for the purpose of verifying Forest's
compliance with its obligations hereunder.
2.7 Notwithstanding any other provision to the
contrary, Newco shall not be obligated to pay any portion of the
Contract Price until Forest has received notification from the
FDA that the NDA for Licensed Product has been filed by the FDA,
pursuant to the provisions of 21 C.F.R. Section 314.101(a)(2), or
provides other assurances reasonably satisfactory to Newco that
such NDA has been filed by the FDA.
3. Royalty Obligations; Warrant. ----------------------------
3.1 In consideration of the payment of the Contract
Price, Forest agrees to pay Newco a royalty equal to that
percentage of Net Sales set forth and determined in accordance
with Schedule 3.1 (the "Royalty Rate"), subject to adjustment as
set forth in Section 2.5. Such royalty obligation shall commence
with respect to sales of the Product made from and after the
Commencement Date and shall continue until the expiration of the
tenth Contract Year. Royalty payments shall be made quarterly
with respect to Net Sales for the immediately preceding quarter
within 30 days from the end of the quarter to which such payment
relates, and shall be accompanied by an officer's certificate
which sets forth the Net Sales and the calculation of the royalty
payment accompanying such certificate. Royalty payments made
later than 45 days following the end of the quarter to which they
relate will accrue interest at an annual rate equal to the Prime
Rate as published in The Wall Street Journal, Eastern Edition, in ----------------------- effect from time to time during the period from the due date to
the date of payment. Such interest shall be payable at the same
time as the payment to which it relates and shall be calculated
daily on the basis of a year of 365 days and the actual number of
days elapsed. Forest agrees that it will not accelerate or delay
the recognition of sales or sales related charges with the
intention or effect of altering the calculation of Net Sales, and
that all sales comprising Net Sales will be made and recorded in
the ordinary course of business.
3.2 Forest shall maintain complete and accurate books
and records of Net Sales, which shall be made available for audit
by Newco and its representatives, no more than once per Contract
Year, on the same basis as set forth in Section 2.6, solely for
the purpose of verifying the royalties payable by Forest
hereunder. In the event that the auditor retained by Newco
discovers any variations in the calculation of Net Sales and the
accompanying royalties which affect the calculation of royalties
by five (5%) percent or more for any quarter, Forest shall be
responsible for all reasonable fees and expenses incurred by such
auditor during the audit in question and shall reimburse Newco
for such fees and expenses.
3.3 In the event Newco has exercised its option
provided by Section 2.5 hereof to terminate Newco's obligation to
pay installments of the Contract Price, the Royalty Rate shall be
reduced from and after the date of such exercise to the vested
portion of the Royalty Rate as determined in accordance with
Section 2.5 and Schedule 2.5.
3.4 Simultaneously herewith, Forest has issued to the
Interest Holders warrants (the "Warrants") to purchase an
aggregate of 500,000 shares (the "Shares") of Forest's common
stock, par value $.10 per share, in substantially the form and
substance as annexed hereto as Schedule 3.4.
4. Purchase Option. ---------------
4.1 Forest shall have the right, but not the
obligation, to purchase all (but not less than all) of the debt
and equity interests (however denominated and of whatever nature,
the "Interests") in Newco (the "Purchase Option") in accordance
with the terms and conditions set forth in this Section. Forest
may exercise the Purchase Option by providing written notice of
its election to exercise the Purchase Option to the Interest
Holders, which notice shall specify a date for a closing of the
purchase and sale of the Interests no sooner than 10 nor later
than 60 days from the date of the exercise notice. At the
closing, Forest shall pay to the Interest Holders the Option
Price (as defined below) in immediately available funds against
delivery to Forest of certificates and all other instruments or
documents which evidence the Interests, free and clear of all
liens, claims, encumbrances, royalty obligations or any other
restriction of any nature whatsoever.
