SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------
FORM 10-K
(Mark One)
____
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - ---- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended March 31, 1994
____
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - ---- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ___________________
Commission File No. 1-5438
FOREST LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-1798614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 East 58th Street, New York, New York 10155-0015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including
area code: (212) 421-7850
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $.10 par value American Stock Exchange
Rights to purchase one American Stock Exchange
one-hundredth share of Series A
Junior Participating Preferred
Stock, par value $1.00 per share
Securities registered pursuant to Section 12(g) of the Act:
None
PAGE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
____ ____
YES / X / NO / /
---- ----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of the registrant's
knowledge, in the Proxy Statement incorporated by reference in ____
Part III of this Form 10-K or any amendment to this Form 10-K / X /.
----
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 27, 1994 is
$1,920,828,459.
Number of shares outstanding of registrant's Common Stock as of
June 27, 1994: 43,785,921.
The following documents are incorporated by reference herein:
Portions of the definitive proxy statement to be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934 in connection with the 1993 Annual
Meeting of Stockholders of registrant.
Portions of the registrant's Annual Report to Stockholders
for the fiscal year ended March 31, 1994.
--------------
-2-
PAGE
PART I
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 salesforce 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 150 East 58th
Street, New York, New York 10155-10015 (telephone number
(212-421-7850).
RECENT DEVELOPMENTS
PROSTAGLANDIN E(2) INSERT: In October 1993, Forest
entered into a license and supply agreement granting Forest
exclusive United States rights to develop and market a pessary
infused with the hormone Prostaglandin E(2). The product will be
used for the initiation or continuation of cervical ripening in
patients where there is a medical or obstetrical indication for
the induction of labor. A New Drug Application (an "NDA") was
filed with the United States Food and Drug Administration (the
"FDA") with respect to this product in December 1993. The
Company plans to market this product under the brand name
Cervidil-TM- C.R.
FLUMADINE: In September 1993, Forest received the
approval of the FDA to market rimantadine, an antiviral agent
used for the treatment and prophylaxis of Influenza A. The
Company markets this product under the trademark Flumadine-R-.
-3-
FOSFOMYCIN TROMETAMOL: In November 1991, the Company
entered into a licensing agreement with the Zambon Group of Italy
for the marketing by the Company in the United States of the
antibiotic fosfomycin trometamol. Fosfomycin trometamol is
currently approved for marketing in eleven countries, including
the United Kingdom, Germany, Italy and Spain, under the brand
name Monurol-R-. The product is a single dose antibiotic used for
the treatment of uncomplicated urinary tract infections. There
are currently no single dose antibiotics approved for this
indication in the United States. It is currently anticipated
that an NDA will be filed for the product in 1994.
INFASURF: In June 1991, the Company entered into a
licensing agreement with ONY, Inc. for the marketing by the
Company in the United States, the United Kingdom and Canada of
the product Infasurf-R- 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.
Infasurf is currently in Phase III clinical trials in the United
States. The Company is also conducting early stage clinical
trials of Infasurf in order to evaluate its possible use in adult
respiratory distress syndrome. It is currently anticipated that
an NDA will be filed for the product in 1994.
SYNAPTON: The Company is conducting multi-center
clinical trials to study the safety and efficacy of Synapton-TM- for
the treatment of Alzheimer's Disease. Synapton contains
physostigmine, a cholinesterase inhibitor. Cholinesterase is an
enzyme which metabolizes or breaks down acetylcholine, which is
the neurotransmitter in the brain most associated with memory.
It is believed that in Alzheimer's patients, the cells that
produce acetylcholine progressively die, and it is the reduced
availability of this important neurotransmitter that is believed
to contribute to the patient's mental deterioration. Synapton is
formulated to partially inhibit cholinesterase activity so that
the acetylcholine produced by the body is available for a longer
period of time. It is recognized that cholinesterase inhibitors
generally are not a cure for Alzheimer's Disease but are expected
to have an ameliorative effect for certain patients.
Synapton is a controlled release formulation of
physostigmine. Synapton makes use of Forest's patented Synchron-R-
technology which provides for the continuous release of
medication into the bloodstream and, in the case of Synapton,
permits twice-a-day administration. The Company has concluded
one Phase III clinical study which demonstrates Synapton's
effectiveness. The Company hopes to complete a second successful
Phase III study which would enable an NDA to be filed.
MICTURIN: In August 1989, Forest completed and
submitted a full NDA to the FDA covering Micturin-R-, which is
-4-
licensed to Forest in the United States by the Swedish
pharmaceutical manufacturer Pharmacia AB ("Pharmacia"). The
product had been marketed outside the United States by Pharmacia
since 1986 and by 1991 was approved and marketed in 20 countries,
with over 400 million doses having been sold. In mid-1991, some
cases of a rare but serious cardiac side effect, polymorphic
ventricular tachycardia, were reported principally in the United
Kingdom among patients taking Micturin. In all but a few of
those cases, the patients appeared to have identifiable
predisposing risk factors. As a result of those reports, the
United Kingdom Committee on the Safety of Medicines (the "CSM")
sent a letter to physicians and pharmacists advising them of
those reported cases and contraindicating the drug for patients
with the predisposing risk factors. In September 1991, following
the CSM action and after regulatory action in other markets,
including withdrawals of the product in Germany and Austria,
Pharmacia withdrew Micturin from all markets worldwide.
Following the worldwide withdrawal of Micturin, the FDA requested
that Forest discontinue its ongoing studies of Micturin in the
United States until the FDA could review the possible
relationship between the use of Micturin and the reported cardiac
side effect. Forest is presently conducting clinical studies to
further assess Micturin's safety.
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
salesforce to concentrate on specialty groups of physicians who
are high prescribers of its products. Such products include the
respiratory products Aerobid-R-, Aerochamber-R- and Tessalon-R-, the
thyroid product Levothroid-R-, the ESGIC-R- and Lorcet-R- lines of
analgesics and Flumadine (See "Recent Developments").
Aerobid is a metered dose inhaled steroid used in the
treatment of asthma. Sales of Aerobid accounted for 21.3% of
Forest's sales for the fiscal year ended March 31, 1994 as
compared to 17.7% and 14.2% for the fiscal years ended March 31,
1993 and 1992, respectively. During fiscal 1992, the National
Institutes of Health recommended inhaled steroid therapy as a
first-line therapy for an expanded group of asthma patients,
rather than bronchodilators (such as beta-2-agonists and
theophylline). This recommendation has resulted in the increased
use of metered dose inhaled corticosteroids such as Aerobid.
Aerochamber is a spacer device used to improve the delivery of
aerosol administered products, including Aerobid.
ESGIC and its line extension, ESGIC Plus, are
combination analgesic/sedatives for the relief of tension
headaches, while Lorcet is a line of potent analgesics. Lorcet
-5-
sales accounted for 11.2% of sales for the fiscal year ended
March 31, 1994, as compared to 7.8% and 6.7% of sales for the
fiscal years ended March 31, 1993 and 1992, respectively.
Tessalon is a solid dose non-narcotic cough suppressant. Sales
of Tessalon (including sales of a generic formulation) accounted
for 6.0% of sales for the fiscal year ended March 31, 1994, as
compared to 10.9% and 7.9% for the fiscal years ended March 31,
1993 and 1992, 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 treatment of asthma. Sales of
Propranolol accounted for 14.3% of Forest's sales for the fiscal
year ended March 31, 1994, as compared to 14.1% and 12.5% for the
fiscal years ended March 31, 1993 and 1992, respectively.
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, a topical preparation for the treatment of
diaper rash, Colomycin, an antibiotic used in the treatment of
Cystic Fibrosis and Suscard and Sustac, sustained action
nitroglycerin 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 salesforce, currently numbering
450 persons, which details products directly to physicians,
pharmacies and managed care organizations. The expansion of
Forest's direct sales efforts and related promotional activities
has significantly increased sales of Forest's branded ethical
pharmaceutical products, including certain of those acquired or
licensed by Forest. See "Principal Products". In the United
Kingdom, the Company's Pharmax subsidiary's salesforce, currently
62 persons, markets its products directly. Forest's products are
sold elsewhere through independent distributors.
-6-
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 pharmaceutial products in
equivalent therapeutic categories, including certain of the
Company's principal promoted 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
-7-
"Good Manufacturing Practices" compliance and record keeping
deficiencies, including a warning letter issued April 22, 1994
with respect to Forest's manufacture of Indomethacin. The
Company believes it has satisfactorily remedied these
deficiencies.
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 and is the focus of legislative
efforts by the Clinton Administration in Washington. 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. The Health Security
Act (the "HSA") proposed by the Clinton Administration and
currently pending before Congress is highly regulatory and
contains provisions which would affect the marketing of
prescription drug products. Among other things, the HSA provides
for the establishment of an Advisory Council to make
recommendations to the Secretary of Health and Human Services as
to the reasonableness of new drug prices and contemplates the
increased use of managed care programs for the provision of
health care services. 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.
-8-
PRINCIPAL CUSTOMERS
No customer accounted for more than 10% of Forest's
consolidated sales in the fiscal years ended March 31, 1994 and
March 31, 1993.
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 $50 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, 1994, Forest spent
approximately $27,998,000 for research and development, as
compared to approximately $22,054,000 and $17,771,000 in the
fiscal years ended March 31, 1993 and 1992, respectively. A
portion of such funds spent for research and development in the
fiscal years ended March 31, 1993 and 1992 was reimbursed to
Forest pursuant to research and development contracts with other
pharmaceutical companies and pursuant to two research and
development agreements with Prutech Research and Development
Partnership. Forest's research and development activities during
the past year consisted primarily of the conduct of clinical
studies required to obtain approval of new products and the
development of additional products some of which utilize the
Company's controlled release technologies.
-9-
EMPLOYEES
At March 31, 1994, Forest had a total of 1,259
employees.
PATENTS AND TRADEMARKS
Forest owns and licenses certain U.S. patents, and has
pending U.S. and foreign patent applications, relating to various
aspects of its Synchron technology and to other controlled
release technology. The patents expire through 2008. Forest
believes that 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. PROPERTIES
----------
Forest owns six buildings and leases three buildings in
and around Inwood, Long Island, New York, containing a total of
approximately 140,000 square feet. The buildings are used for
manufacturing, research and development, warehousing and
administration. Forest has recently acquired a 150,000 square
foot building on 28 acres in Commack, New York. The building and
land will initially be used for packaging, warehousing and
administration and, in the future, for the expansion of Forest's
Long Island facilities.
FPI owns two facilities in Cincinnati, Ohio aggregating
approximately 140,000 square feet, including a recently acquired
facility of 108,000 square feet. In St. Louis, Missouri, FPI
owns facilities of 22,000 square feet and 87,000 square feet and
leases a 12,000 square foot facility. These facilities are used
for manufacturing, warehousing and administration. It is not
anticipated that the lease for the 12,000 square foot facility
will be renewed. In addition, the Company sold a facility of
approximately 35,000 square feet in St. Louis during 1994.
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.
-10-
Forest leases two buildings of 39,250 and 34,400 square
feet located in Rio Piedras, Puerto Rico, under leases which
expire in 1998 subject to one five-year renewal option. The
space is used by Sein-Mendez, Forest Laboratories Caribe, Inc.
and Forest Pharmaceuticals, Inc., wholly-owned subsidiaries of
Forest, for manufacturing, warehousing and administration.
Forest's Tosara subsidiary owns an 18,000 square foot
manufacturing and distribution facility located in an industrial
park in Dublin, Ireland. A newly-formed subsidiary of Forest has
recently commenced the development, together with the Development
Authority of the Republic of Ireland of an approximately 86,000
square foot manufacturing and distribution facility to be located
in Dublin, Ireland. The facility, expected to be completed in
mid-1994, will be used principally for the manufacture and
distribution of products in Europe.
Forest's UAD division owns an 18,000 square foot office
and distribution facility located in Jackson, Mississippi.
Forest presently leases approximately 37,000 square feet
of office space at 150 East 58th Street, New York, New York,
subject to a lease which expires in 1995. Forest has recently
entered into a lease for a new principal executive office at 909
Third Avenue, New York, New York. The lease covers approximately
70,000 square feet and is for a sixteen (16) year term, subject
to 2 five year renewal options.
