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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15d
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2001.
Commission File Number 1-11397
ICN Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 33-0628076
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 Hyland Avenue, Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 545-0100
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock, $.01 par value New York Stock Exchange
(Including associated preferred stock purchase rights)
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant on March 21, 2002, was approximately
$2,569,289,058.
The number of outstanding shares of the Registrant's common stock as of
March 21, 2002 was 82,677,075.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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EXPLANATORY NOTE
Since a Definitive Proxy Statement for the 2002 Annual Meeting of
Stockholders may not be filed prior to April 30, 2002, following is information
required by Part III of Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Board of Directors of ICN Pharmaceuticals, Inc. (the "Company")
currently consists of twelve members and will consist of nine members after
this election: Senator Birch E. Bayh, Jr., Abraham E. Cohen and Richard H.
Koppes (the "ICN Nominees") are standing for election for terms expiring in
2005. Messrs. Jean-Francois Kurz, Milan Panic and Roderick M. Hills are serving
until the 2003 Annual Meeting of Stockholders. Messrs. Edward A. Burkhardt and
Steven J. Lee and General Ronald R. Fogleman are serving until the 2004 Annual
Meeting of Stockholders. Set forth below with respect to each director is
certain personal information, including the present principal occupation and
recent business experience, age, year commenced service as a director of the
Company (including service as a director of a predecessor company) and other
corporate directorships.
Mr. Alan F. Charles, a director of the Company since 1986, resigned from the
Board of Directors of the Company on April 10, 2002. He remains as Executive
Vice President, Corporate Relations of the Company, a position he assumed in
December 2001. Mr. Charles' resignation was consistent with the Company's long
standing policy to limit the number of Company employees on the Board. Mr.
Cohen became a director upon Mr. Charles' resignation. Dr. Roger Guillemin, a
director of the Company since 1989, resigned from the Board of Directors of the
Company and became a member of the board of directors of Ribapharm Inc.
("Ribapharm"), a majority owned subsidiary of the Company, upon completion of
the initial public offering of the common stock of Ribapharm on April 17, 2002
(the "Ribapharm Offering"). Dr. Guiliemin's resignation was consistent with the
Company's intention that no person would serve as a director of both the
Company and Ribapharm. Mr. Hills' appointment by the Board as a director became
effective upon Dr. Guillemin's resignation.
Messrs. Norman Barker, Jr., Adam Jerney and Stephen D. Moses, and Ms.
Rosemary Tomich, whose terms expire in 2002, are not seeking re-election.
Franklin Mutual Advisors, LLC, Iridian Asset Management LLC and certain of
their affiliates (the "Dissident Stockholders") are seeking to elect the
following persons to the Board: Richard H. Koppes, Robert W. O'Leary and Randy
H. Thurman.
On October 19, 2000, the Company entered into an agreement with Special
Situations Partners, Inc. ("SSP") pursuant to which the Company agreed to hold
the 2001 Annual Meeting of Stockholders no later than May 30, 2001 and the 2002
Annual Meeting of Stockholders no later than May 29, 2002. The agreement also
provides that the Company will cause the size of the Board to be reduced to
nine (9) members by no later than the 2002 Annual Meeting of Stockholders. The
agreement provides that this reduction is to be accomplished by reducing to
three the number of directors to be elected at each annual meeting of
stockholders beginning with the 2000 Annual Meeting of Stockholders and that
the number of directors elected at the 2001 and 2002 Annual Meetings in no
event constitute less than two-thirds of the Board; and the Company would not
impede or prevent any qualified person from soliciting proxies, making
stockholder proposals or nominating directors at the 2001 and 2002 Annual
Meetings. In accordance with the agreement with SSP, the Company has amended
its By-laws to incorporate the provisions specified above.
On October 19, 2000, the Company and Relational Investors LLC, on its own
behalf and on behalf of each of its affiliates (collectively, "Relational"),
entered into an agreement in which Relational agreed to withdraw nominees for
election at the 2000 Annual Meeting. The Company and Relational further agreed
that David H.
2
Batchelder would resign as a director of the Company if the Company requested
him to do so prior to the 2000 Annual Meeting. If Relational determined that
the Company had not made sufficient progress in executing its restructuring,
then Relational had the right to request that the Company cause a nominee
designated by Relational to be appointed to, as well as nominated for election
to, the class of directors with a term expiring at the 2004 Annual Meeting, and
if that nominee is not elected as a director at the 2001 Annual Meeting, then
the Company would appoint that nominee to the Board of Directors. Mr.
Batchelder resigned from the Board of Directors on October 25, 2000. On March
1, 2001, Relational requested that the Company nominate Mr. Batchelder for
election at the 2001 Annual Meeting. On April 6, 2001, the Company advised
Relational that it did not believe Relational was entitled to any right to
board membership for two primary reasons. First, the correspondence received by
the Company from Relational Investors LLC did not indicate that affiliates of
Relational Investors LLC had made the determination for nominee designation as
required by the terms of the agreement. Because the agreement was entered into
by Relational Investors LLC on its own behalf and on behalf of each of its
affiliates, a request for appointment of a nominee to the Board of Directors
was not valid, in the Company's view, unless all of Relational Investors LLC's
affiliates jointly requested the appointment. The Company was, therefore,
unable to determine whether the conditions to Relational's rights under the
agreement had been satisfied. Second, at the time the Company negotiated the
agreement, it was the Company's opinion that Relational's desire to obtain a
Board seat was based upon the fact that Relational was a significant
stockholder of the Company. At that time, it was also implied to the Company
that Relational would continue to remain a significant stockholder. However,
based upon public filings, it was the Company's understanding that Relational
had sold all but 100 shares of its Common Stock by that time. Based upon public
filings, the Company does not believe that Relational owns any shares of Common
Stock at this time. The Company, therefore, may have entered into the agreement
based on misleading information concerning Relational's intentions. On April
19, 2001, Mr. Batchelder advised the Company that Relational disagreed with the
Company's position and reserved all of its rights under the agreement,
including, without limitation, those relating to specific performance. No
further correspondence has been received by the Company from Relational on
these issues. If it is ultimately determined by a court of competent
jurisdiction that Relational is entitled to designate a nominee to be appointed
to the Board of Directors, the Company will appoint such nominee to the Board
of Directors. It is the Company's position that in this event the Board of
Directors would have the right to determine the class of directors to which the
Relational nominee would be appointed (however, the Company's right to do so
may not be free from doubt). Under the Company's By-laws (as amended in
accordance with the terms of the agreement with SSP), there will be no position
available in the classes of directors whose terms expire at the 2003, 2004 or
2005 Annual Meeting of Stockholders, unless there is a vacancy, by resignation
or otherwise, or the Board of Directors unanimously agrees to amend the By-laws
(or is compelled by a court of competent jurisdiction to amend the By-laws).
Messrs. Burkhardt and Lee and General Fogleman were elected to the Board of
Directors at the 2001 Annual Meeting of Stockholders for terms expiring at the
2004 Annual Meeting of Stockholders. These directors were nominated by the ICN
Committee to Maximize Shareholder Value and were opposed by nominees selected
by the Board of Directors. The members of the ICN Committee to Maximize
Shareholder Value were these three directors, SSP and Providence Capital, Inc.
("Providence"). Providence is presently acting as financial advisor to the
Dissident Stockholders.
On March 13, 2002, the Board appointed a Nominating Committee to consider
the qualifications of potential candidates for election to the Board and to
recommend candidates to the Board of Directors. The members of the Nominating
Committee are General Fogleman, and Messrs. Burkhardt and Barker. General
Fogleman and Mr. Burkhardt are stockholder nominated directors elected at the
2001 Annual Meeting. The Nominating Committee considered potential candidates
to fill Dr. Guillemin's position (due to his then pending resignation upon
completion of the Ribapharm Offering), Mr. Charles' position (due to his then
pending resignation due to his appointment as an executive officer of the
Company), and the three positions to be filled at the Annual Meeting. The
Nominating Committee interviewed and reviewed the background and qualifications
of, various candidates for election to the Board of Directors, including
Senator Bayh and Messrs. Cohen, Koppes, O'Leary, Thurman and Hills, as well as
reviewing the background and qualifications of each of the members of the Board
of Directors whose term is expiring at the Annual Meeting. The Nominating
Committee made various interim
3
reports to the Board and on April 2, 2002, as a result of recommendations by
the Nominating Committee, the full Board appointed Mr. Hills a director of the
Company, with such appointment becoming effective upon Dr. Guillemin's
resignation at the time of the completion of the Ribapharm Offering.
When combined with the election of the three stockholder nominated directors
at the 2001 annual meeting, the election of the ICN Nominees at the Annual
Meeting would result in six of the nine ICN directors having served on the
Board for one year or less. All six of these directors would have had no
relationship with the Company prior to being elected or appointed to the Board.
Among these six new directors, four would be stockholder nominated directors.
After being notified of the Board's decision to nominate him, Mr. Koppes
sent the following letter to the Company:
"I understand from our telephone conversation last Thursday night that
ICN is considering including me as part of the company's slate of nominees
for election to the board at the upcoming annual meeting. I am honored that
the company is considering such a nomination.