4.2 The aggregate purchase price (the "Option Price")
to be paid by Forest upon exercise of the Purchase Option shall
be US $85,000,000 in the event the closing of the Purchase Option
occurs prior to July 1, 1999. In the event the closing of the
Purchase Option does not occur prior to such date, the Option
Price shall be as set forth on Schedule 4.2. In the event Newco
has exercised its option pursuant to Section 2.5, the Option
Price determined in accordance with the preceding provisions
shall, from and after the date of such exercise, be determined by
multiplying the applicable Option Price as then determined in
accordance with the preceding provisions of this Section by the
applicable vesting percentage determined in accordance with
Section 2.5.
4.3 The Purchase Option shall expire unless notice of
exercise is delivered prior to 5:00 p.m. New York City time on
the earlier of (i) the Commencement Date or (ii) April 1, 2000.
4.4 As additional consideration for the purchase of
the Interests pursuant to the Purchase Option, Forest agrees to
pay an aggregate royalty of 1% of Net Sales following the closing
of the Purchase Option to the Interest Holders, subject to
adjustment as set forth in Section 2.5. Such royalty payments
shall be made quarterly to each Interest Holder in the respective
percentages for each Interest Holder set forth on Schedule 5.2(c)
hereto. Such royalty obligation shall terminate with respect to
all Net Sales made on or after the fifth anniversary of the date
of FDA approval of the NDA.
4.5 In order to effectuate the terms of the Purchase
Option, including the provisions of Section 4.7, Newco has caused
each holder of an Interest (the "Interest Holders") to execute
and deliver to Forest on the date hereof its agreement to perform
the Purchase Option (each an "Interest Holder Agreement") in form
and substance as annexed hereto as Schedule 4.5.
4.6 Newco shall use its best efforts to ensure that,
except as otherwise permitted by this Agreement, the
representation and warranty made by Newco in Section 5.2(d) shall
remain true throughout the period from the date hereof until the
exercise (and related closing) or expiration of the Purchase
Option. Newco shall maintain complete and accurate books and
records which fairly and accurately reflect all of its assets and
liabilities in accordance with United States generally accepted
accounting principles. Forest shall be entitled to inspect and
audit such books and records with auditors reasonably acceptable
to Newco to confirm the continuing accuracy of such
representation.
4.7 (a) Within 60 days of the closing of a purchase of the
Interests pursuant to the Purchase Option, the Interest Holders
will cause to be prepared and delivered to Forest a balance sheet
for Newco (the "Closing Balance Sheet"), together with an
unqualified certification and report of Newco's accountants
thereon, and a calculation of the adjustment to the Option Price
paid by Forest for Newco required by any variation between the
assets and liabilities appearing on the Closing Balance Sheet and
Newco's representation and warranty contained in Section 5.2(d)
(respectively, the "Calculation of Purchase Price Adjustment" and
the "Purchase Price Adjustment"). The Closing Balance Sheet
shall fairly present the consolidated financial position of Newco
at the close of business on the date of such closing on a basis
consistent with the books and records maintained by Newco in
accordance with Section 4.6. If Forest disagrees with the
Closing Balance Sheet and the Calculation of Purchase Price
Adjustment, Forest may, within 20 days after delivery of the
Closing Balance Sheet and Calculation of Purchase Price
Adjustment, deliver a notice to the Interest Holders disagreeing
with such calculation and setting forth Forest's basis for such
disagreement. Any such notice of disagreement shall specify
those items or amounts as to which Forest disagrees, and Forest
shall be deemed to have agreed with all other items and amounts
contained in the Closing Balance Sheet and the Calculation of
Purchase Price Adjustment.
(b) If a notice of disagreement shall be duly
delivered, Forest and the Interest Holders shall, during the 15
days following such delivery, use their best efforts to reach
agreement on the disputed items or amounts in order to determine,
as may be required, the appropriate Purchase Price Adjustment.