Management believes that the above-described properties,
including those under development, are sufficient for Forest's
present and anticipated needs.
Net rentals for leased space for the fiscal year ended
March 31, 1994 aggregated approximately $1,821,000 and for the
fiscal year ended March 31, 1993 aggregated approximately
$1,691,000.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company and certain of its officers are currently
defendants in WILSON, ET AL. V. FOREST LABORATORIES, INC., ET
AL., 91 Civ. 5815 (S.D.N.Y.) (the "Federal Action"), a putative
class action that seeks to assert claims based on alleged
violations of the Securities Exchange Act of 1934 and common law
negligent misrepresentation arising out of certain statements
allegedly made by the defendants concerning Micturin.
The Company is the nominal defendant in WEISBERG ET ANO
V. CANDEE, ET AL., (Sup. Ct. New York Cty.), a putative
derivative action against the directors of the Company seeking to
-11-
void certain options granted to the director defendants and
require the director defendants to indemnify the Company for any
liability resulting from statements concerning Micturin.
The Company believes the claims in both cases are
without merit and intends to vigorously defend the actions.
The Company is a defendant in several 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 (certain of which purport to represent a class) 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 purporting to be
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 state courts in California and Alabama. The Company
believes these actions are without merit and intends to defend
them vigorously.
The Company is not subject to any other material pending
legal proceedings, other than ordinary routine claims incidental
to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
-------------------------------
Not Applicable.
-12-
PAGE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS
------------------------------
The information required by this item is incorporated
by reference to page 24 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. SELECTED FINANCIAL DATA
-----------------------
The information required by this item is incorporated by
reference to page 11 of the Annual Report.
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 9 and 10 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
------------------------
The information required by this item is incorporated by
reference to pages 12 through 24 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
------------------------------
Not Applicable.
-13-
PAGE
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 1994
Annual Meeting of Stockholders.
-14-
PAGE
PART IV
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, 1994 and 1993
Consolidated statements of income -
years ended March 31, 1994, 1993 and 1992
Consolidated statements of shareholders'
equity -
years ended March 31, 1994, 1993 and 1992
Consolidated statements of cash flows -
years ended March 31, 1994, 1993 and 1992
Notes to consolidated financial statements
2. Financial statement schedules. The following
consolidated financial statement schedules of
Forest Laboratories, Inc. and Subsidiaries are
included herein:
Report of Independent Certified Public
Accountants S-1
Schedule II Amounts receivable from related
parties and underwriters, promoters
and employees other than related
parties S-2
Schedule VIII Valuation and qualifying accounts S-3
Schedule X Supplementary income statement
information S-4
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.
-15-
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 from
Form 10-K for the fiscal year ended March 31, 1981
filed by Forest on June 26, 1981.
(10) Material Contracts
------------------
10.1 Option Agreement and Registration Rights
Agreement dated February 18, 1988 between
Forest and Howard Solomon. Incorporated
by reference to Forest's Annual Report on
Form 10-K for the fiscal year ended March
31, 1988 (the "1988 10-K").
10.2 Option Agreement and Registration Rights
Agreement dated February 18, 1988 between
Forest and Joseph M. Schor. Incorporated
by reference to the 1988 10-K.
10.3 Option Agreement and Registration Rights
Agreement dated February 18, 1988 between
Forest and Kenneth E. Goodman.
Incorporated by reference to the 1988
10-K.
10.4 Option Agreement and Registration Rights
Agreement dated February 18, 1988 between
Forest and Phillip M. Satow.
Incorporated by reference to the 1988
10-K.
10.5 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").
-16-
10.6 Benefit Continuation Agreement dated as
of December 1, 1989 between Forest and
Joseph M. Schor. Incorporated by
reference to the 1990 10-K.
10.7 Benefit Continuation Agreement dated as
of May 27, 1990 between Forest and
Kenneth E. Goodman. Incorporated by
reference to the 1990 10-K.
10.8 Benefit Continuation Agreement dated as
of December 10, 1989 between Forest and
Phillip M. Satow. Incorporated by
reference to the 1990 10-K.
10.9 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").
10.10 Option Agreement dated December 10, 1990
between Forest and Joseph M. Schor.
Incorporated by reference to the 1991
10-K.
10.11 Option Agreement dated December 10, 1990
between Forest and Kenneth E. Goodman.
Incorporated by reference to the 1991
10-K.
10.12 Option Agreement dated December 10,
1990 between Forest and Phillip M.
Satow. Incorporated by reference
to the 1991 10-K.
10.13 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Howard Solomon.
10.14 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Joseph M. Schor.
10.15 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Phillip M. Satow.
-17-
10.16 Split Dollar Life Insurance Agreement
dated March 29, 1994 between Forest and
Kenneth E. Goodman.
(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.
24 (a) Consent of BDO Seidman
-18-
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 24, 1994
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 24, 1994
- - --------------------------- Executive Officer
Howard Solomon and Director
PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER:
/s/ Kenneth E. Goodman Vice President, June 24, 1994
- - --------------------------- Finance
Kenneth E. Goodman
DIRECTORS
/s/ George S. Cohan Director June 24, 1994
- - ---------------------------
George S. Cohan
/s/William J. Candee, III Director June 24, 1994
- - ---------------------------
William J. Candee, III
-19-
/s/ Dan L. Goldwasser Director June 24, 1994
- - ---------------------------
Dan L. Goldwasser
/s/ Joseph Martin Schor Director June 24, 1994
- - --------------------------
Joseph Martin Schor
-20-
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Forest Laboratories, Inc.
New York, New York
The audits referred to in our report dated May 2, 1994 relating to the
consolidated financial statements of Forest Laboratories, Inc. and
Subsidiaries, which is incorporated in Item 8 of this Form 10-K by
reference to the annual report to the shareholders for the year ended
March 31, 1994, included the audits of the financial statement schedules
listed in the accompanying index. These financial statement schedules
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based
upon our audits.
In our opinion, such financial statement schedules present fairly, in
all material respects, the information set forth therein.
/s/ BDO Seidman
---------------------
BDO Seidman
New York, New York
May 2, 1994
S-1
SCHEDULE II
FOREST LABORATORIES, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
Column D Column E
-------------------------------------
Balance at end of
Column A Column B Column C Deductions period
- - -------------------------------------------------------------------------------
Balance at (1) (2) (1) (2)
beginning Amounts Amounts Not
Name of Debtor of period Additions collected written off Current Current
- - -------------------------------------------------------------------------------
James A. McCabe -0- 150,000 25,000 -0- 125,000 -0-
S-2
SCHEDULE VIII
FOREST LABORATORIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
==============================================================================================================
Column A Column B Column C Column D Column E
- - --------------------------------------------------------------------------------------------------------------
Additions
Balance at (1) (2) Balance at
beginning Charged to costs Charged to other Deductions-- end of
Description of period and expenses accounts-describe(A) describe (B) period
- - --------------------------------------------------------------------------------------------------------------
Year ended March 31, 1994:
Allowance for doubtful
accounts $4,630,000 $377,000 $384,000 $473,000 $4,918,000
========== ======== ======== ======== ==========
Year ended March 31, 1993:
Allowance for doubtful
accounts $3,893,000 $277,000 $675,000 $215,000 $4,630,000
========== ======== ======== ======== ==========
Year ended March 31, 1992:
Allowance for doubtful
accounts $2,971,000 $442,000 $529,000 $ 49,000 $3,893,000
========== ======== ======== ======== ==========
<FN>
(A) Includes allowance for medicaid rebates and cash discounts
(B) Includes bad debt write-offs.
S-3
SCHEDULE X
FOREST LABORATORIES, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Column A Column B
- - --------------------------------- --------------------------------------
Item Charged to costs and expenses
- - --------------------------------- --------------------------------------
Year ended March 31,
1994 1993 1992
---- ---- ----
1. Maintenance and repairs ..... (*) (*) (*)
2. Depreciation and amortization
of intangible assets, pre-
operating costs and similar
deferrals .................. $ 6,915,000 $ 6,646,000 $6,730,000
=========== =========== ==========
3. Taxes, other than payroll
and income taxes ........... (*) (*) (*)
4. Royalties ................... $14,972,000 $11,433,000 $8,754,000
=========== =========== ==========
5. Advertising costs ........... $16,265,000 $12,845,000 $8,377,000
=========== =========== ==========
(*) Amounts not in excess of 1% of net
sales are not presented.
S-4
EXHIBIT 10.13
EQUITY SPLIT DOLLAR AGREEMENT
THIS AGREEMENT, made and entered into this 29th day of
March, 1994, by and among FOREST LABORATORIES, INC. a corporation
organized and existing under the laws of the State of Delaware
(hereinafter referred to as the "Corporation"), and Howard
Solomon (hereinafter referred to as the "Executive").
WHEREAS, the Executive has served as a senior executive
officer of the Corporation for more than the past 10 years; and
WHEREAS, the Corporation is desirous of retaining the
services of the Executive; and
WHEREAS, the Corporation is desirous of assisting the
Executive in paying for life insurance on his own life; and
WHEREAS, the Corporation has determined that this
assistance can best be provided under a "split-dollar"
arrangement; and
WHEREAS, the Executive or a trust established by the
Executive (the "Trust") has applied for, and is the owner and
beneficiary of Insurance Policy No. 77,684,850 (the "Policy")
issued by the Prudential Life Insurance Company ("Prudential") in
the face amount of $5,062,187; and
WHEREAS, the Corporation and the Executive agree to
make said insurance policy subject to this Split-Dollar
Agreement; and
PAGE
WHEREAS, the Executive has agreed to assign (or cause
the Trust to assign) the Policy to the Corporation as collateral
for amounts to be advanced by the Corporation under this
Agreement by an instrument of assignment, in form and substance
reasonably acceptable to the Corporation (the "Assignment"); and
WHEREAS, it is understood and agreed that this
split-dollar agreement is to be effective as of the date on which
the Policy is assigned to the Corporation;
NOW THEREFORE, for value received and in consideration
of the mutual covenants contained herein, the parties agree as
follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms
will have the meanings set forth below:
1. "CASH SURRENDER VALUE OF THE POLICY" will
mean the Cash Value of the Policy; plus the cash value of
any paid-up additions; plus any dividend accumulations and
unpaid dividends; and less any Policy Loan Balance.
2. "CASH VALUE OF THE POLICY" will mean the cash
value as illustrated in the table of values shown in the
Policy.
3. "CORPORATION'S INTEREST IN THE POLICY" will
be as defined in Article VI.
4. "CURRENT LOAN VALUE OF THE POLICY" will mean
the Loan Value of the Policy reduced by any outstanding
Policy Loan Balance.
5. "LOAN VALUE OF THE POLICY" will mean the
amount which, with loan interest, will equal the Cash Value
-2-
of the Policy and of any paid-up additions on the next loan
interest due date or on the next premium due date whichever
is the smaller amount.
6. "POLICY LOAN BALANCE" at any time will mean
policy loans outstanding plus interest accrued to date.
7. "CORPORATION" shall be defined as Forest
Laboratories, Inc. or any successor thereto.
8. "CHANGE OF CONTROL" shall be defined as:
A majority of members of the Corporation's Board
of Directors (the "Board") are no longer appointees,
nominees or designees of a majority of the members of the
Board serving on the date hereof ("Continuing Directors") or
members of the Board nominated, designated or appointed by
Continuing Directors.
ARTICLE II - ALLOCATION OF PREMIUMS
The Executive will pay that portion of the annual
premium due on the Policy that is equal to the lesser of (a) the
amount of the entire economic benefit (including any economic
benefit attributable to the use of Policy dividends) that would
be taxable to the Executive but for such payment, or (b) the
amount of the premium due on the policy. The Corporation will
pay the remainder of the premium. The economic benefit that
would be taxable to the Executive will be computed in accordance
with applicable I.R.S. Revenue Rulings.
ARTICLE III - WAIVER OF PREMIUMS RIDER
If there is a rider on the Policy providing for the
waiver of premiums in the event of the Executive's disability,
-3-
any additional premium attributable to such rider will be payable
by the Corporation.