"As you know, however, I have already agreed to be nominated, and I fully
expect and intend to be nominated and supported, by Franklin Mutual Advisers
and Iridian Asset Management, together with two other well-qualified
gentlemen, Mr. Randy Thurman and Mr. Robert O'Leary.
"While neither I nor FMA or Iridian can object if ICN chooses not to
oppose my candidacy, I should make my position clear. I have agreed to be
nominated by FMA and Iridian because I share the concerns they have raised
and believe in the positions they have advocated in their proxy materials
and other communications with ICN. I intend to participate in the
solicitation process in support of these positions and in favor of the
election of the entire slate of FMA and Iridian's nominees (including
myself) and thus against the election of any other persons.
"Moreover, since I will not be supporting the company's nominees or its
efforts to defeat the candidacies of FMA and Iridian's nominees, I cannot
and will not permit ICN to suggest otherwise or to associate my name with
any of its proxy solicitation materials or efforts to that effect.
"Thank you in any event for your personal consideration. I look forward
to serving on the ICN board with you."
On April 18, 2002, the Company sent the following letter to Mr. Koppes:
"We were surprised by your letter to General Fogleman dated April 16,
2002.
"When you met with our Nominating Committee in Chicago on April 2, 2002,
we understood that the purpose of the meeting was to provide an opportunity
for the Committee to meet you and determine whether you were qualified to
serve as an ICN director and to report its findings to the ICN Board in
connection with the selection by the ICN Board of its nominees for election
to the Board at the May 2002 annual meeting. Thus your meeting with the
Committee for purposes of potentially being nominated by the Board
constituted consent to being nominated by the Company's Board of Directors
for election at the May 2002 annual meeting. For you now not to agree to
serve on the Company's slate casts in question the validity of your
nomination by Iridian Asset Management and Franklin Management since no
stockholder nominee is eligible for election as a director of ICN unless
nominated in accordance with Article Ninth. We note that it is now too late
for Iridian and Franklin to nominate under Article Ninth a replacement for
you if you determine not to serve.
"For your information, the Nominating Committee reported to the full ICN
Board of Directors that you had advised them that you were willing to serve
as an ICN director and have your name put to the Board for
4
consideration by the Board for its slate and, if elected, you would be an
independent director and you would act in the best interests of all
stockholders, with no allegiance or understandings with any stockholder
including Iridian or Franklin. Based in large part upon this representation
from you as well as your credentials as a corporate governance advocate, the
Board determined to nominate you for election as a director.
"By nominating you as a director, we are not asking you to support any of
our other nominees or agree in advance with any objectives of our Board or
management. We would only be asking you to keep an open mind as to each
issue presented to the Board of Directors and to vote on each matter in a
manner that you believe to be in the best interests of the Company and its
stockholders.
"We do not believe that directors are elected to Board of Directors as a
"slate". In fact, under SEC rules, stockholders have the right to withhold
their votes from one or more of the nominees. By including you in the ICN
proxy statement as an ICN Board nominee, you will not be prevented from
advocating the candidacy of Messrs. Thurman and O'Leary. In fact, ICN will
disclose your intention in this regard in the ICN proxy statement so that no
stockholder will be confused. However, we do urge you to keep an open mind,
as you assured our Nominating Committee you would, before deciding which
positions you will take.
"We strongly believe that, subject to the establishment of fair and
reasonable procedures such as those contained in our Restated Certificate of
Incorporation, stockholders have the right to propose nominees for our Board
of Directors. In fact, we welcome such nominations. However, we do not
believe it appropriate for any stockholder (including stockholders owning
less than 10% of our stock) to demand that we either nominate all of their
nominees or reject them all. We believe that the Board should have the
ability to selectively choose one or more qualified stockholder nominees.
Our board members have a fiduciary duty to all of our stockholder and not
just the stockholders who propose nominees to the Board. For example, if
more than one stockholder were to nominate candidates, a "take it or leave
it" approach would not permit the Board to select candidates from among the
various stockholder recommended slates.
"We continue to believe that you would make an excellent addition to our
Board. We also believe that the experience you bring to the Board would
complement the experiences of our other directors. Furthermore, a majority
of our directors would have been directors for one year or less and none of
our new directors will have had any prior relationship with ICN.
"Most importantly we trust that you will keep your promises to the
Nominating Committee, that you will keep an open mind, that you have no
agreements or understandings with Iridian or Franklin, and that if elected
as a director will act in the best interests of all stockholders. Based on
your consent delivered to the Company, your meeting with and representations
to our Nominating Committee, and your continuing willingness to serve as a
director of ICN if elected, ICN will put your name on its proxy card,
solicit its stockholders vote for you and, if elected, will welcome you as a
Board member. If you would like to meet with me or any of the current
members of the Board, I would be happy to arrange such a meeting."
On April 22, 2002, Mr. Koppes sent the following letter to the Company:
"I have read your preliminary proxy statement (and related press
release), as well as Mr. Panic's letter to me reproduced therein. I was
surprised to learn that despite the views expressed in my letter to General
Fogleman, you've chosen the course you have.
"Let me without delay reassure you that I am willing to serve as a
director of ICN if elected and that, if elected, I will always act in what I
believe to be the best interests of all of the shareholders. And I always
keep an open mind.
"There are, however, a number of statements in your letter and proxy
materials to which I take exception.
5
"I take strong exception to your conclusion that my participation in a
brief meeting in Chicago with some members of your nominating committee
constituted my "consent" to being included on a slate of ICN nominees.
"I also disagree with your statement, and its implied threat, that were I
not to agree "to serve on the Company's slate" I could not be properly
nominated by Iridian or FMA. Your letter itself notes, not two paragraphs
later, that directors are not elected to a board as a slate and your demand
that I "agree to serve on the Company's slate" is wholly without merit. As
you know, I agreed with Iridian and FMA to be nominated by them and gave
them my consent, in precisely the terms called for by ICN's charter (to be
named in the proxy statement and to serve as a director if elected). I stand
by that agreement and that consent. All reasonable persons would understand
that "the proxy statement" in question refers to that of the persons by whom
a proposed nominee has agreed to be nominated (in my case, Iridian and FMA).
The intent of this requirement (which mirrors the federal proxy rules) is,
of course, to prevent the nomination of persons against their wishes.
"As my letter to General Fogleman made clear, neither I nor Iridian or
FMA object if you choose to fill out your slate by favoring my election.
However, I do object if in doing so you create any confusion or implication
(whether in your written proxy materials or your other solicitation efforts)
that Iam lending my name, stature or reputation to the election campaign of
the company or that Iam supportive in any way of ICN's approach to corporate
governance.
"For example, it is not sufficient that you disclose in your materials
merely that I intend to advocate the candidacy of Randy Thurman and Robert
O'Leary. This misstates my intent. I intend, as my earlier letter clearly
stated, to advocate the election of all of FMA and Iridian's nominees
(including myself), as I believe the addition to the board of we three
shareholder-nominated directors as a group is the best choice for ICN
shareholders. Similarly, it is not sufficient that you disclaim any
implication that I am supporting ICN's two candidates as this omits the fact
that I intend to advocate against their election.
"Finally, I must reiterate that I share, and will advance, the concerns
raised by Iridian and FMA, including their skepticism at ICN's proxy season
embrace of corporate governance principles.
"I want to again indicate that I look forward to serving on the Board of
ICN and working to improve its corporate governance and maximizing value for
its shareholders."
On April 23, 2002, the Company sent the following letter to Mr. Koppes:
"We received your letter of April 22, 2002 and are glad you are willing
to serve as a director of ICN Pharmaceuticals, Inc.
"While we differ with you on the issue of which candidates will best
serve ICN at this time, we accept that you will advocate the candidacy of
Randy Thurman, Robert O'Leary and yourself and advocate against the election
of Senator Birch Bayh and Abraham Cohen as ICN directors.
"We take comfort from the fact that you have not disavowed your prior
promises to the Nominating Committee, that you will keep an open mind, that
you have no agreements or understandings with Iridian or Franklin, and that
if elected as a director (which we hope you will be) you will act in the
best interests of all stockholders. In order to avoid any confusion as to
your activities in connection with the upcoming annual meeting, we intend to
publish your two letters in full in ICN's proxy statement."
Stockholders are advised that Mr. Koppes has stated, as set forth in his two
letters, that he presently intends to solicit proxies on behalf of the
Dissident Stockholders' other two candidates, Messrs. O'Leary and Thurman, as
well as himself and to campaign against ICN's other two candidates, Senator
Bayh and Mr. Cohen. Accordingly, Mr. Koppes' inclusion on ICN's proxy card and
in ICN's proxy materials should not be taken as implying in any way that he is
supporting or soliciting shareholders to vote for the Board's other two
candidates, Senator Bayh or Mr. Cohen.