If, during such period, Forest and Interest Holders are unable to
reach such agreement, they shall promptly thereafter cause
independent accountants of nationally recognized standing
reasonably satisfactory to Forest and the Interest Holders (who
shall not, unless otherwise agreed, have any material
relationship with Forest or the Interest Holders), promptly to
review this Agreement and the disputed items or amounts for the
purpose of calculating the Purchase Price Adjustment. In making
such calculation, such independent accountants shall consider
only those items or amounts in the Closing Balance Sheet or the
Calculation of Purchase Price Adjustment to which Forest has
disagreed. Such independent accountants shall deliver to Forest
and the Interest Holders, as promptly as practicable, a report
setting forth such calculation. Such report shall be final and
binding upon Forest and the Interest Holders. The cost of such
review and report shall be borne equally by the parties. Forest
and the Interest Holders agree that they will, and agree to cause
their respective independent accountants to, cooperate and assist
in the preparation of the Closing Balance Sheet and the
Calculation of Purchase Price Adjustment, including without
limitation, the making available to the extent necessary of
books, records, work papers and personnel.
(c) If the Purchase Price Adjustment is positive,
Forest shall remit such excess to the Interest Holders, within 10
days after the Purchase Price Adjustment has been finally
determined (either by agreement or the procedure set forth
above), by delivery of a certified or official bank check payable
in immediately available funds, but only to the extent such
excess is comprised of cash or cash equivalents. If the Purchase
Price Adjustment is negative, upon final determination of the
Purchase Price Adjustment (either by agreement or the procedure
set forth above), the Interest Holders shall pay to Forest the
amount by which such adjustment is negative by delivery of a
certified check or official bank check payable in immediately
available funds. In addition, the Interest Holders shall,
jointly and severally, hold Forest harmless from, and defend and
indemnify Forest against, any cost, loss, damage, claim,
litigation or action (including, without limitation, the fees and
expenses of counsel) to which Forest or Newco or any of their
respective assets, properties or businesses may become subject as
a result of the failure of the representation set forth in
Section 5.2(d) to be true and correct as at the time of closing
of the Purchase Option to the extent such cost, loss, damage or
claim is not reflected or reserved for in the Closing Balance
Sheet. Such obligation of indemnification shall expire on the
sixth anniversary of the closing of the Purchase Option, except
that in the case of matters relating to taxation, such
indemnification obligation shall not expire until the expiration
of the applicable statute of limitations with respect to any such
matter. The amount of any Purchase Price Adjustments to be made
pursuant to this Section 4.7 shall bear interest from (and
including) the date of the closing of the Purchase Option to (but
excluding) the date of payment at a rate per annum equal to the
Prime Rate as published in The Wall Street Journal, Eastern ----------------------- Edition, in effect from time to time during the period from the
date of closing to the date of payment. Such interest shall be
payable at the same time as the payment to which it relates and
shall be calculated daily on the basis of a year of 365 days and
the actual number of days elapsed.
4.8 Notwithstanding anything to the contrary herein
contained, in the event that the purchase of the Interests
pursuant to the Purchase Option requires the filing of
Notification and Report Forms pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules promulgated
thereunder (collectively, the "HSR Act") and the expiration or
termination of the "waiting period" provided thereunder, each of
Forest and Newco shall take, and shall cause their respective
Affiliates to take, all necessary and appropriate steps to make
the required filings under the HSR Act as promptly as possible
following exercise of the Purchase Option and to cooperate as may
be reasonably required to achieve as early a termination of the
"waiting period" as possible. In the event filing under the HSR
Act is required, the closing of the purchase and sale of
Interests pursuant to the Purchase Option shall take place on the
third business day following expiration or termination of the
"waiting period."
5. Representations and Warranties. ------------------------------
5.1 Forest hereby represents and warrants to Newco as
follows:
(a) Forest is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as
currently conducted.
(b) Each of this Agreement, the Warrant and the
registration rights agreement of even date herewith among Forest
and the Interest Holders (the "Registration Rights Agreement")
have been duly and validly authorized by all necessary corporate
action on the part of Forest and constitutes the legally valid
and binding obligations of Forest, enforceable in accordance with
its respective terms.