ARTICLE IV - OTHER RIDERS
AND SUPPLEMENTAL AGREEMENTS
The Executive may add to the Policy one or more of
other riders or supplemental agreements which may be from time to
time available. Any additional premium attributable to such
rider or supplemental agreement will be payable by the Executive.
Any additional death benefits provided by such rider or
supplemental agreement will be paid to the beneficiary designated
by the Executive under the terms of the policy.
ARTICLE V - PAYMENT OF PREMIUMS
Any premium or portion thereof which is payable by the
Executive under any Article of this Agreement may at the election
of the Executive be deducted from the cash compensation otherwise
payable to him and the Corporation agrees to transmit that
premium or portion, along with any premium or portion thereof
payable by it, to Prudential on or before the premium due date.
ARTICLE VI - RIGHTS IN THE POLICY
The Executive may exercise all rights, options and
privileges of ownership in the Policy except those granted to the
Corporation by the Assignment. The Corporation will have those
rights in the Policy given to it by the Assignment except as
-4-
hereinafter modified. The Corporation will not surrender the
policy for cancellation except upon expiration of the thirty (30)
day period described in Article X. The Corporation will not,
without the written consent of the Executive, assign its rights
in the Policy, other than for the purpose of obtaining a loan
against the Policy, to anyone other than the Executive. The
Corporation will not take any action in dealing with Prudential
that would impair any right or interest of the Executive in the
Policy. The Corporation will have the right to borrow from
Prudential, and to secure that loan by the Policy, an amount
which, together with the unpaid interest accrued thereon, will at
no time exceed the lesser of (a) the Corporation's interest in
the Policy and (b) the Loan Value of the Policy. The
Corporation's Interest in the Policy will be the liability of the
Executive for which the Policy is held as collateral security
under the Assignment. "Corporation's Interest in the Policy"
will mean, at any time at which the value of such interest is to
be determined under this Agreement, the total of premiums
theretofore paid on the Policy by the Corporation (including
premiums paid by loans charged automatically against the Policy,
but not including any premiums paid, by loan or otherwise, for
any supplemental agreement or rider), reduced by the Policy Loan
Balance, with respect to any loan made or charged automatically
against the Policy by the Corporation. In the event that the
-5-
Corporation has paid additional premiums attributable to a rider
providing for the waiver of the premiums in the event of the
Executive's disability, "premiums" as used in the preceding
sentence will not include any premiums waived pursuant to the
terms of such rider while this Agreement is in force.
ARTICLE VII - RIGHTS
TO THE PROCEEDS AT DEATH
Upon the death of the Executive while this Agreement is
in force, the Corporation will, without delay, take whatever
action is necessary and required of it to collect the proceeds of
the Policy from Prudential. Upon collection of the Policy
proceeds, the Corporation will promptly pay the excess of the
Policy proceeds over the Corporation's Interest in the Policy to
the beneficiary designated by the Executive under the terms of
the Policy.
ARTICLE VIII - DISABILITY
If at any time the policy contains a rider providing
for the waiver of premiums in the event of the Executive's
disability, then, in the event of the Executive's Total
Disability, as defined in the rider, which begins while the rider
is in force and which continues for at least six months, the
Executive will pay to the Corporation the excess, if any, of the
Corporation's Interest in the Policy over the Current Loan Value
-6-
of the Policy and the Corporation will release its interest in
the Policy to the Executive. Upon release by the Corporation of
all of its interest in the Policy, the Executive will thereafter
own the Policy free from the Assignment and from this Agreement
but subject to any Policy loans and interest thereon.
ARTICLE IX - TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the
Insured is living with the agreement of the Corporation and the
Executive and, in any event, this Agreement will terminate upon
the later of twenty years from the date hereof or the date on
which the Corporation has recovered funds in respect of the
Policy equal to the Corporation's Interest in the Policy.
ARTICLE X - EXECUTIVE'S RIGHTS
UPON TERMINATION
10.1 The Corporation shall remain obligated to pay premiums due
under the Policy until the Policy is fully paid (as
defined below) notwithstanding the termination of
Executive's employment with the Corporation, however
caused. For purposes of this Agreement, the Policy shall
be deemed "fully paid" when the Policy's Cash Surrender
Value is sufficient to maintain the Policy in effect based
on current mortality and interest rate projections without
the payment of additional premiums at a time when the
-7-
Corporation has recovered an amount in respect of the
Policy equal to the Corporation's Interest in the Policy.
10.2 Except as otherwise provided for in Article IX or
Article X, Section 10.1, if the Termination of the
Executive's Employment is within two (2) years after a
Change of Control, the Corporation or any succeeding
corporation or organization will immediately deposit in to
the policy a lump sum cash payment, this sum calculated by
The Prudential, which will cause the policy to become
"fully paid" as defined in Section 10.1 but without regard
to the receiving by the Corporation of the Corporation's
Interest in the Policy. The Corporation further agrees
that it will make a second lump sum cash payment to the
Executive which will effectively allow the Executive to
make the then appropriate federal, state and city income
tax payments on the cash surrender value of the policy
transferred to the Executive. Upon a Change of Control
and the making of the two payments detailed above, the
terms of this Agreement will be deemed satisfied and this
Agreement will be deemed terminated.
ARTICLE XI - STATUS OF AGREEMENT
VS. COLLATERAL ASSIGNMENT
As between the Executive and the Corporation, this
Agreement will take precedence over any provisions of the
-8-
Assignment. The Corporation agrees not to exercise any right
possessed by it under the Assignment except in conformity with
this Agreement.
ARTICLE XII - SATISFACTION OF CLAIM
The Executive's rights and interest, and rights and
interest of any persons taking under or through him, will be
completely satisfied upon compliance by the Corporation with the
provisions of this Agreement.
ARTICLE XIII - AMENDMENT AND ASSIGNMENT
This Agreement may be altered, amended or modified,
including the addition of any extra policy provisions, by a
written instrument signed by the Corporation and the Executive.
Either party may, subject to the limitations of Article VII,
assign its interest and obligations under this Agreement,
provided, however, that any assignment will be subject to the
terms of this Agreement.
ARTICLE XIV - POSSESSION OF POLICY
The Corporation will keep possession of the Policy.
The Corporation agrees from time to time to make the Policy
available to the Executive or the Prudential for the purpose of
endorsing or filing any change of beneficiary on the Policy but
the Policy will promptly be returned to the Corporation.
-9-
ARTICLE XV - MERGER; GOVERNING LAW
This Agreement sets forth the entire Agreement of the
parties hereto, and any and all prior agreements, to the extent
inconsistent herewith, are hereby superseded. This Agreement
will be governed by the laws of the State of New York.
ARTICLE XVI - INTERPRETATION
Where appropriate in this Agreement, words used in the
singular will include the plural and words used in the masculine
will include the feminine.
IN WITNESS WHEREOF, the parties have hereunto set their
hands and seals, the Corporation by its duly authorized officer,
in the day and year first above written.
------------------------------------ (L.S.)
Howard Solomon
FOREST LABORATORIES, INC.
By: ____________________________
-10-
EXHIBIT 10.14
EQUITY SPLIT DOLLAR AGREEMENT
THIS AGREEMENT, made and entered into this 29th day of
March, 1994, by and among FOREST LABORATORIES, INC. a corporation
organized and existing under the laws of the State of Delaware
(hereinafter referred to as the "Corporation"), and Joseph M.
Schor (hereinafter referred to as the "Executive").
WHEREAS, the Executive has served as a senior executive
officer of the Corporation for more than the past 10 years; and
WHEREAS, the Corporation is desirous of retaining the
services of the Executive; and
WHEREAS, the Corporation is desirous of assisting the
Executive in paying for life insurance on his own life; and
WHEREAS, the Corporation has determined that this
assistance can best be provided under a "split-dollar"
arrangement; and
WHEREAS, the Executive or a trust established by the
Executive (the "Trust") has applied for, and is the owner and
beneficiary of Insurance Policy No. 77,684,845 (the "Policy")
issued by the Prudential Life Insurance Company ("Prudential") in
the face amount of $2,499,593; and
WHEREAS, the Corporation and the Executive agree to
make said insurance policy subject to this Split-Dollar
Agreement; and
PAGE
WHEREAS, the Executive has agreed to assign (or cause
the Trust to assign) the Policy to the Corporation as collateral
for amounts to be advanced by the Corporation under this
Agreement by an instrument of assignment, in form and substance
reasonably acceptable to the Corporation (the "Assignment"); and
WHEREAS, it is understood and agreed that this
split-dollar agreement is to be effective as of the date on which
the Policy is assigned to the Corporation;
NOW THEREFORE, for value received and in consideration
of the mutual covenants contained herein, the parties agree as
follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms
will have the meanings set forth below:
1. "CASH SURRENDER VALUE OF THE POLICY" will
mean the Cash Value of the Policy; plus the cash value of
any paid-up additions; plus any dividend accumulations and
unpaid dividends; and less any Policy Loan Balance.
2. "CASH VALUE OF THE POLICY" will mean the cash
value as illustrated in the table of values shown in the
Policy.
3. "CORPORATION'S INTEREST IN THE POLICY" will
be as defined in Article VI.
4. "CURRENT LOAN VALUE OF THE POLICY" will mean
the Loan Value of the Policy reduced by any outstanding
Policy Loan Balance.
5. "LOAN VALUE OF THE POLICY" will mean the
amount which, with loan interest, will equal the Cash Value
-2-
of the Policy and of any paid-up additions on the next loan
interest due date or on the next premium due date whichever
is the smaller amount.
6. "POLICY LOAN BALANCE" at any time will mean
policy loans outstanding plus interest accrued to date.
7. "CORPORATION" shall be defined as Forest
Laboratories, Inc. or any successor thereto.
8. "CHANGE OF CONTROL" shall be defined as:
A majority of members of the Corporation's Board
of Directors (the "Board") are no longer appointees,
nominees or designees of a majority of the members of the
Board serving on the date hereof ("Continuing Directors") or
members of the Board nominated, designated or appointed by
Continuing Directors.
ARTICLE II - ALLOCATION OF PREMIUMS
The Executive will pay that portion of the annual
premium due on the Policy that is equal to the lesser of (a) the
amount of the entire economic benefit (including any economic
benefit attributable to the use of Policy dividends) that would
be taxable to the Executive but for such payment, or (b) the
amount of the premium due on the policy. The Corporation will
pay the remainder of the premium. The economic benefit that
would be taxable to the Executive will be computed in accordance
with applicable I.R.S. Revenue Rulings.
ARTICLE III - WAIVER OF PREMIUMS RIDER
If there is a rider on the Policy providing for the
waiver of premiums in the event of the Executive's disability,
-3-
any additional premium attributable to such rider will be payable
by the Corporation.
ARTICLE IV - OTHER RIDERS
AND SUPPLEMENTAL AGREEMENTS
The Executive may add to the Policy one or more of
other riders or supplemental agreements which may be from time to
time available. Any additional premium attributable to such
rider or supplemental agreement will be payable by the Executive.
Any additional death benefits provided by such rider or
supplemental agreement will be paid to the beneficiary designated
by the Executive under the terms of the policy.
ARTICLE V - PAYMENT OF PREMIUMS
Any premium or portion thereof which is payable by the
Executive under any Article of this Agreement may at the election
of the Executive be deducted from the cash compensation otherwise
payable to him and the Corporation agrees to transmit that
premium or portion, along with any premium or portion thereof
payable by it, to Prudential on or before the premium due date.