6
Year
Commenced
Serving as
Director of the
Name and Principal Occupation Age Company Other Corporate Directorships
----------------------------- --- ------- -----------------------------
Nominees For Election
BIRCH E. BAYH, JR., ESQ. (a)(b) 74 1992 Simon Property Group
Senator Bayh has been a partner in the Washington, D.C. law firm
of Venable, Baetjer and Howard LLP since May 2001. He was
previously a senior partner in the Washington D.C. office of
Oppenheimer, Wolff & Donnelly LLP from 1997 until May 2001,
head of the Washington office of Bayh, Connaughton & Stewart,
L.L.P. from 1991 until 1997 and Rivkin, Radler, Bayh, Hart &
Kremer from 1985 until 1991, and a partner in the Indianapolis,
Indiana and Washington, D.C. law firm of Bayh, Tabbert &
Capehart from 1981 until 1985. Senator Bayh served as a United
States Senator from the State of Indiana from 1963 until 1981.
ABRAHAM E. COHEN 66 2002 Akzo Corporation; Teva
Mr. Cohen is the retired Senior Vice President of Merck & Co. and Pharmaceutical Industries
President of the Merck Sharp & Dohme International Division Ltd.; Vasomedical Inc.;
(MSDI). He joined MSDI in 1957 and served in various NESS Corporation;
capacities. He became the First Managing Director for Pakistan in Neurobiological
1962 and Regional Director for South Asia in 1964. He became Technologies, Inc.; Chugai
Regional Director for Northern Europe in 1967 and was elected Pharmaceuticals, Japan;
MSDI's Vice President for Europe in 1969. Mr. Cohen was Smith Barney (WorldFunds);
elected Executive Vice President of MSDI's headquarters Pharmaceutical Product
division in Rahway, New Jersey in 1974 and became President of Development, Inc.; Axonyx,
the division in 1977. He was named to serve concurrently as a Inc; Viragen, Inc
corporate Senior Vice President in 1982.
RICHARD H. KOPPES (c) 55 Apria Health Group Inc.
Mr. Koppes has been Of Counsel to the law firm of Jones, Day,
Reavis & Pogue since 1996, and is a consulting professor of law
and Co-Director of Executive Education Programs at Stanford
University School of Law. Mr. Koppes served as a principal of
American Partners Capital Group, Inc., a venture capital and
consulting firm, from August 1996 to December 1998. From May
1986 through July 1996, Mr. Koppes held several positions with
the California Public Employees' Retirement System (CalPERS)
including General Counsel, Interim Chief Executive Officer and
Deputy Executive Officer.
Directors Whose Terms Expire in 2003
MILAN PANIC (d) 72 1960
Mr. Panic, the founder of ICN, has been Chairman of the Board and
Chief Executive Officer of ICN since its inception in 1960 and
served as President until 1997. He was on a leave of absence from
July 14, 1992 to March 4, 1993 while he was serving as Prime
Minister of Yugoslavia and a leave of absence from October 1979
to June 1980.
RODERICK M. HILLS (a)(e) 68 2002 Orbital Sciences
Mr. Hills has been a partner of the law firm of Hills & Stern since Corporation; Regional
1996 and Chairman of Hills Enterprises, Ltd., an international Marked Makers, Inc.;
merchant-banking firm, since 1984. He was a consultant to Chiquita Brands
Mudge, Rose, Guthrie, Alexander & Ferdon, Shea & Gould and International, Inc.
Donovan, Leisure, Rogovin, Huge & Schiller at various dates
between 1989 and 1995. He was a Distinguished Faculty Fellow
and Lecturer in International Finance at Yale University School
of Organization and Management from 1985 until 1987. He was
Chairman, Sears World Trade, Inc. from 1982 until 1984. He was
a partner of Latham, Watkins & Hills from 1978 until 1982. He
was Chairman and Chief Executive Officer of Peabody Coal
Company from 1977 until 1979. He was Chairman of the U.S.
Securities and Exchange Commission from 1975 until 1977. He
was Counsel to President Gerald Ford in 1975. He was Chairman
and Chief Executive Officer of Republic Corporation from 1972
until 1975. He was a founder and partner of Munger, Tolles &
Hills from 1962 until 1975. He was a professor at Harvard
University School of Law and Harvard University School of
Business from 1969 until 1970 and a visiting lecturer in law at
Stanford University School of Law from 1960 until 1970.
7
Year
Commenced
Serving as
Director of the
Name and Principal Occupation Age Company Other Corporate Directorships
----------------------------- --- ------- -----------------------------
JEAN-FRANCOIS KURZ (d)(f) 68 1989 Board of Banque Pasche
Mr. Kurz is Chairman of the Board of Banque Pasche S.A., Geneva. S.A., Geneva
He was a member of the Board of Directors and the Executive
Committee of the Board of DG Bank Switzerland Ltd. from 1990
to 1992. In 1988 and 1989, Mr. Kurz served as a General
Manager of TDB American Express Bank of Geneva and from
1969 to 1988, he was Chief Executive Officer of Banque
Gutzweiler, Kurz, Bungener in Geneva.
Directors Whose Terms Expire in 2004
EDWARD A. BURKHARDT (e)(g)(h) 63 2001 Baltic Rail Services OU;
Mr. Burkhardt has been the President of Rail World, Inc., since Eesti Raudtee
August 1999. From 1987 through August 1999, Mr. Burkhardt (Estonian Railways);
held a number of positions with Wisconsin Central Wheeling & Lake Erie
Transportation Corporation, including Chairman, President and Railway
Chief Executive Officer.
RONALD R. FOGLEMAN (a)(g)(h) 60 2001 North American Airlines,
General Fogleman, United States Air Force (Retired), has been the a feeder airline for El Al;
President and Chief Executive Officer of Durango Aerospace, Rolls Royce of North
Inc., since 1998. Prior to joining Durango Aerospace, General America; International
Fogleman, who retired from the United States Air Force in Airline Support Group, Inc.;
September 1997, served as Chief of Staff to the United States Air Mesa Air Group, Inc.;
Force from 1994 until 1997 and as Commander-in-Chief of the World Airways, Inc.; AAR
United States Transportation Command from 1992 until 1994. Corp.; Derco Aerospace
Inc.; East Inc.; MITRE
Corporation; Thales-
Raytheon Systems
STEVEN J. LEE (f)(g) 54 2001 Kensey Nash Corporation;
Mr. Lee has been Chairman and Chief Executive Officer of Fibersense Technology
PolyMedica Corporation since June 1996. From 1990 to 1996, he Corporation
was President and Chief Executive Officer of PolyMedica
Corporation.
Directors Not Standing For Re-Election
NORMAN BARKER, JR.(d)(f)(h)(i) 79 1988 TCW Convertible
Mr. Barker is the retired Chairman of the Board of First Interstate Securities, Inc.
Bank of California and Former Vice Chairman of the Board of
First Interstate Bancorp. Mr. Barker joined First Interstate Bank
of California in 1957 and was elected President and Director in
1968, Chief Executive Officer in 1971 and Chairman of the
Board in 1973. He retired as Chairman of the Board at the end of
1985.
ADAM JERNEY 60 1962
Mr. Jerney has been Chief Operating Officer since September 1994
and President of ICN since January 1997. He served as Chairman
of the Board and Chief Executive Officer of ICN from July 14,
1992 to March 4, 1993 during Milan Panic's leave of absence.
Mr. Jerney joined ICN in 1973 as Director of Marketing Research
in Europe and assumed the position of General Manger of ICN
Netherlands in 1975. In 1981, he was elected Vice President,
Operations and in 1987 he became President and Chief Operating
Officer of SPI Pharmaceuticals, Inc., then a subsidiary of the
Company. He became President of the Company in 1997. Prior to
joining ICN, he spent four years with F. Hoffmann-La Roche &
Company.
STEPHEN D. MOSES (e)(g)(i) 67 1988 The Central Asian-American
Mr. Moses is Chairman of Stephen Moses Interests and a member Enterprise Fund; Steadfast
of the Board of Directors of Central Asian American Enterprise Ventures, Inc.
Fund, pursuant to appointment by the President of the United
States. Formerly Chairman of the Board of Brentwood Bank, Los
Angeles, California, and Chairman, President and C.E.O. of
National Investment Development Corporation. He also serves on
the Board of Councilors of the UCLA Foundation and is a
Trustees emeritus of Franklin and Marshall College.
8
Year
Commenced
Serving as
Director of the
Name and Principal Occupation Age Company Other Corporate Directorships
----------------------------- --- ------- -----------------------------
ROSEMARY TOMICH (a)(e)(i) 64 2001 Occidental Petroleum
Ms. Tomich has been owner of the Hope Cattle Company since Corporation
1958 and the A. S. Tomich Construction Company since 1970.
She is also Chairman of the Board of Directors and Chief
Executive Officer, Livestock Clearing, Inc. and was a founding
director of the Palm Springs Savings Bank. Ms. Tomich is also a
member of the Advisory Board of the University of Southern
California School of Business Administration and on the Board of
Councilors of the UCLA Foundation.