(c) The execution and performance by Forest of
its obligations under this Agreement, the Warrant and the
Registration Rights Agreement do not conflict with, or constitute
a breach under, the terms and conditions of any contract,
agreement or arrangement to which Forest is a party or by which
any of Forest's assets or properties are bound. Except for
filings under the HSR Act in the event the Purchase Option is
exercised and filings under the Securities Act of 1933, as
amended, and compliance with any applicable state blue sky laws
in connection with any registration of securities pursuant to the
Registration Rights Agreement, no consent or approval of any
governmental entity or other third party is required for the
performance by Forest of its obligations hereunder, under the
Warrant or under the Registration Rights Agreement.
(d) Newco has been furnished with a true and
complete copy of the Lundbeck License. The Lundbeck License
constitutes a legally binding agreement enforceable in accordance
with its terms. No event has occurred which (with the giving of
notice, the passage of time or both) would constitute a breach of
or default under either party's obligations thereunder or any
term or condition thereof. Pursuant to the Lundbeck License and
subject to the terms and conditions therein set forth, Forest,
through a wholly-owned subsidiary, has been granted the exclusive
right and license to market the Licensed Product in the
Territory.
(e) (i) Subject to FDA approval of the Licensed
Product, Forest shall be the beneficiary of a five-year period of
exclusivity in connection with the marketing and sale of the
Licensed Product in the Territory following FDA approval of the
NDA, pursuant to the provisions of the Drug Price Competition and
Patent Term Restoration Act of 1984.
(ii) Forest has all Intellectual Property Rights
necessary to produce, market and sell the Licensed Product in the
Territory, subject only to the terms of the Lundbeck License.
None of the activities of Forest in producing, marketing or
selling the Licensed Product in the Territory shall infringe upon
the Intellectual Property Rights of any party.
"Intellectual Property Rights" means any trademark,
service mark, trade name, invention, patent, trade secret, trade
dress, copyright, know-how (including any registrations or
applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right.
(f) Forest has delivered to Newco true and
complete copies of Forest's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997, and Forest's Quarterly Reports
on Form 10-Q for each of the quarters ended June 30, September 30
and December 31, 1996 (the "Public Filings") in each case as
filed with the Securities and Exchange Commission (the "SEC").
The Public Filings do not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein not misleading (in each case, as at the respective dates
thereof). The financial statements of Forest included or
incorporated by reference in the Public Filings comply in all
material respects with published rules and regulations of the
SEC, have been prepared in accordance with United States
generally accepted accounting principles and present fairly the
consolidated financial position of Forest as of the dates
thereof, and the consolidated results of operations, cash flows
and stockholders' equity for the periods then ended.
(g) The Shares, when issued pursuant to the due
exercise of the Warrant, will be duly authorized, fully paid and
validly issued Shares of the Common Stock of Forest and will not
have been issued in violation of, and will not be subject to, any
preemptive, first refusal or other subscription rights and will
not result in the anti-dilution provisions of any security of
Forest becoming applicable.
5.2 Newco hereby represents and warrants to Forest as
follows:
(a) Newco is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to carry on
its business as currently conducted.
(b) Newco has received equity capital
contributions or borrowed monies (or legally binding commitments
therefor) of at least $60,000,000, payable to Newco in cash by
such date or dates as will be sufficient for the timely payment
by Newco of installments of the Contract Price. Schedule 5.2(b)
sets forth the name and address of each Interest Holder, and sets
forth the amount and nature of each Interest held at the date
hereof.
(c) Newco has furnished to Forest true and
complete copies of Newco's Certificate of Incorporation, By-Laws
and all agreements (including subscription, investment and
stockholders' agreements) to which Newco is a party or pursuant
to which Newco is capitalized or governed.