ARTICLE VI - RIGHTS IN THE POLICY
The Executive may exercise all rights, options and
privileges of ownership in the Policy except those granted to the
Corporation by the Assignment. The Corporation will have those
rights in the Policy given to it by the Assignment except as
-4-
hereinafter modified. The Corporation will not surrender the
policy for cancellation except upon expiration of the thirty (30)
day period described in Article X. The Corporation will not,
without the written consent of the Executive, assign its rights
in the Policy, other than for the purpose of obtaining a loan
against the Policy, to anyone other than the Executive. The
Corporation will not take any action in dealing with Prudential
that would impair any right or interest of the Executive in the
Policy. The Corporation will have the right to borrow from
Prudential, and to secure that loan by the Policy, an amount
which, together with the unpaid interest accrued thereon, will at
no time exceed the lesser of (a) the Corporation's interest in
the Policy and (b) the Loan Value of the Policy. The
Corporation's Interest in the Policy will be the liability of the
Executive for which the Policy is held as collateral security
under the Assignment. "Corporation's Interest in the Policy"
ill mean, at any time at which the value of such interest is to
be determined under this Agreement, the total of premiums
theretofore paid on the Policy by the Corporation (including
premiums paid by loans charged automatically against the Policy,
but not including any premiums paid, by loan or otherwise, for
any supplemental agreement or rider), reduced by the Policy Loan
Balance, with respect to any loan made or charged automatically
against the Policy by the Corporation. In the event that the
-5-
Corporation has paid additional premiums attributable to a rider
providing for the waiver of the premiums in the event of the
Executive's disability, "premiums" as used in the preceding
sentence will not include any premiums waived pursuant to the
terms of such rider while this Agreement is in force.
ARTICLE VII - RIGHTS
TO THE PROCEEDS AT DEATH
Upon the death of the Executive while this Agreement is
in force, the Corporation will, without delay, take whatever
action is necessary and required of it to collect the proceeds of
the Policy from Prudential. Upon collection of the Policy
proceeds, the Corporation will promptly pay the excess of the
Policy proceeds over the Corporation's Interest in the Policy to
the beneficiary designated by the Executive under the terms of
the Policy.
ARTICLE VIII - DISABILITY
If at any time the policy contains a rider providing
for the waiver of premiums in the event of the Executive's
disability, then, in the event of the Executive's Total
Disability, as defined in the rider, which begins while the rider
is in force and which continues for at least six months, the
Executive will pay to the Corporation the excess, if any, of the
Corporation's Interest in the Policy over the Current Loan Value
-6-
of the Policy and the Corporation will release its interest in
the Policy to the Executive. Upon release by the Corporation of
all of its interest in the Policy, the Executive will thereafter
own the Policy free from the Assignment and from this Agreement
but subject to any Policy loans and interest thereon.
ARTICLE IX - TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the
Insured is living with the agreement of the Corporation and the
Executive and, in any event, this Agreement will terminate upon
the later of twenty years from the date hereof or the date on
which the Corporation has recovered funds in respect of the
Policy equal to the Corporation's Interest in the Policy.
ARTICLE X - EXECUTIVE'S RIGHTS
UPON TERMINATION
10.1 The Corporation shall remain obligated to pay premiums due
under the Policy until the Policy is fully paid (as
defined below) notwithstanding the termination of
Executive's employment with the Corporation, however
caused. For purposes of this Agreement, the Policy shall
be deemed "fully paid" when the Policy's Cash Surrender
Value is sufficient to maintain the Policy in effect based
on current mortality and interest rate projections without
the payment of additional premiums at a time when the
-7-
Corporation has recovered an amount in respect of the
Policy equal to the Corporation's Interest in the Policy.
10.2 Except as otherwise provided for in Article IX or
Article X, Section 10.1, if the Termination of the
Executive's Employment is within two (2) years after a
Change of Control, the Corporation or any succeeding
corporation or organization will immediately deposit in to
the policy a lump sum cash payment, this sum calculated by
The Prudential, which will cause the policy to become
"fully paid" as defined in Section 10.1 but without regard
to the receiving by the Corporation of the Corporation's
Interest in the Policy. The Corporation further agrees
that it will make a second lump sum cash payment to the
Executive which will effectively allow the Executive to
make the then appropriate federal, state and city income
tax payments on the cash surrender value of the policy
transferred to the Executive. Upon a Change of Control
and the making of the two payments detailed above, the
terms of this Agreement will be deemed satisfied and this
Agreement will be deemed terminated.
ARTICLE XI - STATUS OF AGREEMENT
VS. COLLATERAL ASSIGNMENT
As between the Executive and the Corporation, this
Agreement will take precedence over any provisions of the
-8-
Assignment. The Corporation agrees not to exercise any right
possessed by it under the Assignment except in conformity with
this Agreement.
ARTICLE XII - SATISFACTION OF CLAIM
The Executive's rights and interest, and rights and
interest of any persons taking under or through him, will be
completely satisfied upon compliance by the Corporation with the
provisions of this Agreement.
ARTICLE XIII - AMENDMENT AND ASSIGNMENT
This Agreement may be altered, amended or modified,
including the addition of any extra policy provisions, by a
written instrument signed by the Corporation and the Executive.
Either party may, subject to the limitations of Article VII,
assign its interest and obligations under this Agreement,
provided, however, that any assignment will be subject to the
terms of this Agreement.
ARTICLE XIV - POSSESSION OF POLICY
The Corporation will keep possession of the Policy.
The Corporation agrees from time to time to make the Policy
available to the Executive or the Prudential for the purpose of
endorsing or filing any change of beneficiary on the Policy but
the Policy will promptly be returned to the Corporation.
-9-
ARTICLE XV - MERGER; GOVERNING LAW
This Agreement sets forth the entire Agreement of the
parties hereto, and any and all prior agreements, to the extent
inconsistent herewith, are hereby superseded. This Agreement
will be governed by the laws of the State of New York.
ARTICLE XVI - INTERPRETATION
Where appropriate in this Agreement, words used in the
singular will include the plural and words used in the masculine
will include the feminine.
IN WITNESS WHEREOF, the parties have hereunto set their
hands and seals, the Corporation by its duly authorized officer,
in the day and year first above written.
__________________________________(L.S.)
Joseph M. Schor
FOREST LABORATORIES, INC.
By: ______________________________
-10-
EXHIBIT 10.15
EQUITY SPLIT DOLLAR AGREEMENT
THIS AGREEMENT, made and entered into this 29th day of
March, 1994, by and among FOREST LABORATORIES, INC. a corporation
organized and existing under the laws of the State of Delaware
(hereinafter referred to as the "Corporation"), and Phillip M.
Satow (hereinafter referred to as the "Executive").
WHEREAS, the Executive has served as a senior executive
officer of the Corporation for more than the past 9 years; and
WHEREAS, the Corporation is desirous of retaining the
services of the Executive; and
WHEREAS, the Corporation is desirous of assisting the
Executive in paying for life insurance on his own life; and
WHEREAS, the Corporation has determined that this
assistance can best be provided under a "split-dollar"
arrangement; and
WHEREAS, the Executive or a trust established by the
Executive (the "Trust") has applied for, and is the owner and
beneficiary of Insurance Policy No. 77,684,830 (the "Policy")
issued by the Prudential Life Insurance Company ("Prudential") in
the face amount of $2,372,584; and
WHEREAS, the Corporation and the Executive agree to
make said insurance policy subject to this Split-Dollar
Agreement; and
PAGE
WHEREAS, the Executive has agreed to assign (or cause
the Trust to assign) the Policy to the Corporation as collateral
for amounts to be advanced by the Corporation under this
Agreement by an instrument of assignment, in form and substance
reasonably acceptable to the Corporation (the "Assignment"); and
WHEREAS, it is understood and agreed that this
split-dollar agreement is to be effective as of the date on which
the Policy is assigned to the Corporation;
NOW THEREFORE, for value received and in consideration
of the mutual covenants contained herein, the parties agree as
follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms
will have the meanings set forth below:
1. "CASH SURRENDER VALUE OF THE POLICY" will
mean the Cash Value of the Policy; plus the cash value of
any paid-up additions; plus any dividend accumulations and
unpaid dividends; and less any Policy Loan Balance.
2. "CASH VALUE OF THE POLICY" will mean the cash
value as illustrated in the table of values shown in the
Policy.
3. "CORPORATION'S INTEREST IN THE POLICY" will
be as defined in Article VI.
4. "CURRENT LOAN VALUE OF THE POLICY" will mean
the Loan Value of the Policy reduced by any outstanding
Policy Loan Balance.
5. "LOAN VALUE OF THE POLICY" will mean the
amount which, with loan interest, will equal the Cash Value
-2-
of the Policy and of any paid-up additions on the next loan
interest due date or on the next premium due date whichever
is the smaller amount.
6. "POLICY LOAN BALANCE" at any time will mean
policy loans outstanding plus interest accrued to date.
7. "CORPORATION" shall be defined as Forest
Laboratories, Inc. or any successor thereto.
8. "CHANGE OF CONTROL" shall be defined as:
A majority of members of the Corporation's Board
of Directors (the "Board") are no longer appointees,
nominees or designees of a majority of the members of the
Board serving on the date hereof ("Continuing Directors") or
members of the Board nominated, designated or appointed by
Continuing Directors.
ARTICLE II - ALLOCATION OF PREMIUMS
The Executive will pay that portion of the annual
premium due on the Policy that is equal to the lesser of (a) the
amount of the entire economic benefit (including any economic
benefit attributable to the use of Policy dividends) that would
be taxable to the Executive but for such payment, or (b) the
amount of the premium due on the policy. The Corporation will
pay the remainder of the premium. The economic benefit that
would be taxable to the Executive will be computed in accordance
with applicable I.R.S. Revenue Rulings.
ARTICLE III - WAIVER OF PREMIUMS RIDER
If there is a rider on the Policy providing for the
waiver of premiums in the event of the Executive's disability,
-3-
any additional premium attributable to such rider will be payable
by the Corporation.
ARTICLE IV - OTHER RIDERS
AND SUPPLEMENTAL AGREEMENTS
The Executive may add to the Policy one or more of
other riders or supplemental agreements which may be from time to
time available. Any additional premium attributable to such
rider or supplemental agreement will be payable by the Executive.
Any additional death benefits provided by such rider or
supplemental agreement will be paid to the beneficiary designated
by the Executive under the terms of the policy.
ARTICLE V - PAYMENT OF PREMIUMS
Any premium or portion thereof which is payable by the
Executive under any Article of this Agreement may at the election
of the Executive be deducted from the cash compensation otherwise
payable to him and the Corporation agrees to transmit that
premium or portion, along with any premium or portion thereof
payable by it, to Prudential on or before the premium due date.
ARTICLE VI - RIGHTS IN THE POLICY
The Executive may exercise all rights, options and
privileges of ownership in the Policy except those granted to the
Corporation by the Assignment. The Corporation will have those
rights in the Policy given to it by the Assignment except as
-4-
hereinafter modified. The Corporation will not surrender the
policy for cancellation except upon expiration of the thirty (30)
day period described in Article X. The Corporation will not,
without the written consent of the Executive, assign its rights
in the Policy, other than for the purpose of obtaining a loan
against the Policy, to anyone other than the Executive. The
Corporation will not take any action in dealing with Prudential
that would impair any right or interest of the Executive in the
Policy. The Corporation will have the right to borrow from
Prudential, and to secure that loan by the Policy, an amount
which, together with the unpaid interest accrued thereon, will at
no time exceed the lesser of (a) the Corporation's interest in
the Policy and (b) the Loan Value of the Policy. The
Corporation's Interest in the Policy will be the liability of the
Executive for which the Policy is held as collateral security
under the Assignment. "Corporation's Interest in the Policy"
will mean, at any time at which the value of such interest is to
be determined under this Agreement, the total of premiums
theretofore paid on the Policy by the Corporation (including
premiums paid by loans charged automatically against the Policy,
but not including any premiums paid, by loan or otherwise, for
any supplemental agreement or rider), reduced by the Policy Loan
Balance, with respect to any loan made or charged automatically
against the Policy by the Corporation. In the event that the
-5-
Corporation has paid additional premiums attributable to a rider
providing for the waiver of the premiums in the event of the
Executive's disability, "premiums" as used in the preceding
sentence will not include any premiums waived pursuant to the
terms of such rider while this Agreement is in force.
ARTICLE VII - RIGHTS
TO THE PROCEEDS AT DEATH
Upon the death of the Executive while this Agreement is
in force, the Corporation will, without delay, take whatever
action is necessary and required of it to collect the proceeds of
the Policy from Prudential. Upon collection of the Policy
proceeds, the Corporation will promptly pay the excess of the
Policy proceeds over the Corporation's Interest in the Policy to
the beneficiary designated by the Executive under the terms of
the Policy.