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(a) Member of the Corporate Governance Committee
(b) Member of the Science and Technology Committee
(c) Information contained in this Proxy Statement concerning Richard H. Koppes
has been obtained from a letter dated March 21, 2002 from Mutual Shares
Fund sent to the Company pursuant to which Mr. Koppes was nominated to
serve as a director of the Company.
(d) Member of the Executive Committee
(e) Member of the Audit Committee
(f) Member of the Finance Committee
(g) Member of the Communications and Compliance Committee
(h) Member of the Nominating Committee
(i) Member of the Compensation and Benefits Committee
None of the directors are related by blood or marriage to one another or to
an executive officer of the Company.
9
EXECUTIVE OFFICERS
The executive officers of the Company and subsidiaries are as follows:
Name Age Title
---- --- -----
Milan Panic...... 72 Chairman of the Board and Chief Executive Officer
Adam Jerney...... 60 Director, President and Chief Operating Officer
Alan F. Charles.. 64 Executive Vice President, Corporate Relations
John E. Giordani. 59 Executive Vice President and Chief Financial Officer
Gregory Keever... 53 Executive Vice President, General Counsel and Corporate Secretary
Bill A. MacDonald 54 Executive Vice President, Strategic Planning
James G. McCoy... 61 Executive Vice President, Human Resources
David C. Watt.... 49 Executive Vice President, Biomedicals
Johnson Y.N. Lau. 41 President and Chief Executive Officer, Ribapharm Inc.
MILAN PANIC, the founder of ICN, has been Chairman of the Board and Chief
Executive Officer of the Company since its inception in 1960 and President
until 1997, except for a leave of absence from July 14, 1992 to March 4, 1993
while he was serving as Prime Minister of Yugoslavia, and a leave of absence
from October 1979 to June 1980.
ADAM JERNEY has been our Chief Operating Officer since September 1994 and
our President since January 1997. He has served as a director of ICN since
1992. He served as Chairman of the Board and Chief Executive Officer of ICN
from July 14, 1992 to March 4, 1993 during Milan Panic's leave of absence (as
discussed above). Mr. Jerney joined ICN in 1973 as Director of Marketing
Research in Europe and assumed the position of General Manager of ICN
Netherlands in 1975. In 1981, he was elected Vice President, Operations. Prior
to joining ICN, he spent four years with F. Hoffmann-La Roche & Company.
ALAN F. CHARLES has been our Executive Vice President of Corporate Relations
since December 2001 and Compliance Coordinator since February 2002. From 1986
until April 2002, he was a director of ICN. From 1993 until December 2001, he
was an independent consultant in higher education management. From 1980 to
1993, he was Vice Chancellor of University Relations at the University of
California, Los Angeles and served in various administrative capacities at that
university since 1972.
JOHN E. GIORDANI has been our Executive Vice President and Chief Financial
Officer since November, 2001. From January 2000 until November 2001, he was an
Executive Vice President of the Company. He served as ICN's Executive Vice
President and Chief Financial Officer from 1992 to January 2000. From June of
1986 until 1992, he was ICN's Senior Vice President and Chief Financial
Officer. Prior to joining ICN, Mr. Giordani served as Vice President and
Corporate Controller of Revlon, Inc. in New York from 1982 through 1986, and
Deputy and Assistant Corporate Controller with Revlon from 1978 through 1982.
He was with the public accounting firm of Peat, Marwick, Mitchell & Co. (now
known as "KPMG LLP") from 1969 to 1978.
GREGORY KEEVER joined ICN in July 2001 as our Executive Vice President,
General Counsel and Secretary. Mr. Keever has also been a partner at the law
firm of Coudert Brothers since 1997. Prior thereto, he was a partner at the law
firm of Buchalter, Nemer, Fields and Younger, in Los Angeles, California, since
1995.
BILL A. MACDONALD has been our Executive Vice President, Strategic Planning
since 1992. From 1987 until 1992, he was ICN's Senior Vice President, Taxes and
Corporate Development. From 1983 until 1987, he was ICN's Vice President, Taxes
and Corporate Development. From 1982 until 1983, he was ICN's Director of
Taxes. From 1980 until 1982, he served as the Tax Manager of Petec Computer
Corporation. From 1973 to 1980, he was Tax Manager and Assistant Treasurer of
Republic Corporation.
10
JAMES G. MC COY joined ICN in August 2000 as Executive Vice President, Human
Resources. From 1979 to June 2000, he was with Coopers &
Lybrand/PricewaterhouseCoopers LLP. He was the managing partner for the
financial cost management and middle market partners on the West Coast.
Previously, he was Director of Human Resources, Strategic Planning and
Accounting for Warner Elektra Atlantic Distribution Company, a subsidiary of
Warner Communications. Prior to that time, he was with the public accounting
firm Ernst & Ernst (now Ernst & Young) and Litton Industries, Inc.
DAVID C. WATT has been our Executive Vice President, Biomedicals since July
2001. From February 1994 until July 2001 he was Executive Vice President,
General Counsel and Secretary of ICN. From 1992 until 1994, he was Senior Vice
President, Law and Secretary of ICN. From December 1988 until January 1992, he
was Vice President, Law and Secretary of ICN. From March 1988 until December
1988, he was Assistant General Counsel and Secretary. From 1986 to 1987, he was
President and Chief Executive Officer of Unitel Corporation. He also served as
Executive Vice President and General Counsel and Secretary of Unitel
Corporation during 1986. From 1983 to 1986, he served with ICA Mortgage
Corporation as Vice President, General Counsel and Corporate Secretary. Prior
to that time, he served with Central Savings Association as Assistant Vice
President and Associate Counsel from 1981 to 1983, and as Assistant Vice
President from 1980 to 1981.
JOHNSON Y.N. LAU M.D., PH.D., became the President and Chief Executive
Officer of Ribapharm upon the completion of the Ribapharm Offering on April 17,
2002. From March 2000 until April 2002, he was Senior Vice President, Research
and Development of ICN. Before joining ICN, he was a Senior Director in
Antiviral Research at the Schering-Plough Research Institute from 1997 until
March 2000. He served as a faculty member at the University of Florida from
1992 to 1997. From 1989 to 1991, he served as a faculty member at the Institute
of Liver Studies, King's College Hospital School of Medicine and Dentistry,
University of London.
CERTAIN LEGAL PROCEEDINGS
On August 11, 1999, the United States Securities and Exchange Commission
(the "Commission" or the "SEC") filed a complaint in the United States District
Court for the Central District of California captioned Securities and Exchange
Commission v. ICN Pharmaceuticals, Inc., Milan Panic, Nils O. Johannesson, and
David C. Watt, Civil Action No. SACV 99-1016 DOC (ANx) (the "SEC Complaint").
The SEC Complaint alleges that the Company and the individually named
defendants made untrue statements of material fact or omitted to state material
facts necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading and engaged in acts,
practices, and courses of business which operated as a fraud and deceit upon
other persons in violation of Section 10(b) of the Securities Exchange Act of
1934, as amended, (the "Exchange Act") and Rule 10b-5 promulgated thereunder.
The SEC Complaint concerns public disclosures made by the Company with respect
to the status and disposition of the Company's 1994 New Drug Application for
ribavirin as a monotherapy treatment for chronic hepatitis C (the "NDA"). The
FDA did not approve this new drug application. The SEC Complaint seeks
injunctive relief, unspecified civil penalties, and an order barring Mr. Panic
from acting as an officer or director of any publicly-traded company. A
pre-trial schedule has been set which requires the end of discovery by August
1, 2002, and the commencement of trial on May 6, 2003. The Company and the SEC
appeared before a settlement judge, for the purpose of settlement negotiations.
Pending completion of these negotiations, the courts have stayed discovery for
90 days. There can be no assurance that the SEC litigation will be settled by
mutual agreement or what the amount of any settlement may ultimately be. In the
event a settlement is not reached, the Company will vigorously defend any
litigation.
On December 17, 2001, the Company pleaded guilty in the United States
District Court for the Central District of California to a single felony count
for securities fraud for omitting to disclose until February 17, 1995, the
existence and content of a letter received from the FDA in late 1994 regarding
the unapprovable status of the Company's 1994 NDA for ribavirin as a
monotherapy treatment for chronic hepatitis C. This guilty plea was entered
pursuant to a plea agreement with the United States Attorney for the Central
District of California to settle a six-year investigation. The Company paid a
fine of $5,600,000 and became subject to a three-year term of
11
probation. The plea agreement provides that the Office will not further
prosecute the Company and will not bring any further criminal charges against
the Company or any individuals, except one non-officer employee of the Company,
relating to any matters that have been the subject of the investigation and
will close its investigation of these matters. The conditions of the probation
require the Company to create a compliance program to ensure no future
violations of the federal securities laws and to pre-clear with the FDA any
public communication by the Company concerning any matter subject to FDA
regulation. The terms of the compliance program include the Company retaining
an expert to review its procedures for public communications regarding FDA
matters and to develop written procedures for these communications. The
compliance program also requires preparation of an annual report by the expert
on the Company's compliance with the written procedures and annual
certification by the Company's management that the Company is complying with
the expert's recommendations.