(d) Except for the Interests of the Interest
Holders (which may be debt or equity capital) and commitments
therefor referred to in Schedule 5.2(b) and the terms and
conditions of this Agreement and except as otherwise contemplated
by this Agreement, Newco has no assets or liabilities of any
nature whatsoever, conducts no business other than pursuant to
this Agreement and is not a party to any contract, agreement or
arrangement with any third party which has not been disclosed to
Forest as of the date hereof, except in each case for immaterial
items that are incidental to the organization of Newco, the
maintenance of its existence as a corporation, the keeping of its
books and records, and other similar ministerial matters. Newco
is the sole owner of Newco's rights under this Agreement, which
rights are not subject to any lien, claim, encumbrance,
assignment, royalty obligation or other restriction, limitation
or transfer of any nature whatsoever, except for any immaterial,
non-consensual liens that may arise by operation of law.
(e) This Agreement has been duly and validly
authorized by all necessary corporate action of Newco and
constitutes the legally valid and binding obligation of Newco in
accordance with its terms.
(f) The execution and performance by Newco of its
obligations under this Agreement do not conflict with, or
constitute a default under, the terms or conditions of any
contract, agreement or arrangement to which Newco is a party or
by which Newco's assets or properties are bound. Except for
filings under the HSR Act in the event the Purchase Option is
exercised, no consent or approval of any governmental agency or
other third party is required for the performance by Newco of its
obligations hereunder.
6. Marketing Obligations; Additional Covenants of Forest. -----------------------------------------------------
6.1 Subject to obtaining FDA approval of the NDA,
Forest agrees to market and promote the Product in the Territory
in accordance with terms of the Lundbeck License and all
applicable laws and regulations. Without limiting the generality
of the foregoing, during the period commencing with FDA approval
of the NDA (but ending on the date of exercise by Forest of the
Purchase Option) Forest agrees to provide the marketing support
and related expenditures for the Product as set forth on Schedule
6.1 hereto.
6.2 Forest shall comply in all material respects with
the terms and conditions of the Lundbeck License, shall not
voluntarily terminate the Lundbeck License and shall use its best
efforts to maintain the Lundbeck License in full force and effect
and shall not agree to the waiver or modification of any of
Forest's material rights thereunder without the prior written
consent of Newco.
6.3 In order to enable Newco to make the determination
contemplated by Section 2.5, Forest agrees to continue to use its
best efforts to obtain FDA approval of the NDA and to keep Newco
reasonably informed as to the status and progress of the FDA
approval process. Forest will promptly notify Newco of any
action or communication from the FDA relating to the approval, or
timing of approval, of the NDA and will cooperate with Newco and
Newco's advisors so that Newco will, at all times, be in a
position to make the determination contemplated by Section 2.5.
Without limiting the generality of the foregoing, Forest (a) will
use reasonable efforts to maintain a continuous dialogue with the
FDA regarding the status of the NDA, (b) will provide written
summaries to Newco of all discussions or meetings with the FDA
(other than routine communications which are ministerial in
nature), including copies of minutes of meetings prepared by the
FDA when received, (c) will use reasonable efforts to schedule
periodic status discussions with the FDA and (d) will advise
Newco of the projected timing of any such status meetings or
discussions with the FDA and the outcomes thereof.
7. Indemnification. ---------------
7.1 Forest shall indemnify and hold Newco and the
Interest Holders harmless from and against any costs, expenses
(including, without limitation, reasonable attorneys' fees),
liabilities, losses or damages which arise from breach by Forest
of any of its representations or warranties or covenants set
forth herein. In addition, Forest shall defend at its own
expense, with counsel reasonably satisfactory to Newco and the
Interest Holders, any actions brought against Newco or any
Interest Holder by a third party alleging that the development,
manufacture or marketing of the Product infringes any
intellectual property right of such third party.
7.2 Promptly after the receipt by Newco or any
Interest Holder of notice of any claim or the commencement of any
action or proceeding, such party will, if a claim with respect
thereto is to be made against Forest pursuant to Section 7.1
hereof, give Forest written notice of such claim or the
commencement of such action or proceeding. Forest shall have the
right, at its option, to compromise or defend, at its own
expense, with counsel reasonably satisfactory to Newco and the
Interest Holders, any such matter involving the asserted
liability of the party seeking indemnification. Failure to give
such notice, and the opportunity to compromise or defend, shall
not be a condition precedent to any liability of Forest under the
indemnification agreement contained in Section 7.1, unless and to
the extent such failure results in actual prejudice to Forest.