ARTICLE VIII - DISABILITY
If at any time the policy contains a rider providing
for the waiver of premiums in the event of the Executive's
disability, then, in the event of the Executive's Total
Disability, as defined in the rider, which begins while the rider
is in force and which continues for at least six months, the
Executive will pay to the Corporation the excess, if any, of the
Corporation's Interest in the Policy over the Current Loan Value
-6-
of the Policy and the Corporation will release its interest in
the Policy to the Executive. Upon release by the Corporation of
all of its interest in the Policy, the Executive will thereafter
own the Policy free from the Assignment and from this Agreement
but subject to any Policy loans and interest thereon.
ARTICLE IX - TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the
Insured is living with the agreement of the Corporation and the
Executive and, in any event, this Agreement will terminate upon
the later of twenty years from the date hereof or the date on
which the Corporation has recovered funds in respect of the
Policy equal to the Corporation's Interest in the Policy.
ARTICLE X - EXECUTIVE'S RIGHTS
UPON TERMINATION
10.1 The Corporation shall remain obligated to pay premiums due
under the Policy until the Policy is fully paid (as
defined below) notwithstanding the termination of
Executive's employment with the Corporation, however
caused. For purposes of this Agreement, the Policy shall
be deemed "fully paid" when the Policy's Cash Surrender
Value is sufficient to maintain the Policy in effect based
on current mortality and interest rate projections without
the payment of additional premiums at a time when the
-7-
Corporation has recovered an amount in respect of the
Policy equal to the Corporation's Interest in the Policy.
10.2 Except as otherwise provided for in Article IX or
Article X, Section 10.1, if the Termination of the
Executive's Employment is within two (2) years after a
Change of Control, the Corporation or any succeeding
corporation or organization will immediately deposit in to
the policy a lump sum cash payment, this sum calculated by
The Prudential, which will cause the policy to become
"fully paid" as defined in Section 10.1 but without regard
to the receiving by the Corporation of the Corporation's
Interest in the Policy. The Corporation further agrees
that it will make a second lump sum cash payment to the
Executive which will effectively allow the Executive to
make the then appropriate federal, state and city income
tax payments on the cash surrender value of the policy
transferred to the Executive. Upon a Change of Control
and the making of the two payments detailed above, the
terms of this Agreement will be deemed satisfied and this
Agreement will be deemed terminated.
ARTICLE XI - STATUS OF AGREEMENT
VS. COLLATERAL ASSIGNMENT
As between the Executive and the Corporation, this
Agreement will take precedence over any provisions of the
-8-
Assignment. The Corporation agrees not to exercise any right
possessed by it under the Assignment except in conformity with
this Agreement.
ARTICLE XII - SATISFACTION OF CLAIM
The Executive's rights and interest, and rights and
interest of any persons taking under or through him, will be
completely satisfied upon compliance by the Corporation with the
provisions of this Agreement.
ARTICLE XIII - AMENDMENT AND ASSIGNMENT
This Agreement may be altered, amended or modified,
including the addition of any extra policy provisions, by a
written instrument signed by the Corporation and the Executive.
Either party may, subject to the limitations of Article VII,
assign its interest and obligations under this Agreement,
provided, however, that any assignment will be subject to the
terms of this Agreement.
ARTICLE XIV - POSSESSION OF POLICY
The Corporation will keep possession of the Policy.
The Corporation agrees from time to time to make the Policy
available to the Executive or the Prudential for the purpose of
endorsing or filing any change of beneficiary on the Policy but
the Policy will promptly be returned to the Corporation.
-9-
ARTICLE XV - MERGER; GOVERNING LAW
This Agreement sets forth the entire Agreement of the
parties hereto, and any and all prior agreements, to the extent
inconsistent herewith, are hereby superseded. This Agreement
will be governed by the laws of the State of New York.
ARTICLE XVI - INTERPRETATION
Where appropriate in this Agreement, words used in the
singular will include the plural and words used in the masculine
will include the feminine.
IN WITNESS WHEREOF, the parties have hereunto set their
hands and seals, the Corporation by its duly authorized officer,
in the day and year first above written.
______________________________________ (L.S.)
Phillip M. Satow
FOREST LABORATORIES, INC.
By: ________________________________
-10-
EXHIBIT 10.16
EQUITY SPLIT DOLLAR AGREEMENT
THIS AGREEMENT, made and entered into this 29th day of
March, 1994, by and among FOREST LABORATORIES, INC. a corporation
organized and existing under the laws of the State of Delaware
(hereinafter referred to as the "Corporation"), and Kenneth E.
Goodman (hereinafter referred to as the "Executive").
WHEREAS, the Executive has served as a senior executive
officer of the Corporation for more than the past 10 years; and
WHEREAS, the Corporation is desirous of retaining the
services of the Executive; and
WHEREAS, the Corporation is desirous of assisting the
Executive in paying for life insurance on his own life; and
WHEREAS, the Corporation has determined that this
assistance can best be provided under a "split-dollar"
arrangement; and
WHEREAS, the Executive or a trust established by the
Executive (the "Trust") has applied for, and is the owner and
beneficiary of Insurance Policy No. 77,684,852 (the "Policy")
issued by the Prudential Life Insurance Company ("Prudential") in
the face amount of $2,297,917; and
WHEREAS, the Corporation and the Executive agree to
make said insurance policy subject to this Split-Dollar
Agreement; and
PAGE
WHEREAS, the Executive has agreed to assign (or cause
the Trust to assign) the Policy to the Corporation as collateral
for amounts to be advanced by the Corporation under this
Agreement by an instrument of assignment, in form and substance
reasonably acceptable to the Corporation (the "Assignment"); and
WHEREAS, it is understood and agreed that this
split-dollar agreement is to be effective as of the date on which
the Policy is assigned to the Corporation;
NOW THEREFORE, for value received and in consideration
of the mutual covenants contained herein, the parties agree as
follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms
will have the meanings set forth below:
1. "Cash Surrender Value of the Policy" will
mean the Cash Value of the Policy; plus the cash value of
any paid-up additions; plus any dividend accumulations and
unpaid dividends; and less any Policy Loan Balance.
2. "Cash Value of the Policy" will mean the cash
value as illustrated in the table of values shown in the
Policy.
3. "Corporation's Interest in the Policy" will
be as defined in Article VI.
4. "Current Loan Value of the Policy" will mean
the Loan Value of the Policy reduced by any outstanding
Policy Loan Balance.
5. "Loan Value of the Policy" will mean the
amount which, with loan interest, will equal the Cash Value
-2-
of the Policy and of any paid-up additions on the next loan
interest due date or on the next premium due date whichever
is the smaller amount.
6. "Policy Loan Balance" at any time will mean
policy loans outstanding plus interest accrued to date.
7. "Corporation" shall be defined as Forest
Laboratories, Inc. or any successor thereto.
8. "Change of Control" shall be defined as:
A majority of members of the Corporation's Board
of Directors (the "Board") are no longer appointees,
nominees or designees of a majority of the members of the
Board serving on the date hereof ("Continuing Directors") or
members of the Board nominated, designated or appointed by
Continuing Directors.
ARTICLE II - ALLOCATION OF PREMIUMS
The Executive will pay that portion of the annual
premium due on the Policy that is equal to the lesser of (a) the
amount of the entire economic benefit (including any economic
benefit attributable to the use of Policy dividends) that would
be taxable to the Executive but for such payment, or (b) the
amount of the premium due on the policy. The Corporation will
pay the remainder of the premium. The economic benefit that
would be taxable to the Executive will be computed in accordance
with applicable I.R.S. Revenue Rulings.
ARTICLE III - WAIVER OF PREMIUMS RIDER
If there is a rider on the Policy providing for the
waiver of premiums in the event of the Executive's disability,
-3-
any additional premium attributable to such rider will be payable
by the Corporation.
ARTICLE IV - OTHER RIDERS
AND SUPPLEMENTAL AGREEMENTS
The Executive may add to the Policy one or more of
other riders or supplemental agreements which may be from time to
time available. Any additional premium attributable to such
rider or supplemental agreement will be payable by the Executive.
Any additional death benefits provided by such rider or
supplemental agreement will be paid to the beneficiary designated
by the Executive under the terms of the policy.
ARTICLE V - PAYMENT OF PREMIUMS
Any premium or portion thereof which is payable by the
Executive under any Article of this Agreement may at the election
of the Executive be deducted from the cash compensation otherwise
payable to him and the Corporation agrees to transmit that
premium or portion, along with any premium or portion thereof
payable by it, to Prudential on or before the premium due date.
ARTICLE VI - RIGHTS IN THE POLICY
The Executive may exercise all rights, options and
privileges of ownership in the Policy except those granted to the
Corporation by the Assignment. The Corporation will have those
rights in the Policy given to it by the Assignment except as
-4-
hereinafter modified. The Corporation will not surrender the
policy for cancellation except upon expiration of the thirty (30)
day period described in Article X. The Corporation will not,
without the written consent of the Executive, assign its rights
in the Policy, other than for the purpose of obtaining a loan
against the Policy, to anyone other than the Executive. The
Corporation will not take any action in dealing with Prudential
that would impair any right or interest of the Executive in the
Policy. The Corporation will have the right to borrow from
Prudential, and to secure that loan by the Policy, an amount
which, together with the unpaid interest accrued thereon, will at
no time exceed the lesser of (a) the Corporation's interest in
the Policy and (b) the Loan Value of the Policy. The
Corporation's Interest in the Policy will be the liability of the
Executive for which the Policy is held as collateral security
under the Assignment. "Corporation's Interest in the Policy"
will mean, at any time at which the value of such interest is to
be determined under this Agreement, the total of premiums
theretofore paid on the Policy by the Corporation (including
premiums paid by loans charged automatically against the Policy,
but not including any premiums paid, by loan or otherwise, for
any supplemental agreement or rider), reduced by the Policy Loan
Balance, with respect to any loan made or charged automatically
against the Policy by the Corporation. In the event that the
-5-
Corporation has paid additional premiums attributable to a rider
providing for the waiver of the premiums in the event of the
Executive's disability, "premiums" as used in the preceding
sentence will not include any premiums waived pursuant to the
terms of such rider while this Agreement is in force.
ARTICLE VII - RIGHTS
TO THE PROCEEDS AT DEATH
Upon the death of the Executive while this Agreement is
in force, the Corporation will, without delay, take whatever
action is necessary and required of it to collect the proceeds of
the Policy from Prudential. Upon collection of the Policy
proceeds, the Corporation will promptly pay the excess of the
Policy proceeds over the Corporation's Interest in the Policy to
the beneficiary designated by the Executive under the terms of
the Policy.
ARTICLE VIII - DISABILITY
If at any time the policy contains a rider providing
for the waiver of premiums in the event of the Executive's
disability, then, in the event of the Executive's Total
Disability, as defined in the rider, which begins while the rider
is in force and which continues for at least six months, the
Executive will pay to the Corporation the excess, if any, of the
Corporation's Interest in the Policy over the Current Loan Value
-6-
of the Policy and the Corporation will release its interest in
the Policy to the Executive. Upon release by the Corporation of
all of its interest in the Policy, the Executive will thereafter
own the Policy free from the Assignment and from this Agreement
but subject to any Policy loans and interest thereon.
ARTICLE IX - TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the
Insured is living with the agreement of the Corporation and the
Executive and, in any event, this Agreement will terminate upon
the later of twenty years from the date hereof or the date on
which the Corporation has recovered funds in respect of the
Policy equal to the Corporation's Interest in the Policy.
ARTICLE X - EXECUTIVE'S RIGHTS
UPON TERMINATION
10.1 The Corporation shall remain obligated to pay premiums due
under the Policy until the Policy is fully paid (as
defined below) notwithstanding the termination of
Executive's employment with the Corporation, however
caused. For purposes of this Agreement, the Policy shall
be deemed "fully paid" when the Policy's Cash Surrender
Value is sufficient to maintain the Policy in effect based
on current mortality and interest rate projections without
the payment of additional premiums at a time when the
-7-
Corporation has recovered an amount in respect of the
Policy equal to the Corporation's Interest in the Policy.