In April 2001, Mr. Panic was advised that a "private criminal proceeding"
was instituted against him in Switzerland by Tito Tettamanti alleging
defamation regarding certain comments Mr. Panic was alleged to have made in
Switzerland concerning Mr. Tettamanti. In Switzerland, a "private criminal
action proceeding" is prosecuted by an aggrieved party who must himself bring
charges against the accused. A district attorney or other government prosecutor
is not involved in this proceeding. No further correspondence concerning this
proceeding has been received by the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires ICN's executive officers and
directors, and persons who own more than ten percent of a registered class of
ICN's equity securities, to file reports of ownership and changes in ownership
with the Commission and the New York Stock Exchange. Such executive officers,
directors and stockholders are required by Commission regulation to furnish ICN
with copies of all Section 16(a) forms they file.
Based on its review of the copies of such forms received by ICN, or written
representations from certain reporting persons that no Forms 5 were required
for those persons, ICN believes that during fiscal year 2001 all filing
requirements applicable to its executive officers, directors and ten percent
beneficial owners were timely satisfied with the exception of Adam Jerney, who
filed a late Form 4.
12
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth the annual and long-term compensation awarded
to or paid to the Chief Executive Officer and the four most highly paid
executive officers of the Company (the "Named Executive Officers"), for
services rendered to the Company in all capacities during the years ended
December 31, 2001, 2000 and 1999.
Annual Compensation Long-term Compensation (1)
---------------------- --------------------------
Salary Securities Underlying All Other
Name and Principal Position Year ($) Bonus ($) Options (#) (2) Compensation ($)
--------------------------- ---- ------- --------- -------------------------- ----------------
Milan Panic................... 2001 901,446 1,009,612 300,000 186,053(3)
Chairman and 2000 750,366 478,700 -- 235,053
Chief Executive Officer 1999 701,277 413,821 100,000 304,157
Adam Jerney................... 2001 587,586 287,200 110,000 13,739(4)
President and 2000 452,572 253,400 -- 24,802
Chief Operating Officer 1999 422,940 450,000 30,000 28,797
Richard A. Meier(5)........... 2001 427,793 380,300 80,000 36,992(6)
Executive Vice President 2000 320,000 163,000 -- 9,700
1999 246,128 155,000 150,000 10,590
David C. Watt................. 2001 368,000 300,300 80,000 15,996(7)
Executive Vice President 2000 320,000 163,000 -- 7,752
Biomedicals 1999 224,700 150,000 30,000 7,363
Bill MacDonald................ 2001 368,000 225,300 80,000 15,287(8)
Executive Vice President 2000 320,000 163,000 -- 11,352
Strategic Planning....... 1999 222,600 96,433 30,000 7,778
--------
(1) In addition to stock options, certain Named Executive Officers hold
restricted shares pursuant to the Company's Long Term Incentive Plan (the
"LTIP"). The restricted shares were granted in 1998 and vest 25% per year,
starting one year from the date of grant. At December 31, 2001, 25% of the
1998 grants had not vested. The aggregate number of these unvested shares
of restricted stock held by the Named Executive Officers and the value
thereof (based upon the closing price of Common Stock on the New York Stock
Exchange of $33.50 on December 31, 2001) were: Mr. Panic, 30,564 shares,
$1,023,894; Mr. Jerney, 9,169 shares, $307,162; Mr. Watt, 6,113 shares,
$204,786 and Mr. MacDonald, 6,113 shares, $204,786. Dividends are paid on
the restricted shares to the same extent paid on the Common Stock, and are
held in escrow until the related shares are vested.
(2) Includes grants of options to purchase shares of Common Stock during the
year indicated.
(3) Consisted of the following: Company-paid premiums for executive medical
($4,334) and life insurance ($9,552), interest in respect of a company
provided loan ($150,755) and legal expenses ($21,412). Mr. Panic is also
indemnified by the Company for legal expenses in connection with the SEC
Complaint. See "Certain Legal Proceedings." In 1996, the Company entered
into a split dollar life insurance arrangement, pursuant to which the
Company pays the premiums on a life insurance contract owned by Mr. Panic.
In 2001, the Company did not pay any premiums on this split dollar life
insurance.
(4) Consisted of the following: Company-paid premiums for executive medical
($4,083) and life insurance ($4,472), executive membership ($792), and
matching contributions to the Company's 401(k) plan ($4,392).
(5) Mr. Meier resigned as Executive Vice President of the Company effective
April 1, 2002.
(6) Consisted of the following: Company-paid premiums for executive medical
($6,423) and life insurance ($854), vacation payout ($24,615) and matching
contributions to the Company's 401(k) plan ($5,100).
(7) Consisted of the following: Company-paid premiums for executive medical
($9,300) and life insurance ($1,596), and matching contributions to the
Company's 401(k) plan ($5,100). Mr. Watt is also indemnified by the Company
for legal expenses in connection with a SEC complaint. See "Certain Legal
Proceedings."
(8) Consisted of the following: Company-paid premiums for executive medical
($7,539) and life insurance ($2,648), and matching contributions to the
Company's 401(k) plan ($5,100).
13
Option Grant Information
The following table sets forth information with respect to options to
purchase shares of Common Stock granted to Named Executive Officers in 2001.
OPTION GRANTS IN LAST FISCAL YEAR
Number of Percent of Total
Securities Options Granted
Underlying to Employees Grant
Options in Fiscal Exercise Date Present
Name Granted(1) Year(2) Price Expiration Date Value(3)
---- ---------- ---------------- -------- --------------- ------------
Milan Panic..... 100,000 3.3% $23.4375 1/19/11 $1,048,740
Milan Panic..... 200,000 6.6% $21.6000 3/22/11 $1,933,040
Adam Jerney..... 50,000 1.7% $23.4375 1/19/11 $ 524,370
Adam Jerney..... 60,000 2.0% $21.6000 3/22/11 $ 579,912
Richard A. Meier 30,000 1.0% $23.4375 1/19/11 $ 314,622
Richard A. Meier 50,000 1.7% $21.6000 3/22/11 $ 483,260
David C. Watt... 30,000 1.0% $23.4375 1/19/11 $ 314,622
David C. Watt... 50,000 1.7% $21.6000 3/22/11 $ 483,260
Bill MacDonald.. 30,000 1.0% $23.4375 1/19/11 $ 314,622
Bill MacDonald.. 50,000 1.7% $21.6000 3/22/11 $ 483,260
--------
(1) The options granted have ten-year terms. The options granted to the
executive officers (excluding Mr. Panic) vest and become exercisable
according to the following schedule: 25% on the first anniversary of the
date of grant and 25% on each of the next succeeding three anniversary
dates of the grant date. Upon a "change in control" of ICN (as such term is
defined under the Company's 1998 Stock Option Plan (the "Option Plan")),
these options will vest immediately and become fully exercisable and may be
surrendered for cancellation within 60 days after the change in control for
a cash payment generally equal to the excess of the fair market value of
the aggregate Common Stock subject to any outstanding option over the
aggregate purchase price for such stock. Upon a termination of a holder's
employment following a change in control, any outstanding options will
generally remain exercisable for one year after the date of termination.
The grants received by Mr. Panic were vested as of the date of grant. All
options were granted with an exercise price equal to the fair market value
of the underlying shares on the date of grant.
(2) A total of 3,009,685 options were granted to employees, including the Named
Executive Officers (but excluding non-employee directors), during 2001.
(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an executive may realize
will depend on the excess of the stock price on the date the option is
exercised over the exercise price. There is no assurance the value realized
by an executive will be at or near the value estimated by the Black-Scholes
model. The estimated values under that model are based on assumptions as to
variables such as interest rates, stock price volatility and future
dividend yield.
14
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table sets forth information regarding (i) stock option
exercises by the Named Executive Officers during 2001 and (ii) unexercised
stock options held by the Named Executive Officers at December 31, 2001:
Aggregated Option Exercises In 2001 and December 31, 2001 Option Values
Number of Unexercised Value of Unexercised
Securities Underlying In-the-Money Options
Options at December 31, 2001 (#) at December 31, 2001 ($)(1)
-------------------------------- ---------------------------
Shares
Acquired Value
Name on Exercise Realized (2) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
Milan Panic..... 336,146 $4,879,006 2,384,946 -- $35,067,713 $ --
Adam Jerney..... 264,944 5,243,689 619,091 137,500 12,412,852 1,316,500
Richard A. Meier 10,005 132,895 121,745 180,000 1,887,922 2,378,437
David C. Watt... 99,387 2,107,493 88,816 106,250 857,390 996,250
Bill MacDonald.. -- -- 44,250 106,250 69,574 996,250
--------
(1) Based upon the fair market value of the shares of Common Stock on December
31, 2001 ($33.50) less the exercise price payable per share.
(2) Based upon the fair market value of the shares of Common Stock at the date
of exercise less the exercise price paid for such shares.