In the event Forest shall undertake to compromise or defend any
such asserted liability, it shall promptly notify the party
seeking indemnification of its intention to do so, and the party
seeking indemnification agrees to cooperate fully with Forest and
its counsel in the compromise of, or defense against, any such
asserted liability. Any election by Forest to compromise or
defend a claim shall act as an acknowledgement by Forest of its
obligations of indemnification with respect to any such matter in
accordance with the terms and conditions hereof. In any event,
the indemnified party shall have the right, at its own expense
and with counsel of its choice, to participate in the defense of
such asserted liability.
8. Term of Agreement. -----------------
8.1 This Agreement shall remain in full force and
effect until the expiration of the last obligation of either
party to make any payment of Contract Price, the Option Price,
any payment required by Section 4.7 or royalty to the other party
hereto or to the Interest Holders. The expiration of this
Agreement shall not relieve either party of obligations accrued
prior to such date of expiration or of obligations which continue
by the terms hereof beyond such expiration.
9. Change in Control. -----------------
9.1 For purposes of this Section 9, a "Change in
Control" shall mean (i) the acquisition, directly or indirectly,
of beneficial ownership of 50% or more of the voting power of
Forest or of all or substantially all of the business or assets
of Forest (whether by way of merger, sale of stock, sale of
assets or otherwise) by any person or entity (including a "group"
as defined in Section 13(d)(3) of the Securities Exchange Act of
1934) or (ii) individuals who at the beginning of any period of
two consecutive years (together with any other individuals whose
election was approved by a two-thirds vote of the Directors then
in office) shall cease to constitute a majority of the members of
the Board of Directors of Forest.
9.2 From and after the date of a Change in Control,
the Interest Holders shall have the option (the "Put Option"),
but not the obligation, to require Forest to purchase all, but
not less than all, of the Interests at the Option Price then in
effect determined in accordance with Section 4.2, and on the
terms and conditions, as if Forest had then exercised the
Purchase Option in accordance with Section 4.1, but subject to
the provisions of Section 9.3. The Interest Holders may exercise
the Put Option by providing (or causing Newco to provide) to
Forest, at any time before the later of 90 days following (i)
such Change of Control or (ii) the completion of the payment of
the Contract Price or termination of Newco's obligation to pay
the Contract Price in accordance with Section 2.5, written notice
of their election to exercise, which notice will specify a date
for closing of the purchase and sale of Interests no sooner than
10 nor later than 30 days from the date of the notice. At the
closing, Forest shall pay the Option Price in immediately
available funds against delivery to Forest of certificates and
all other instruments or documents which evidence the Interests,
free and clear of all liens, claims, encumbrances, royalty
obligations or any other restriction of any nature whatsoever.
The Interest Holders shall be deemed third-party beneficiaries of
this Agreement to the extent applicable to the Put Option.
9.3 (a) In the event of a closing of the Put Option
after April 1, 2000, the Option Price payable pursuant to Section
9.2 shall be the Option Price as set forth on Schedule 4.2 for
April 1, 2000, increased each day from and after April 1, 2000
until the date of closing of the sale of the Interests pursuant
to Section 9.2 at a rate calculated to produce a return of 29.3%
per annum, taking into account payments of royalties as received.
(b) In the event a Change in Control occurs on a
date prior to April 1, 2000 and at such date Newco remains
obligated to pay further installments of the Contract Price,
Forest agrees promptly to deposit the then applicable Option
Price determined in accordance with Section 4.2 in an escrow fund
(the "Escrow Fund") to be maintained by Chase Manhattan Bank, New
York, New York, or such other bank or financial institution as
may be mutually agreed, as escrow agents (the "Escrow Agent").