10.2 Except as otherwise provided for in Article IX or
Article X, Section 10.1, if the Termination of the
Executive's Employment is within two (2) years after a
Change of Control, the Corporation or any succeeding
corporation or organization will immediately deposit in to
the policy a lump sum cash payment, this sum calculated by
The Prudential, which will cause the policy to become
"fully paid" as defined in Section 10.1 but without regard
to the receiving by the Corporation of the Corporation's
Interest in the Policy. The Corporation further agrees
that it will make a second lump sum cash payment to the
Executive which will effectively allow the Executive to
make the then appropriate federal, state and city income
tax payments on the cash surrender value of the policy
transferred to the Executive. Upon a Change of Control
and the making of the two payments detailed above, the
terms of this Agreement will be deemed satisfied and this
Agreement will be deemed terminated.
ARTICLE XI - STATUS OF AGREEMENT
VS. COLLATERAL ASSIGNMENT
As between the Executive and the Corporation, this
Agreement will take precedence over any provisions of the
-8-
Assignment. The Corporation agrees not to exercise any right
possessed by it under the Assignment except in conformity with
this Agreement.
ARTICLE XII - SATISFACTION OF CLAIM
The Executive's rights and interest, and rights and
interest of any persons taking under or through him, will be
completely satisfied upon compliance by the Corporation with the
provisions of this Agreement.
ARTICLE XIII - AMENDMENT AND ASSIGNMENT
This Agreement may be altered, amended or modified,
including the addition of any extra policy provisions, by a
written instrument signed by the Corporation and the Executive.
Either party may, subject to the limitations of Article VII,
assign its interest and obligations under this Agreement,
provided, however, that any assignment will be subject to the
terms of this Agreement.
ARTICLE XIV - POSSESSION OF POLICY
The Corporation will keep possession of the Policy.
The Corporation agrees from time to time to make the Policy
available to the Executive or the Prudential for the purpose of
endorsing or filing any change of beneficiary on the Policy but
the Policy will promptly be returned to the Corporation.
-9-
ARTICLE XV - MERGER; GOVERNING LAW
This Agreement sets forth the entire Agreement of the
parties hereto, and any and all prior agreements, to the extent
inconsistent herewith, are hereby superseded. This Agreement
will be governed by the laws of the State of New York.
ARTICLE XVI - INTERPRETATION
Where appropriate in this Agreement, words used in the
singular will include the plural and words used in the masculine
will include the feminine.
IN WITNESS WHEREOF, the parties have hereunto set their
hands and seals, the Corporation by its duly authorized officer,
in the day and year first above written.
____________________________________(L.S.)
Kenneth E. Goodman
FOREST LABORATORIES, INC.
By: _______________________________
-10-
EXHIBIT 13
QUARTERLY STOCK MARKET PRICES
High Low
____________________________________________________________________________
April-June 1992 34 7/8 30
- - ----------------------------------------------------------------------------
July-September 1992 40 3/8 30 3/4
- - ----------------------------------------------------------------------------
October-December 1992 44 7/8 30 3/4
- - ----------------------------------------------------------------------------
January-March 1993 43 1/4 27 1/2
- - ----------------------------------------------------------------------------
April-June 1993 38 1/2 31 1/2
- - ----------------------------------------------------------------------------
July-September 1993 37 7/8 28 1/4
- - ----------------------------------------------------------------------------
October-December 1993 47 7/8 37 3/8
- - ----------------------------------------------------------------------------
January-March 1994 52 1/2 41 1/2
- - ----------------------------------------------------------------------------
As of June 3, 1994 there were 3,211 stockholders of record of the Company's
common stock.
SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990
March 31, (IN THOUSANDS) -------- -------- -------- -------- --------
Financial Position:
Current Assets $347,540 $314,636 $243,874 $138,294 $133,406
Current Liabilities 52,223 41,145 55,943 42,026 14,230
Net Current Assets 295,317 273,491 187,931 96,268 119,176
Total Assets 619,211 520,512 431,080 331,234 238,948
Long-Term Debt and Deferred
Income Taxes 206 191 2,068 25,231 1,689
Total Shareholders' Equity 566,782 479,176 373,069 263,977 223,029
YEAR ENDED MARCH 31, (IN THOUSANDS, EXCEPT
PER SHARE DATA) 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Summary of Operations:
Net Sales $351,641 $285,364 $239,193 $175,904 $141,446
Other Income 9,680 11,070 9,244 8,320 7,586
Costs and Expenses 235,843 195,748 170,932 129,357 107,316
Income Before Income Taxes 125,478 100,686 77,505 54,867 41,716
Income Taxes 45,280 36,379 27,936 16,998 12,035
Net Income 80,198 64,307 49,569 37,869 29,681
Net Income Per Share:
Primary $1.75 $1.42 $1.13 $0.90 $0.72
Fully Diluted $1.72 $1.41 $1.13 $0.87 $0.72
Weighted Average Number of
Common and Common
Equivalent Shares
Outstanding (Note A):
Primary 45,957 45,432 43,992 41,955 41,042
Fully Diluted 46,614 45,764 44,044 43,504 41,320
No dividends were paid on common shares during the period.
PAGE
SELECTED FINANCIAL DATA
A. Net income per share was computed by dividing net income by the weighted
average number of common and common equivalent shares during each year. All
amounts give effect to the February 1991 100% stock dividend. Common
equivalent shares consist of unissued shares under options and included to
the extent that they have a dilutive effect. Fully dilutednet income
per share is presented because of an increase in the dilutive effect of stock
options (method) which resulted from the higher price of the Company's stock
at the end of the year as compared with the average price during the year.
The weighted average number of common and common equivalent shares
outstanding for 1994 was computed as follows:
Primary Fully Diluted
------- -------------
Weighted average number of shares outstanding 43,285 43,285
Assuming exercise of options and warrants
reduced by the number of shares which could
have been purchased with the proceeds from
exercise of such options and warrants 2,672 3,329
------ ------
Weighted average number of common and common
equivalent shares outstanding 45,957 46,614
====== ======
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following comments should be read in conjunction with the Consolidated
Financial Statements and Notes contained therein:
FINANCIAL CONDITION AND LIQUIDITY Net current assets increased by $21,826,000
in fiscal 1994. The increase, due principally to increases in cash and
accounts receivable, resulted from the increases in sales and profits due to
the continuing growth of the Company's branded promoted products, specialty
controlled release generic products and the launch, during the third quarter,
of Flumadine-R-. Long-term marketable securities increased as a result of the
Company reinvesting a portion of its cash in securities maturing over a period
of one to two years. Such securities are expected to increase the Company's
yield on investments as compared to the short-term securities which they
replaced. License agreements and other intangible assets increased primarily
due to the final payment on the acquisition of worldwide rights to the product
Flumadine. Other assets increased mostly as a result of a payment made to
extinguish future royalty obligations related to the purchase of Flumadine.
Deferred income taxes-current increased while non-current deferred income taxes
decreased due principally to the utilization of tax benefit carryforwards
recorded during fiscal 1993.
Property, plant and equipment increased during fiscal 1994 principally from the
expansion of the Company's United States and Irish facilities in order to meet
increased demand for the Company's products. The expansion will continue in
fiscal 1995 in order to adequately meet the Company's needs for the
manufacturing, warehousing and distribution of its existing and future
products. Management believes that current cash levels, coupled with funds to
be generated by on-going operations, will sufficiently support these capital
expenditures and should facilitate potential acquisitions of products or
companies.
RESULTS OF OPERATIONS Net sales increased in 1994 by $66,277,000 as a result
of the continued strong growth of the Company's branded promoted products,
specialty controlled release generic products and the introduction of
Flumadine. Net volume growth of the Company's principal promoted and generic
product lines accounted for $46,103,000 of the increase. Flumadine sales
during fiscal 1994 amounted to $21,660,000. Sales volume of the Company's
older unpromoted product lines increased by $2,384,000, while foreign exchange
translation rate declines reduced net sales by $5,936,000. The remainder of
the net sales increase was attributed to price increases. Net sales for fiscal
1993 increased by $46,171,000 as compared with fiscal 1992. Volume growth of
the Company's principal promoted and generic product lines, including the
introduction, during 1993, of two new product line extensions, accounted for
$45,982,000 of the increase. Sales decreases of the Company's older unpromoted
product lines amounted to $9,925,000. The remainder of the net sales increase
was attributed to price increases.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Other income decreased $1,390,000 during fiscal 1994 as a result of lower
commission income and interest income. The lower commission income resulted
from the termination, during the third quarter of fiscal 1993, of a joint
marketing agreement with Rorer Pharmaceuticals, Inc. for the product DDAVP-R- .
Interest income decreased due to the maturing of long-term bonds of the
Commonwealth of Puerto Rico and lower interest rates in the United States. The
increase in other income in fiscal 1993 as compared to 1992 was principally the
result of higher commission income pursuant to the Company's joint marketing
agreements with other pharmaceutical companies.
Cost of sales as a percentage of sales decreased to 18% in 1994 from 19% in
1993 and 20% in 1992 due to changes in product mix and volume and price
increases.
Selling, general and administrative expense increased by $25,587,000 during
1994. The increase is principally attributed to the continued growth of the
Company's salesforce efforts ($4,645,000), and marketing activities
($19,762,000) related to the Company's principal promoted and generic product
lines, including the launch of Flumadine. The increase in selling, general and
administrative expense of $16,872,000 in fiscal 1993 as compared to 1992
resulted primarily from the Company's salesforce efforts and marketing
activities related to the Company's principal promoted products, including the
introduction of two product line extensions.
Interest expense of $1,957,000 in fiscal 1993 and $3,706,000 in 1992 was the
result of the debt incurred in connection with the purchase of a line of
thyroid products. The debt was repaid during fiscal 1993 and no further
interest expense is being incurred.
Research and development increased by $5,944,000 during fiscal 1994 and
$4,283,000 in 1993 as a result of the cost of conducting clinical studies in
order to obtain approval of new products and the cost of developing products
using the Company's controlled release technology. During fiscal 1994, there
was particular emphasis on Synapton-TM- and Monurol-R-. Synapton, is the
Company's controlled release formulation of physostigmine being tested
for the treatment of Alzheimer's Disease. Monurol is a single dose
antibiotic being tested for use in the treatment of uncomplicated urinary
tract infections. The Company anticipates a continued increase in research
and development expense as these and other potential products are developed
and tested.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company has not elected to adopt SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" early. However, if adopted, the
change would not have had a material effect on the Company's financial
statements.
Inflation has not had a material effect on the Company's operations for the
periods presented.
FOREST LABORATORIES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
YEARS ENDED MARCH 31, 1994, 1993 AND 1992
-----------------------------------------
-1-
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, 1994 and 1993, and
the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended March 31,
1994. 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, 1994 and
1993, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 1994 in conformity with
generally accepted accounting principles.