Compensation of Directors of ICN
Members of the Board of Directors of ICN, other than employees, were paid an
annual fee of $30,000, payable quarterly, plus a fee of $1,000 for every Board
meeting and committee meeting attended. These directors are also reimbursed for
their out-of-pocket expenses in attending meetings. In addition, non-employee
directors on each April 18th are granted options to purchase 15,000 shares,
pursuant to the terms of the Option Plan, at an exercise price equal to the
fair market value on the date of grant.
Compensation Committee Interlocks and Insider Participation
The following statement made by the members of the Compensation and Benefits
Committee (the "Committee") shall not be deemed incorporated by reference into
any filing under the Securities Act of 1933, as amended, or under the
Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed
filed under such Acts. The Committee is composed of Messrs. Barker and Moses,
and Ms. Tomich, each of whom is a non-employee director for purposes of Rule
16b-3 of the Exchange Act.
Certain Employment Agreements
On March 18, 1993, the Board of Directors of ICN adopted employment
agreements which contained "change in control" benefits for five then current
key senior executive officers of ICN and its affiliates. The executives
included the following Named Executive Officers: Messrs. Jerney, Watt and
MacDonald. In addition, the Company entered into an employment agreement with
Mr. Meier, former Executive Vice President, on December 31, 1998, containing
substantially identical provisions to the agreements with Messrs. Jerney, Watt
and MacDonald. As noted above, Mr. Meier resigned as Executive Vice President
of the Company, effective April 1, 2002. ICN also has similar employment
agreements with five other key executives who are not Named Executive Officers.
The employment agreements with the Named Executive Officers and those with the
five other key executives are collectively referred to as the Employment
Agreements.
15
The Employment Agreements are intended to retain the services of these
executives and provide for continuity of management in the event of any actual
or threatened "change in control." Each Employment Agreement with Messrs.
Jerney, Watt and MacDonald had an initial term which ended March 30, 1996. The
Employment Agreement with Mr. Meier had an initial term extending through
December 31, 2000. The Employment Agreements automatically extend for one year
terms each year thereafter unless either the executive or ICN elects not to
extend it by providing ninety days advanced notice to the other (provided that
any notice by ICN not to extend the agreement cannot cause the agreement to be
terminated prior to the expiration of the third anniversary of the date of a
change in control). These Employment Agreements provide that each executive
shall receive severance benefits equal to three times salary and bonus (and
certain other benefits) if the executive's employment is terminated without
cause, if the executive terminates employment for certain enumerated reasons
following a change in control of ICN (including a significant reduction in the
executive's compensation, duties, title or reporting responsibilities or a
change in the executive's job location), or the executive leaves ICN for any
reason or without reason during the sixty day period commencing six months
after the change in control. The executive is under no obligation to mitigate
amounts payable under the Employment Agreements.
For purposes of the Employment Agreements, a "change in control" generally
means any of the following events:
. the acquisition by any person of beneficial ownership of more than 25% of
the combined voting power of our outstanding voting securities other than
an acquisition directly from ICN or any of its subsidiaries;
. the individuals serving on the existing board of directors of ICN as of
May 29, 2001 and any new director (other than a director whose initial
assumption of office is by reason of any agreement intended to avoid or
settle any election contest or proxy contest or in connection with an
actual or threatened contest, including but not limited to, a consent
solicitation relating to the election of directors of ICN) whose
appointment or election by the Board or nomination for election by the
Company's stockholders was approved or recommended by the affirmative
vote of at least two-thirds of the directors then still in office who
either were directors on May 29, 2001 or whose appointment, election or
nomination for election was previously so approved or recommended cease
for any reason to constitute at least a majority of that board of
directors;
. the consummation of a merger or consolidation involving ICN or any of its
direct or indirect subsidiaries if the stockholders of ICN immediately
before the merger or consolidation do not, as a result of the merger or
consolidation, own, directly or indirectly, at least 50% of the combined
voting power of the then outstanding voting securities of ICN, the
corporation resulting from the merger or consolidation or the ultimate
controlling person of that entity; or
. the approval by the shareholders of ICN of a complete liquidation or
dissolution of ICN, or the consummation of an agreement for the sale or
other disposition of all or substantially all of the assets of ICN.
If Messrs. Thurman and O'Leary are elected at the Annual Meeting, it is the
Company's position that a change in control would be deemed to have occurred
under the Employment Agreements. If the ICN Nominees are elected at the Annual
Meeting, it is the Company's position that no change in control would be deemed
to have occurred under the Employment Agreements.
In April 2002, after several months of consideration, the Compensation and
Benefits Committee of the Board amended the Employment Agreements to make the
change in control definition uniform in substantially all of the Company's
benefit plans and agreements. The Panic Employment Agreement (as defined below)
was not amended to reflect this changed definition. The amended Employment
Agreements acknowledge that the Ribapharm Offering and the contemplated
spin-off by the Company of its remaining interest in Ribapharm (the "Spin-Off")
will not, taken alone, constitute a sale of all or substantially all the assets
of the Company for purposes of the definition of change in control. The
Compensation and Benefits Committee has also taken action to provide a similar
acknowledgement under the change in control definitions under the Option Plan
and the LTIP.
16
Each Named Executive Officer would be entitled to receive the following
amount if his employment agreement with the Company was terminated by the
Company without cause, or by the executive with good reason following a change
in control or voluntarily by the executive during the sixty day period
commencing eight months following a change in control (based upon present
compensation): Adam Jerney $3,112,758; David C. Watt $2,004,900 and Bill
MacDonald $1,779,900. If all of the Company's key senior executives were
terminated following a change in control, the Company's aggregate severance
obligation under the Employment Agreements (based upon present compensation)
would be $15,921,431. This amount does not include severance amounts related to
Mr. Meier since he resigned from the Company on April 1, 2002.
If any of these payments, along with any other benefits payable to the
executives in connection with their termination, are subject to the excise tax
imposed under Section 4999 of the Internal Revenue Code (relating to golden
parachute payments), the executives will be entitled to receive an additional
payment sufficient to cover all taxes (including the Section 4999 excise tax)
imposed on the payment. This gross up provision was added to the Employment
Agreements at the same time the change in control provisions were modified.
In addition, upon a change in control, the vesting of certain options and
restricted stock granted to the executives would be accelerated. The value of
the accelerated options and restricted shares would depend upon the market
price of the shares of Common Stock at that time. If the vesting of any options
or awards of restricted stock subject an executive to the excise tax imposed
under Section 4999 of the Internal Revenue Code, the executives will be
entitled to receive an additional payment sufficient to cover all taxes
(including the excise tax) imposed on the payment. In addition, whether or not
a change of control has occurred the executives may also be awarded a tax
bonus, payable upon exercise of any option. The Compensation and Benefits
Committee has full authority to determine the amount of any such tax bonus and
the terms and conditions affecting the vesting and payment of any such bonus.
In addition, three executive officers of Ribapharm have employment
agreements with Ribapharm. These agreements contain change in control
provisions similar to the change in control definition in the Employment
Agreements. These provisions will apply if there is a change in control in ICN
prior to the spin off or a change in control of Ribapharm (other than as a
result of the spin off). If these executive officers were terminated by
Ribapharm without cause or by the executive for good reason following a change
in control of Ribapharm, Ribapharm's aggregate severance obligation under these
employment agreements (based upon present compensation) would be approximately
$3,072,000.
Chairman Employment Agreement
Milan Panic, the Company's Chairman of the Board and Chief Executive
Officer, is employed under a contract (the "Panic Employment Agreement") that
provides for, among other things, certain health and retirement benefits. The
contract is automatically extended at the end of each month (the most recent of
that date being the "Renewal Date"), such that the contract will only terminate
four years from such Renewal Date. The Company or Mr. Panic may cease the
automatic renewal of the contract upon sixty-days prior written notice, in
which case the agreement will terminate four years after the end of the
sixty-day notice period. Mr. Panic, at his option, may provide consulting
services upon his retirement and will be entitled, when serving as a
consultant, to participate in the Company's medical and dental plans. The
consulting fee shall not at any time exceed the base salary, as adjusted, paid
to Mr. Panic prior to his retirement. Upon Mr. Panic's retirement, the
consulting fee shall not be subject to further cost-of-living adjustments.
The base amount of salary for Mr. Panic was initially determined by the
Compensation and Benefits Committee of the Board of Directors in 1988. In
setting the base amount, the Compensation Committee took into consideration Mr.
Panic's then-current base salary, the base salaries of chief executives of
companies of similar scope and complexity and the Compensation and Benefits
Committee's desire to retain Mr. Panic's services, given his role as founder of
ICN. The Panic Employment Agreement provides that the annual salary, currently
$1,000,000, is to be increased by an amount equal to not less than 7% annually.
No increase would be paid,
17
however, if in the previous fiscal year ICN's earnings per share, as certified
by ICN's independent accountants, either (i) decrease by an amount equal to or
greater than fifty percent (50%) of the annual earnings per share earned in the
preceding fiscal year or (ii) reveal a loss, unless otherwise determined by the
Board of Directors. The Panic Employment Agreement provides that during the
period of his employment, Mr. Panic will not engage in businesses competitive
with ICN without the approval of the Board of Directors. Mr. Panic may retire
upon expiration of the term of the Panic Employment Agreement.