Forest agrees to increase the amount of the Escrow Fund so that
it will equal the Option Price as from time to time in effect in
accordance with Schedule 4.2 hereof. The Escrow Agent will be
instructed to deliver the Escrow Fund to the Interest Holders and
to terminate the escrow upon delivery to the Escrow Agent of
notice of exercise of the Put Option and to distribute the Escrow
Fund to Forest and to terminate the escrow upon receipt of a
certificate from an executive officer of Forest to the effect
that the period during which the Put Option may be exercised has
expired as provided in Section 9.2, unless the Escrow Agent has
received notice of exercise of the Put Option at or prior to such
time, in which case the Escrow Fund shall be delivered to the
Interest Holders. The Escrow Agent will be retained pursuant to
an escrow agreement containing customary terms and conditions,
including provisions for the indemnification of the escrow agent,
and the fees and expenses of the Escrow Agent shall be for the
account of Forest. Interest on the Escrow Fund shall remain the
property of Forest. In lieu of the establishment of the Escrow
Fund, Forest shall be entitled to establish a letter of credit in
favor of Newco, as agent on behalf of the Interest Holders, in
form and substance reasonably satisfactory to Newco and in
principal amount equal to the Option Price in effect from time to
time, which may be drawn upon by Newco, as agent on behalf of the
Interest Holders, against delivery of Newco's notice of exercise
of the Put Option.
10. Events of Default. -----------------
10.1 The occurrence of any of the following events
shall constitute an "Event of Default" hereunder:
(a) the failure by either party to make any
payment to the other or to the Interest Holders due hereunder,
which failure has not been cured within 10 days of the furnishing
of written notice thereof by the non-defaulting party;
(b) the breach by either party of any other
covenant or obligation hereunder, which breach has not been cured
within 45 days of the furnishing of written notice thereof by the
non-defaulting party, or, if not susceptible of cure within such
period, the defaulting party has not taken substantial steps to
commence such cure within such 45-day period or has not continued
at all times thereafter to diligently pursue such cure, unless
such default becomes not susceptible of cure within any
reasonable period, whereupon such default shall constitute an
"Event of Default".
(c) the filing by either party of a petition
under any bankruptcy, insolvency or similar law for the
protection of creditors or the filing of any such petition
against such party, which petition has not been dismissed within
60 days.
10.2 In the event of the occurrence of an Event of Default
by or in respect of either party (the "Defaulting Party"), the
other party hereto (the "Non-Defaulting Party") shall have the
right, but not the obligation, to terminate this Agreement. In
the event Forest is the Defaulting Party, termination of this
Agreement by Newco shall not be deemed to terminate the rights
and obligations of either party pursuant to Sections 3 and 4
hereof, and Newco or the Interest Holders, as the case may be,
shall be entitled to receive the Option Price, or any royalty
based upon the vesting schedule set forth in Schedule 2.5. The
foregoing shall be in addition to, and not in limitation of, all
other remedies at law (including, without limitation, damages
calculated in accordance with law) or in equity to which the
Non-Defaulting Party may be entitled as a result of such breach.
11. Relationship of the Parties. ---------------------------
11.1 The relationship of Forest and Newco shall be that
of independent contractors. This Agreement shall not be
construed to constitute Forest and Newco as partners or joint
venturers, or to establish any relationship in the nature of
agency. Neither party shall hold itself out as having the
authority to bind the other party hereto.
12. Events of FORCE MAJEURE. -----------------------
12.1 Neither Forest nor Newco shall be held liable or
in default for failure of performance for any cause beyond its
reasonable control including, for example, Acts of God, declared
or undeclared war, fire, flood, interruption of transportation,
embargo, insurrections, accident, explosion, governmental laws,
orders, regulations, or restrictions, any strike, lockout or
other labor troubles or similar events commonly known as events
of force majeure.
13. Miscellaneous. -------------
13.1 Subject to Sections 2.1 and 6.3, nothing set forth
herein shall be deemed to limit, restrict or preclude Forest and
its Affiliates from performing other research or development
projects or from developing, launching or marketing other
pharmaceutical products, whether for their own account or for the
account of third parties.