/s/ BDO SEIDMAN
-----------------------
BDO SEIDMAN
New York, New York
May 2, 1994
-2-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31,
------------------------
1994 1993
--------- ---------
ASSETS
- - ------
Current assets:
Cash (including cash equivalent investments of $181,094 $172,286
$176,336 in 1994 and $160,180 in 1993)
Accounts receivable, less allowances of $4,918
in 1994 and $4,630 in 1993 111,670 90,965
Inventories 37,180 38,221
Deferred income taxes 12,172 9,039
Other current assets 5,424 4,125
-------- --------
Total current assets 347,540 314,636
-------- --------
Long-term marketable securities 47,953 20,058
-------- --------
Property, plant and equipment:
Land and buildings 43,264 20,324
Machinery and equipment 21,483 19,131
Vehicles and other 8,968 9,676
-------- --------
73,715 49,131
Less accumulated depreciation 20,694 19,320
-------- --------
53,021 29,811
-------- --------
Other assets:
Excess of cost of investment in subsidiaries
over net assets acquired, less accumulated
amortization of $5,614 in 1994 and $4,988
in 1993 19,345 19,971
License agreements and other intangible assets, net 131,824 123,677
Deferred income taxes 3,787 6,520
Other 15,741 5,839
-------- --------
170,697 156,007
-------- --------
$619,211 $520,512
======== ========
-3-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PAR VALUES)
MARCH 31,
-----------------------
1994 1993
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable $ 10,507 $ 7,958
Accrued expenses 25,552 21,191
Income taxes payable 16,164 11,996
-------- --------
Total current liabilities 52,223 41,145
-------- --------
Deferred income taxes 206 191
-------- --------
Commitments and contingencies
Shareholders' equity:
Series A junior participating preferred stock,
$1.00 par; shares authorized 1,000 in 1994
and 200 in 1993; no shares issued or
outstanding
Common stock $.10 par; shares authorized
250,000 in 1994 and 100,000 in 1993;
issued 46,276 shares in 1994 and
45,515 shares in 1993 4,628 4,551
Capital in excess of par 266,233 253,257
Retained earnings 337,611 257,413
Cumulative foreign currency translation
adjustments ( 3,817) ( 2,658)
-------- --------
604,655 512,563
Less common stock in treasury, at cost
(2,587 shares in 1994 and 2,490 shares in 1993) 37,873 33,387
-------- --------
566,782 479,176
-------- --------
$619,211 $520,512
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-4-
PAGE
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MARCH 31,
-----------------------------
1994 1993 1992
-------- -------- --------
Net sales $351,641 $285,364 $239,193
Other income 9,680 11,070 9,244
-------- -------- --------
361,321 296,434 248,437
-------- -------- --------
Costs and expenses:
Cost of sales 64,150 53,629 48,219
Selling, general and administrative 143,695 118,108 101,236
Research and development 27,998 22,054 17,771
Interest 1,957 3,706
-------- -------- --------
235,843 195,748 170,932
-------- -------- --------
Income before income taxes 125,478 100,686 77,505
Income taxes 45,280 36,379 27,936
-------- -------- --------
Net income $ 80,198 $ 64,307 $ 49,569
======== ======== ========
Earnings per common and common
equivalent share:
Primary $1.75 $1.42 $1.13
===== ===== =====
Fully diluted $1.72 $1.41 $1.13
===== ===== =====
Weighted average number of common
and common equivalent shares outstanding:
Primary 45,957 45,432 43,992
====== ====== ======
Fully diluted 46,614 45,764 44,044
====== ====== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-5-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(IN THOUSANDS) Cumulative
foreign
Common stock Capital in currency Treasury stock
----------------- excess of Retained translation ----------------
Shares Amount par earnings adjustments Shares Amount
------ ------ --------- -------- ----------- -------- -------
Balance, April 1, 1991 40,441 $4,044 $124,984 $143,537 $ 463 1,876 $ 9,051
Shares issued upon exercise
of stock options 1,817 182 16,466
Treasury stock acquired from
employees upon exercise of
stock options 362 13,120
Sale of stock, net of
expenses of $2,100 1,515 151 53,235
Tax benefit related to stock
options exercised by employees 2,443
Foreign currency translation
adjustments 166
Net income 49,569
-------- ------ -------- -------- ----- ----- ------
Balance, March 31, 1992 43,773 4,377 197,128 193,106 629 2,238 22,171
Shares issued upon
exercise of stock options 1,742 174 19,949
Treasury stock acquired from
employees upon exercise of
stock options 252 11,216
Tax benefit related to stock
options exercised by employees 36,180
Foreign currency translation
adjustments ( 3,287)
Net income 64,307
------- ------ -------- -------- ------ ------ ------
Balance, March 31, 1993 45,515 4,551 253,257 257,413 ( 2,658) 2,490 33,387
Shares issued upon exercise of
stock options and warrants 761 77 11,091
Treasury stock acquired upon
exercise of stock options
and warrants 97 4,486
Tax benefit related to stock
options exercised by employees 1,885
Foreign currency translation
adjustments ( 1,159)
Net income 80,198
------- ------- -------- -------- ------ ----- -------
Balance, March 31, 1994 46,276 $4,628 $266,233 $337,611 ($3,817) 2,587 $37,873
======= ======= ======== ======== ====== ===== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-6-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED MARCH 31,
--------------------------------
1994 1993 1992
-------- -------- --------
Cash flows from operating activities:
Net income $ 80,198 $ 64,307 $ 49,569
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 3,763 3,868 3,581
Amortization 6,915 6,646 6,730
Deferred income tax benefit ( 385) ( 13,797) ( 2,491)
Foreign currency transaction
(gain) loss ( 240) 108 ( 189)
Net change in operating assets
and liabilities:
Decrease (increase) in:
Accounts receivable, net ( 20,705) ( 18,224) ( 18,803)
Inventories 1,041 ( 7,457) ( 10,558)
Other current assets ( 1,299) ( 872) 119
Increase (decrease) in:
Accounts payable 2,549 ( 864) 2,624
Accrued expenses 4,361 3,087 6,321
Income taxes payable 4,168 6,048 3,834
Decrease (increase) in other
assets ( 9,902) ( 5,280) 40
-------- -------- ------
Net cash provided by operating
activities 70,464 37,570 40,777
-------- -------- ------
Cash flows from investing activities:
Purchase of property, plant and
equipment, net ( 27,070) ( 6,255) ( 3,642)
Purchase of license agreements and other
intangibles ( 14,436) ( 12,612) ( 962)
Redemption (purchase) of long-term
marketable securities ( 27,895) 894
-------- -------- --------
Net cash used in investing
activities ( 69,401) ( 17,973) ( 4,604)
-------- -------- --------
-7-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED MARCH 31,
----------------------------
1994 1993 1992
-------- ------- --------
Cash flows from financing activities:
Net proceeds from common stock options
exercised by employees under stock
option plans and warrants 6,682 8,907 3,528
Tax benefit realized from the exercise
of stock options by employees 1,885 36,180 2,443
Proceeds from sale of stock 53,386
Repayment of debt ( 23,069) ( 21,931)
-------- -------- --------
Net cash provided by
financing activities 8,567 22,018 37,426
-------- -------- --------
Effect of exchange rate changes on cash ( 822) ( 2,806) 342
-------- -------- --------
Increase in cash and cash equivalents 8,808 38,809 73,941
Cash and cash equivalents, beginning
of year 172,286 133,477 59,536
-------- -------- --------
Cash and cash equivalents, end of year $181,094 $172,286 $133,477
======== ======== ========
Supplemental disclosures of cash flow
information:
(In thousands) 1994 1993 1992
-------- -------- --------
Cash paid during the year for:
Interest $ 4,999 $ 2,055
Income taxes $ 39,612 7,967 24,150
-------- -------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-8-
PAGE
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. All significant intercompany accounts and
transactions have been eliminated.
INVENTORIES: Inventories are stated at the lower of cost or market, with cost
determined on the first-in, first-out basis.
LONG-TERM MARKETABLE SECURITIES: Long-term marketable securities are stated at
amortized cost, which approximates market, and consist of investments in
municipal bonds maturing through 1996 and bonds of the Commonwealth of Puerto
Rico maturing through 2002. Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
shall be effective for the Company's fiscal year beginning April 1, 1994.
The Company has not elected to adopt this statement early, however if
adopted, the change would not have had a material effect on the Company's
financial position and results of operations as of and for March 31, 1994.
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 over
35 to 40 years. The costs of obtaining license agreements and other
intangible assets are being amortized over the estimated lives of the assets,
10 to 40 years.
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).
REVENUE RECOGNITION: Sales are recorded in the period the merchandise is
shipped.
RESEARCH AND DEVELOPMENT: Expenditures for research and development are
charged to expense as incurred.
SAVINGS AND PROFIT SHARING PLANS: The Company's domestic and Puerto Rican
subsidiaries have savings and profit sharing plans. Under these plans,
substantially all non-bargaining unit employees may participate in the
plans after becoming eligible (as defined). The profit sharing plan
contributions are primarily at the discretion of the Company. The
savings plan contributions include a matching contribution made by
Company. Savings and profit sharing contributions amounted to $2,818,000,
$1,959,000 and $1,601,000 for 1994, 1993 and 1992, respectively.
-9-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS PER SHARE: Earnings per share are based on the weighted average number
of common and common equivalent shares outstanding during each year. Common
equivalent shares consist of the dilutive effect of unissued shares under
options and warrants, computed using the treasury stock method (using the
average stock prices for primary basis and the higher of average or period
end stock prices for fully diluted basis). At March 31, 1994, 1993 and 1992,
the primary and fully diluted common equivalent shares amounted to 2,672,000 and
3,329,000, 3,346,000 and 3,678,000 and 4,992,000 and 5,044,000, respectively.
INCOME TAXES: The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", for the year ended March 31, 1993 and,
accordingly, has accounted 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. Previously, the Company utilized the deferred method when
accounting for income taxes. The effect of this accounting change had an
immaterial impact on the consolidated results ofoperations for the year ended
March 31, 1993 and no cumulative effect adjustment was required as of
April 1, 1992.
2. BUSINESS OPERATIONS:
The Company and its subsidiaries, which are located in the United States, Puerto
Rico, the United Kingdom and Ireland, manufacture and market ethical and other
pharmaceutical products. Information about the Company's sales and
profitability by different geographic areas for the years ended
March 31, 1994, 1993 and 1992 follows:
Domestic Operations
--------------------- United
Exports, Kingdom
United principally and Ireland
1994 (IN THOUSANDS) States Europe operations Eliminations Consolidated
- - ------------------- -------- ----------- ----------- ------------ ------------
Net sales to uunaffiliated
customers $320,108 $ 2,741 $28,792 $351,641
Sales between geographic areas 1,353(*) $1,353
-------- ------- ------- ------ --------
Net sales $320,108 $ 4,094 $28,792 $1,353 $351,641
======== ======= ======= ====== ========
Operating profit $115,506 $ 885 $ 6,277 $ 456 $122,212
======== ======= ======= ======
Other income 9,680
Unallocated expenses ( 6,414)
-------
Income before income taxes $125,478
========
Identifiable assets $369,641 $26,474 $396,115
======== =======
Corporate assets 223,096
--------
Total assets $619,211
========
<FN>
(*)AT NORMAL PROFIT MARGINS
-10-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS OPERATIONS: (CONTINUED)
Domestic Operations
--------------------- United
Exports, Kingdom
United principally and Ireland
1993 (IN THOUSANDS) States Europe operations Eliminations Consolidated
- - ------------------- ------ ----------- ---------- ------------ ------------
Net sales to unaffiliated
customers $254,667 $2,065 $28,632 $285,364
Sales between geographic
areas 993(*) $993
-------- ------ ------- ---- --------
Net sales $254,667 $3,058 $28,632 $993 $285,364
======== ====== ======= ==== ========
Operating profit $ 90,551 $1,353 $ 6,016 $470 $ 97,450
======== ====== ======= ====
Other income 11,070
Unallocated expenses ( 7,834)
Income before income taxes $100,686
========
Identifiable assets $325,366 $15,731 $341,097
======== =======
Corporate assets 179,415
--------
Total assets $520,512
========
<FN>
(*)AT NORMAL PROFIT MARGINS
Domestic Operations
--------------------- United
Exports, Kingdom
United principally and Ireland
1992 (IN THOUSANDS) States Europe operations Eliminations Consolidated
- - ------------------- -------- ----------- ----------- ------------ ------------
Net sales to unaffiliated
customers $210,569 $2,889 $25,735 $239,193
Sales between geographic
areas 1,783(*) $1,783
-------- ------ ------- ------ --------
Net sales $210,569 $4,672 $25,735 $1,783 $239,193
Operating profit $ 71,524 $1,827 $ 4,420 $455 $ 77,316
======== ====== ======= ====
Other income 9,244
Unallocated expenses ( 9,055)
--------
Income before income taxes $ 77,505
========
Identifiable assets $261,632 $17,874 $279,506
======== =======
Corporate assets 151,574
-------
Total assets $431,080
========
<FN>
(*)AT NORMAL PROFIT MARGINS
The Company sells primarily in the United States and European markets.