Upon retirement, Mr. Panic may, at his option, serve as a consultant to ICN
for life for which he would be compensated at the rate of $120,000 per year.
This amount is subject to annual cost-of-living adjustments from the base year
of 1967 until the date of retirement (currently estimated to be in excess of
$577,000 per year, as adjusted). The consulting fee shall not at any time
exceed the highest annual compensation, as adjusted, paid to Mr. Panic during
his employment by ICN. Upon Mr. Panic's retirement, the consulting fee shall
not be subject to further cost-of-living adjustments. The Panic Employment
Agreement includes a severance compensation provision in the event of a "change
in control" of ICN (as defined below). The Panic Employment Agreement provides
that if within two years after a change in control of ICN, Mr. Panic's
employment is terminated by ICN (other than by reason of Mr. Panic's illness or
incapacity), or if Mr. Panic leaves the employ of ICN (other than by reason of
Mr. Panic's death, disability, or illness), then Mr. Panic will receive as
severance compensation an amount equal to five times his annual salary, as
adjusted, but only to the extent that ICN determines that such amount will not
constitute a "parachute payment" as defined in Section 280G of the Internal
Revenue Code, and Mr. Panic will be deemed to have retired and will receive the
same consulting fees to which he would otherwise have been entitled under the
Panic Employment Agreement for life. In addition, (i) Mr. Panic will be
entitled to continue life insurance, disability, medical, dental and
hospitalization coverage, (ii) all restrictions on outstanding awards granted
to Mr. Panic will lapse, and all stock options and stock appreciation rights
granted to Mr. Panic will become fully vested and exercisable, and (iii) Mr.
Panic will also be entitled to receive a cash payment equal to the excess of
the actuarial equivalent of his aggregate retirement benefits had he remained
employed by ICN for an additional three years over the actuarial equivalent of
his actual aggregate retirement benefit. A "change in control" of ICN will
occur, for purposes of the Panic Employment Agreement, if (i) a change in
control occurs of a nature which would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act (for
purposes of that Item, "control" is defined as the power to direct or cause the
direction of the management and policies of ICN, whether through the ownership
of voting securities, by contract, or otherwise) unless two-thirds of the
Existing Board of Directors, as defined below, decide in their discretion that
no "change in control" has occurred for purposes of the agreement; (ii) any
person is or becomes the beneficial owner, directly or indirectly, of
securities of ICN representing 15% or more of the combined voting power of
ICN's then outstanding securities; (iii) the persons constituting the Existing
Board of Directors, as defined below, cease for any reason to constitute at
least a majority of ICN's Board of Directors; or (iv) shares of ICN Common
Stock cease to be registered under the Exchange Act. "Existing Board of
Directors" is defined in the Panic Employment Agreement as those persons
constituting the Board of Directors at the date of the Panic Employment
Agreement, together with each new director whose election or nomination for
election by ICN's stockholders was previously approved, or is approved within
thirty days after such election or nomination, by a vote of at least two-thirds
of the directors in office prior to such person's election as a director. If
Messrs. Thurman and O'Leary are elected at the Annual Meeting, it is the
Company's position that a change in control may be deemed to have occurred
under the Panic Employment Agreement. If the ICN Nominees are elected at the
Annual Meeting, it is the Company's position that no change in control would be
deemed to have occurred under the Panic Employment Agreement. If Mr. Panic's
employment is terminated under any of the circumstances described above
following such a change in control, in addition to the consulting fee as
described above, Mr. Panic would be entitled to receive (based upon present
compensation) $9,555,290. In addition, upon a change in control, the vesting of
restricted stock granted to Mr. Panic would be accelerated.
In addition, in 1996 the Company entered into a split dollar agreement with
Mr. Panic, pursuant to which the Company pays the premiums on a life insurance
policy owned by Mr. Panic. Under this agreement, the life insurance policy has
been assigned to the Company as collateral for a Company-provided guarantee on
a third party loan made to Mr. Panic in August 1996 and for the repayment of
the premiums paid on the policy by the Company. See "Compensation and Related
Matters-Summary Compensation Table." Upon Mr. Panic's death or the termination
of the agreement (which generally has a ten-year term), the Company is entitled
to a payment,
18
out of the life insurance death benefit or the policy's cash surrender value,
in an amount equal to the sum of the premiums it has paid on the policy plus
the amount the Company has paid the lender under its guarantee of the loan,
plus the unpaid principal and interest on the loan. In addition, the Company
pays the taxes (on a grossed-up basis) incurred by Mr. Panic in connection with
the payment by the Company of the premiums on the life insurance policy. In
February 2002, the Company prepaid premiums of approximately $1,800,000 on the
life insurance policy. The policy currently has a cash surrender value of
approximately $1,800,000 and a death benefit of approximately $6,400,000.
In April 2002, the Company expects to finalize an additional split dollar
agreement with Mr. Panic on substantially identical terms as in the 1996
agreement described above. The new life insurance policy pursuant to this split
dollar agreement has a death benefit of $3,400,000. An initial premium of
$85,000 has been paid on this policy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and the percent of shares owned beneficially by
beneficial owners of more than 5% of the outstanding shares of the Common Stock:
Number of Shares and Nature of
Beneficial Ownership of ICN Percentage
Identity of Owner or Group Common Stock of Class
-------------------------- ------------------------------ ----------
Salomon Smith Barney Holdings Inc. and Citigroup Inc.(1)......... 7,879,870(1) 9.6%
Iridian Asset Management, LLC and Franklin Mutual Advisers LLC(2) 8,450,030(2) 10.22%
--------
(1) This information is obtained from a Schedule 13G, dated February 13, 2002,
filed with the SEC by Salomon Smith Barney Holdings Inc. ("SSB Holdings")
and Citigroup Inc. ("Citigroup"), the parent holding company of SSB
Holdings. SSB Holdings reports shared voting power and shared dispositive
power over 7,760,193 shares. Citigroup reports shared voting power and
shared dispositive power over 7,879,870 shares. SSB Holdings' principal
business address is 388 Greenwich Street, New York, NY 10013. Citigroup's
principal business address is 399 Park Avenue, New York, NY 10043.
(2) This information is obtained from a Schedule 13D, as amended through April
9, 2002, filed with the SEC by the following entities: Iridian Asset
Management LLC ("Iridian") an investment advisor; LC Capital Management,
LLC ("LC Capital"), the controlling member of Iridian; CL Investors, Inc.
("CL Investors"), the controlling member of LC Capital; COLE Partners LLC
("COLE"); Iridian Private Business Value Equity Fund, L.P. ("Iridian
Private Business"); David L. Cohen and Harold J. Levy, controlling
stockholders of CL Investors; and Franklin Mutual Advisors LLC ("FMA"), an
investment advisor and indirect wholly owned subsidiary of Franklin
Resources, Inc. ("FRI"). The Schedule 13D states that Iridian and FMA filed
the Schedule 13D jointly because on March 8, 2002 they reached an agreement
to consult with each other in connection with their respective investment
in the Common Stock (including in connection with the acquisition,
disposition and voting of the Common Stock) and with respect to ICN
generally and also to share certain expenses incurred by them in connection
with their respective investments in the Common Stock and their joint
efforts to maximize the value thereof. The information also reflects
disclosure made by the Dissident Stockholders in a Schedule 14A filed with
the SEC on April 18, 2002.
According to the Schedule 14A, Iridian reports beneficial ownership of
4,996,357 shares of Common Stock and may also be deemed to beneficially own
all shares of Common Stock owned beneficially by David L. Cohen, Harold J.
Levy or FMA. According to the Schedule 13D, each of the LC Capital and CL
Investors report s hared voting power and shared dispositive power over
4,714,557 shares and disclaims beneficial ownership of Common Stock held by
FMA, FRI or Providence. Each of COLE and Iridian Private Business report
shared voting power and shared dispositive power over 108,500 shares and
disclaims beneficial
19
ownership of Common Stock held by FMA, FRI or Providence. According to the
Schedule 14A, each of Messrs. Cohen and Levy report beneficial ownership of
5,089,357 shares of Common Stock and may also be deemed to beneficially own
all shares of Common Stock owned beneficially by Iridian or FMA. According
to the Schedule 13D, each of Messrs. Cohen and Levy also report shared
voting power and shared dispositive power over 93,000 shares held by First
Eagle Fund of America pursuant to their employment with Arnhold & S.
Bleichroeder Advisors, Inc. ("A&SB"), an investment adviser, and an
investment advisory agreement between A&SB and First Eagle Fund of America.
According to the Schedule 14A, FMA reports sole voting power and sole
dispositive power over 3,360,673 shares and may also be deemed to
beneficially own all shares of Common Stock owned beneficially by Iridian,
David L. Cohen or Harold J. Levy. The principal business address of Iridian
is 276 Post Road West, Westport, CT 06880-4704. The principal business
address of FMA is 51 John F. Kennedy Parkway, Short Hills, NJ 07078.