13.2 This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without
giving effect to its principles of conflicts of law.
13.3 Each of the parties shall, from time to time
during the term of this Agreement, upon request by the other,
execute and deliver all such further documents or instruments as
may be required in order to give effect to the purpose and intent
of this Agreement.
13.4 This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective assigns
and successors in interest; provided, however, that Forest shall
not assign or otherwise transfer its interest under this
Agreement to any other person, firm or corporation without the
prior written consent of Newco, except in connection with the
transfer of all or substantially all of the assets of Forest to
any other person, whether by means of a merger, asset or stock
sale or otherwise (provided that nothing in this Section 13.4
shall be deemed to limit the rights of Newco and the Interest
Holders under Sections 9.1, 9.2 and 9.3), and Newco shall not
assign any of its rights or obligations hereunder to any party
without Forest's prior written consent (which consent shall not
be unreasonably withheld); provided that (i) Newco may at any
time assign its rights and obligations hereunder to any Interest
Holder or any Affiliate thereof without the consent of Forest
(but subject to delivery of a counterpart of an Interest Holder
Agreement executed by such transferee) and (ii) Newco, following
the closing of the Purchase Option (or the expiration thereof, if
not exercised), or the Interest Holders may assign their
respective rights to receive royalties to any party at any time
without the consent of Forest.
13.5 Any notice, request or other communication
required or permitted by this Agreement to be given by either
party to the other shall be in writing and either mailed by
registered or certified mail, return receipt requested, by
express delivery service or by facsimile transmission, addressed
to such party, Attention: The President at its address indicated
above or to such other address as such party may previously have
designated by like written notice. Any notice to any Interest
Holder shall be deemed given upon furnishing such notice to such
Interest Holder c/o Newco. Notice shall be deemed to have been
given upon receipt. Facsimile transmission numbers for the
separate parties are as follows:
If to Forest: (212) 750-9152
If to Newco: ________________
13.6 This Agreement, the Warrant (and related
Registration Rights Agreement) and the Interest Holder Agreements
constitute the entire agreement between the parties and supersede
all prior written or oral agreements or understandings concerning
the subject matter thereof or in conflict with their terms.
13.7 Forest agrees to pay the reasonable outside legal
and consulting fees and out-of-pocket expenses of Newco incurred
in connection with this Agreement, the Warrant, and the
Registration Rights Agreement and any amendment or waiver thereof
and the transactions contemplated hereby and thereby.
13.8 No modification or waiver of any of the terms of
this Agreement shall be deemed valid unless it is in writing and
signed by the party to whom such modification is sought to be
enforced. The failure of either party to insist upon the strict
performance of any term of this Agreement or the waiver by either
party of any breach under this Agreement shall not prevent the
subsequent strict enforcement of such term and shall not be
deemed a waiver of any other or subsequent breach.
13.9 In the event any court declares illegal or
unenforceable, as written or applied, any provision of this
Agreement, the balance of such provision and this Agreement shall
continue in full force and effect as if such provision had been
deleted or inapplicable to the situations to which such provision
cannot be legally applied.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
FOREST LABORATORIES, INC. -------------------------
By: /s/ Kenneth E. Goodman ---------------------- Kenneth E. Goodman
FRXC COMPANY, INC. ------------------
By: /s/ James M. Wilmott -------------------- James M. Wilmott
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACOUNTANTS
Forest Laboratories, Inc. New York, NY
We hereby consent to the incorporation by reference in the Registration Statements of Forest Laboratories, Inc. on Form S-8, filed with the Securities and Exchange Commission on November 13, 1990 and October 28, 1994, and Form S-3 filed with the Securities and Exchange Commission on November 30, 1993 and August 8, 1994, of our reports dated May 5, 1998, on the consolidated financial statements and schedule of Forest Laboratories, Inc. Annual Report on Form 10-K for the year ended March 3, 1998.
/s/ BDO SEIDMAN, LP - --------------------------------- BDO Seidman, LP