Operating profit is net sales less operating expenses, and does not include
other income, unallocated expenses or income taxes.
-11-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES:
Inventories consist of the following:
MARCH 31, (IN THOUSANDS) 1994 1993
------- -------
Raw materials $13,250 $11,490
Work in process 3,012 2,664
Finished goods 20,918 24,067
------- -------
$37,180 $38,221
======= =======
4. OTHER ASSETS:
License agreements and other intangible assets consist of the following:
MARCH 31,
(IN THOUSANDS, EXCEPT FOR ESTIMATED
WHICH ARE STATED IN YEARS) Estimated
- - ----------------------------------------- lives 1994 1993
--------- -------- --------
License agreements 10-40 $ 67,799 $ 53,361
Trade names 20-40 34,190 34,190
Goodwill 25-40 29,412 29,412
Non-compete agreements 10-13 22,987 22,987
Customer lists 10 3,506 3,506
Other 10-40 3,568 3,570
-------- --------
161,462 147,026
Less accumulated amortization ( 29,638) ( 23,349)
-------- --------
$131,824 $123,677
======== ========
5. ACCRUED EXPENSES:
Accrued expenses consist of the following:
MARCH 31, (IN THOUSANDS) 1994 1993
------- -------
Employee compensation and other benefits $ 6,975 $ 6,620
Clinical research 3,451 3,800
Customer discounts 4,045 2,500
Royalties 3,064 2,800
Other 8,017 5,471
------- -------
$25,552 $21,191
======= =======
-12-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS:
LEASES: The Company leases manufacturing, office and warehouse facilities,
equipment and automobiles under operating leases expiring through 1999. Rent
expense approximated $4,215,000 for 1994, $3,213,000 for 1993 and $3,142,000
for 1992. Aggregate minimum rentals under noncancellable leases are as
follows:
YEAR ENDING MARCH 31, (IN THOUSANDS)
1995 $3,152
1996 1,883
1997 1,002
1998 413
1999 350
------
$6,800
======
ROYALTY OBLIGATIONS: In connection with the product rights acquisition of
Armour-R- Thyroid, Levothroid-R- and Thyrolar-R- on December 31, 1990,
the Company was required to pay royalties of 10% of the related product
sales in excess of defined amounts. In December 1992, the Company prepaid
such royalties for $7,000,000. Royalty expense under this agreement
totalled $778,000, $778,000 and $570,250 in 1994, 1993 and 1992,
respectively. At March 31, 1994, $5,250,000 remains prepaid and is
appropriately included and other assets and is being amortized over seven
years.
In July 1992, the Company acquired the worldwide rights to the product
Flumadine-R- for $20 million. The Company paid $10 million upon the execution
of the agreement, and the remaining $10 million was paid at the time of the
product launch in October 1993. The Company was also required to pay royalties
of 10% of product sales in excess of defined amounts. In January 1994, the
Company prepaid such royalties for $10 million. Royalty expense under this
agreement for 1994 amounted to $417,000. At March 31, 1994, $9,583,000 remains
prepaid and is appropriately included in current and other assets is being
amortized over eleven years.
In 1984 and 1986, the Company entered into agreements for research and
development (the "1984 Prutech Agreement" and "1986 Prutech Agreement") with
Prutech Research and Development Partnership ("Prutech"). In accordance with
the provisions of these agreements, the Company granted Prutech nonexclusive
licenses to certain of the Company's controlled release technologies for the
purpose of developing certain products. Prutech contracted with the Company to
perform research necessary to develop the products. In addition, Prutech
granted the Company options (some of which were exercised) to acquire
exclusive manufacturing and marketing rights to the products if they are
successfully developed. Under the 1984 Prutech Agreement, the Company is
paying to Prutech royalties of 12% on sales of the products. The Company paid
to Prutech royalty payments of $7,732,000, $6,273,000 and $5,200,000 in 1994,
1993 and 1992, respectively. Under the 1986 Prutech Agreement, the Company will
pay to Prutech an initial royalty on sales of the products of 7%, decreasing to
2%, through December 31, 1999. No royalties have been incurred under this
agreement.
-13-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY:
PREFERRED STOCK PURCHASE RIGHTS: On February 18, 1988, the Company's Board of
Directors declared a distribution of one preferred stock purchase right for each
outstanding share of common stock. Each right will entitle the holder to buy
one one-hundredth of a share of authorized Series A Junior Participating
Preferred Stock ("Series A Preferred Stock") at an exercise price of $60 per
right, subject to adjustment. Prior to becoming exercisable, the rights are
evidenced by the certificates representing the common stock 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,
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.
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 February 17, 1998.
STOCK OPTIONS: The Company has various Employee Stock Option Plans whereby
options to purchase an aggregate of 9,800,000 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.
-14-
PAGE
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS EQUITY: (CONTINUED)
Transactions under the stock option plans and individual non-qualified options
not under the plans are summarized as follows:
Non-
Stock qualified
option individual
plans options
--------- ----------
Shares under option at April 1, 1991
(at $4.02 to $24.25 per share) 5,050,112 3,171,498
Granted (at $35.31 to $39.69 per share) 302,650 8,000
Exercised (at $4.02 to $24.25 per share) ( 315,510) (1,501,000)
Cancelled ( 92,090)
--------- ---------
Shares under option at March 31, 1992
(at $6.59 to $39.69 per share) 4,945,162 1,678,498
Granted (at $32.25 to $42.81 per share) 741,100 8,000
Exercised (at $6.59 to $24.25 per share) (1,719,884) ( 21,800)
Cancelled ( 45,890)
--------- ---------
Shares under option at March 31, 1993
(at $6.59 to $42.81 per share) 3,920,488 1,664,698
Granted (at $30.00 to $44.50 per share) 422,650 6,000
Exercised (at $9.91 to $42.81 per share) ( 349,165) ( 11,600)
Cancelled ( 67,055)
--------- ---------
Shares under option at March 31, 1994
(at $6.59 to $44.50 per share) 3,926,918 1,659,098
========= =========
Options exercisable at March 31:
1992 3,751,442 1,585,698
1993 2,452,168 1,612,498
1994 2,511,247 1,607,498
At March 31, 1994 and 1993, 348,373 and 709,968 shares, respectively, were
available for grant.
-15-
FOREST LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CONTINGENCIES:
The Company is subject to several product liability and other claims which
Management does not believe will have a material effect on the Company.
The Company and certain of its officers are defendants in a putative class
action alleging certain misrepresentations in disclosures related to Micturin.
The Company is a nominal defendant in a putative derivative action against the
Company's directors arising from such disclosures and challenging the validity
of certain options granted to the director defendants. Management believes the
claims are without merit and intends to vigorously defend the actions.
The Company has been served in several civil actions in various federal district
courts and in the Superior Court of California in San Francisco. In each case,
the actions were filed against many major pharmaceutical manufacturers and
suppliers, including the Company, alleging price discrimination in the sale of
pharmaceutical products in violation of federal law (and, in the case of the
California actions, California law) and related anti-trust claims. The actions
were brought by pharmacies (in certain cases purporting to represent a class)
and seek injunctive relief and monetary damages. The manufacturer defendants,
including the Company, have filed motions to dismiss and demurrers in each of
the actions. On February 4, 1994, the Judicial Panel on District Litigation has
ordered the federal actions consolidated for coordinated proceedings in the
Federal District Court for the Northern District of Illinois (Chicago).
The Company believes the lawsuits are without merit and intends to defend them
vigorously.
9. OTHER INCOME:
Other income consists of the following:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1994 1993 1992
- - ------------------------------------ ------ ------- ------
Interest and dividends $7,077 $ 7,521 $5,489
Research revenue 51 1,228
Commissions 1,342 3,245 1,874
Other 1,261 253 653
------ ------- ------
$9,680 $11,070 $9,244
====== ======= ======
10. INCOME TAXES:
The Company and its mainland U.S. subsidiaries file a consolidated federal
income tax return.
Income before income taxes includes income from foreign operations of
$7,615,000, $8,163,000 and $6,025,000 for the years ended March 31, 1994,
1993 and 1992, respectively.
The Company has tax holidays in Puerto Rico and Ireland which expire primarily
in 1997 and 2010, respectively. The net impact of these tax holidays was to
increase net income and net income per share (primary) by approximately
$1,938,000 and $.04 in 1994, $2,571,000 and $.06 in 1993 and $2,924,000 and
$.07 in 1992.
-16-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES: (CONTINUED)
The provision for income taxes consists of the following:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1994 1993 1992
- - ----------------------------------- ------- ------- -------
Current:
U.S. federal $36,845 $ 7,810 $23,020
State and local 4,909 3,575 3,364
Foreign 2,026 2,611 1,600
------- ------- -------
43,780 13,996 27,984
------- ------- -------
Deferred:
Domestic ( 382) ( 13,677) ( 2,697)
Foreign ( 3) ( 120) 206
------- ------- -------
( 385) ( 13,797) ( 2,491)
------- ------- -------
Charge in lieu of income taxes,
relating to the tax effect of
stock option tax deduction 1,885 36,180 2,443
------- ------- -------
$45,280 $36,379 $27,936
======= ======= =======
No provision has been made for income taxes on the undistributed earnings of the
Company's foreign subsidiaries of approximately $35,391,000 at March 31, 1994,
as the Company intends to indefinitely reinvest such earnings.
The reasons for the difference between the provision for income taxes and
expected federal income taxes at statutory rates are as follows:
YEAR ENDED MARCH 31, (IN THOUSANDS) 1994 1993 1992
- - ----------------------------------- ------- ------- -------
Expected federal income taxes $43,917 $34,233 $26,352
State and local income taxes, less
federal income tax benefit 3,274 3,745 2,581
Benefit of tax-exempt earnings of
subsidiaries ( 2,348) ( 2,838) ( 2,762)
Benefit of tax-exempt earnings not
available (utilized) in current year ( 234) 126 37
Tax effect of permanent differences 631 838 171
Other 40 275 1,557
------- ------- -------
$45,280 $36,379 $27,936
======= ======= =======
-17-
FOREST LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
Net deferred income taxes as of March 31, 1994 and 1993 consist of the following
(IN THOUSANDS):
1994 1993
------- -------
Inventory valuation $ 992 $ 776
Receivable reserves and other allowances 6,848 3,616
State and local net operating loss carryforwards 3,724 6,814
Depreciation ( 1,523) ( 1,583)
Amortization 3,353 1,106
Tax credits and other carryforwards 226 1,753
Accrued liabilities 1,162 624
Other 971 2,262
------- -------
$15,753 $15,368
======= =======
Deferred income tax benefits for the year ended March 31, 1992 resulted from the
recognition of revenue and expense items in different periods for financial
reporting and tax purposes. Principally, items making up deferred income taxes
include tax over book depreciation, provisions for uncollectible
accounts receivable and provisions for inventory.
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Primary
earnings
1994 Net sales Gross profit Net income per share
- - ---- --------- ------------ ---------- ---------
First quarter $79,251 $65,174 $17,544 $.39
Second quarter 82,814 67,375 19,547 .43
Third quarter 96,996 79,425 20,809 .45
Fourth quarter 92,580 75,517 22,298 .48
1993
- - ----
First quarter $65,743 $52,464 $13,969 $.31
Second quarter 69,841 56,347 15,797 .35
Third quarter 75,472 61,701 16,739 .37
Fourth quarter 74,308 61,223 17,802 .39
Fully diluted earnings per share are not presented, as the results obtained are
substantially the same as primary earnings per share.
-18-
PAGE
EXHIBIT 24(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Forest Laboratories, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Registration
Statement of Forest Laboratories, Inc. on Form S-8, filed with the
Securities and Exchange Commission on November 13, 1990, of our reports
dated May 2, 1994, on the consolidated financial statements and
schedules of Forest Laboratories, Inc. and Subsidiaries, included or
incorporated by reference in the Forest Laboratories, Inc. Annual Report
on Form 10-K for the year ended March 31, 1994.
/s/ BDO Seidman
-------------------------
BDO Seidman
New York, New York
June 27, 1994