Ownership by Management
The following table sets forth, as of March 31, 2002, certain information
regarding the beneficial ownership of the Common Stock and the percent of
shares owned beneficially by each current director, each director nominee
nominated by the Board of Directors and each Named Executive Officer (as
defined below) and all directors and executive officers of the Company as a
group:
Number of Shares and
Nature of Beneficial
Ownership of ICN Percentage
Identity of Owner or Group Common Stock(1) of Class
-------------------------- -------------------- ----------
Norman Barker, Jr.............................. 165,567(2) *
Birch E. Bayh, Jr.............................. 112,295(3) *
Edward A. Burkhardt............................ 250,000 *
Abraham E. Cohen............................... -- --
Ronald R. Fogleman............................. 1,000 *
Roderick M. Hills.............................. -- --
Adam Jerney.................................... 1,077,184(4) 1.3%
Richard H. Koppes.............................. -- --
Jean-Francois Kurz............................. 143,278(5) *
Steven J. Lee.................................. 25,000 *
Stephen D. Moses............................... 94,562(6) *
Milan Panic.................................... 2,568,051(7) 3.1%
Rosemary Tomich................................ 3,750(8) (2)
Bill A. MacDonald.............................. 85,032(9) *
Richard A. Meier............................... 436,750(10) *
David C. Watt.................................. 93,650(11) *
Directors and executive officers of the Company
as a group (21 persons)....................... 5,367,147(12) 6.2%
-----
* Less than 1% of the outstanding Common Stock.
(1) Except as indicated otherwise in the following notes, shares shown as
beneficially owned are those as to which the named persons possess sole
voting and investment power. However, under the laws of California and
certain other states, personal property owned by a married person may be
community property which either spouse may manage and control, and the
Company has no information as to whether any shares shown in this table
are subject to community property laws.
(2) Includes 160,438 shares of ICN common stock which Mr. Barker has the
right to acquire within 60 days upon the exercise of stock options.
(3) Includes 107,538 shares of ICN common stock which Sen. Bayh has the
right to acquire within 60 days upon the exercise of stock options.
(4) Includes 575,615 shares of ICN common stock which Mr. Jerney has the
right to acquire within 60 days upon the exercise of stock options.
(5) Includes 143,278 shares of ICN common stock which Mr. Kurz has the right
to acquire within 60 days upon the exercise of stock options.
(6) Includes 90,391 shares of ICN common stock which Mr. Moses has the right
to acquire within 60 days upon the exercise of stock options.
20
(7) Includes 1,624,912 shares of ICN common stock which Mr. Panic has the
right to acquire within 60 days upon the exercise of stock options.
(8) Includes 3,750 shares of ICN common stock which Ms. Tomich has the right
to acquire within 60 days upon the exercise of stock options.
(9) Includes 83,000 shares of ICN common stock which Mr. MacDonald has the
right to acquire within 60 days upon the exercise of stock options.
(10) Includes 426,745 shares of ICN common stock which Mr. Meier has the
right to acquire within 60 days upon the exercise of stock options.
(11) Includes 91,576 shares of ICN common stock which Mr. Watt has the right
to acquire within 60 days upon the exercise of stock options.
(12) Includes 3,613,390 shares of ICN common stock which directors and
executive officers as a group have the right to acquire within 60 days
upon the exercise of stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June 1996, the Company made a short-term loan to Mr. Panic, the Company's
Chairman and CEO, in the amount of $3,500,000 for obligations arising from the
settlement by the Company and Mr. Panic of a litigation to which Mr. Panic and
the Company were parties. This litigation involved a claim by a former employee
of the Company of alleged sexual harassment against her by Mr. Panic and the
Company. During August 1996, this amount was repaid to the Company. In
connection with this transaction, the Company guaranteed $3,600,000 of demand
debt of Mr. Panic with a third party bank, which is renewable by Mr. Panic
annually until repaid. In addition to the guarantee, the Company deposited
$3,600,000 with this bank as collateral to Mr. Panic's debt, which will remain
in place until such time as Mr. Panic repays his obligation to the bank. This
deposit is recorded as a long-term asset on the Company's consolidated balance
sheet. The Company is not aware of the time frame in which Mr. Panic expects to
repay this obligation. Interest paid by the Company on behalf of Mr. Panic was
charged to Mr. Panic as compensation expense and amounted to $150,755, $160,916
and $163,166 for the years ended December 31, 2001, 2000 and 1999,
respectively. The Company recognized interest income on the deposit of
$109,511, $124,330 and $126,097 for the years ended December 31, 2001, 2000 and
1999, respectively. Mr. Panic has provided collateral to the Company's
guarantee in the form of a right to the proceeds of the exercise of options to
acquire 150,000 shares with an exercise price of $15.17 and the rights to a
$6,400,000 life insurance policy provided by the Company pursuant to a split
dollar insurance agreement between the Company and Mr. Panic. In the event of
any default on the debt to the bank, the Company has recourse that is limited
to the collateral described above. Both the transaction and the sufficiency of
the collateral for the guarantee were approved by the Board of Directors.
In January 2001, the Company made a loan to Mr. Adam Jerney, President and
Chief Operating Officer of the Company, of $1,197,864 as part of a program
adopted by the Board of Directors of the Company to encourage directors and
officers of the Company to exercise stock options (the "Stock Option Program").
The loan was collateralized by 41,427 shares of Common Stock and due in January
2003. This loan was repaid in full in April 2002. This loan had an interest
rate of 5.61% per annum and was non-recourse with respect to principal and full
recourse to Mr. Jerney with respect to interest. In April 2001, the Company
made a loan to Mr. Panic of $2,731,519 as part of the Stock Option Program. The
loan is collateralized by 286,879 shares of Common Stock and is due in April
2004. This loan bears interest at a rate of 4.63% per annum compounded
annually. Interest is payable annually. This loan is non-recourse with respect
to principal and full recourse to Mr. Panic with respect to interest.
In January 2002, Mr. Panic exchanged 197,409 stock options with an exercise
price of $17.99 and 169,578 stock options with an exercise price of $26.24 for
99,291 shares of Common Stock. The Company will record a compensation expense
of $3,000,000 in the first quarter of 2002 as a result of these exchanges. The
Company made a short-term loan to Mr. Panic in connection with the exchange of
options and LTIP award equal to $1,335,833. This loan was repaid in full in
April 2002. This loan had an interest rate of 2.8% per annum payable annually.
In addition, in January 2002 Mr. Panic exercised options to purchase 522,407
shares at $17.99 by the exchange of 314,423 shares of Common Stock owned by him
(based upon the then market price of the Common Stock of $29.89). In March
2002, Mr. Panic exercised options to acquire 95,640 shares at $21.96, all of
which he sold in open market transactions at $29.68 per share.
21
On April 10, 2002, after considering the recommendation of the Compensation
and Benefits Committee (which recommendation took into account a report
prepared by Towers-Perrin), the Board of Directors approved the payment of cash
bonuses aggregating $50,000,000 to ICN directors, officers and employees upon
completion of the Ribapharm Offering. The Board had previously considered
paying bonuses in the form of options to acquire Ribapharm common stock upon
completion of the Ribapharm Offering. However after taking various factors into
consideration, including adverse reactions from various stockholders that
included the Dissident Stockholders, the Board decided to pay these bonuses in
the form of cash. These bonuses were paid to recognize and reward the diligence
and perseverance of ICN's officers, directors and employees in developing the
business that became Ribapharm as well as facilitating the completion of the
Ribapharm Offering. Bonuses totaling approximately $47.8 million were paid on
April 17, 2002. The Named Executive Officers received the following bonuses:
Milan Panic $33,050,000; Adam Jerney $3,000,000; Bill MacDonald $2,000,000 and
David C. Watt $1,000,000. No payment was made to Richard Meier since he
resigned from the Company on April 1, 2002. In addition, each of the nine
non-executive directors who were in office at the time bonuses were granted
received a bonus of $330,500. The Company does not believe that these bonuses
would be subject to the excise tax imposed under Section 4999 of the Internal
Revenue Code (relating to golden parachute payments) if Messrs. Thurman and
O'Leary are elected at the Annual Meeting. However, since in that event these
payments would have been made within 12 months of a change in control for
purposes of Section 4999, there can be no assurance that the Internal Revenue
Service would not take a contrary position.
Venable, Baetjer and Howard LLP, a law firm with which Senator Bayh is
currently affiliated, billed the Company for legal fees of approximately
$119,481 in 2001. Oppenheimer, Wolff & Donnelly LLP, a law firm with which
Senator Bayh was affiliated until May 2001, billed the Company for legal fees
of approximately $126,679 in 2001.
Coudert Brothers, LLP, a law firm of which our Executive Vice President,
General Counsel and Corporate Secretary, Gregory Keever, is a member, billed
the Company for legal fees of approximately $3,677,703 in 2001.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ICN PHARMACEUTICALS
Date: April 29, 2002
By: /S/ GREGORY KEEVER
-----------------------------
Gregory Keever
Executive Vice President,
General Counsel and Corporate
Secretary
23