Shareholder Seeking ICN Reins Is Sued : Courts: O.C. company’s filing claims stockbroker’s effort to unseat Milan Panic, rest of board violates law. Damages of $25 million are sought.
ICN Pharmaceuticals Inc. on Monday sued the Beverly Hills stockbroker who launched a bid last week to topple Chairman Milan Panic and the other seven board members.
The lawsuit alleges that broker Rafi M. Khan violated federal securities laws and breached his fiduciary responsibilities by using inside information to launch his bid for control of the pharmaceuticals giant based in Costa Mesa. Panic, former Yugoslav prime minister, founded the company 30 years ago.
“I totally reject all the accusations,” said Kahn, adding that he considers the lawsuit Panic’s attempt to keep shareholders from deciding how the company should be managed.
The lawsuit, filed in U.S. District Court in New York, seeks to block Kahn’s effort to oust the board and asks damages of at least $25 million. The company said it plans to ask the Securities and Exchange Commission to investigate Kahn’s activities.
“What makes this so unusual and unique is you have someone who is earning a lot of money on the ICN companies (as) a fiduciary . . . while he was, secretly in the dark of night, trying to put together a group in violation of of the law. We have an obligation to bring this to the attention of the SEC,” said Arnold I. Burns, a New York attorney representing ICN.
The lawsuit alleges that Kahn became aware of proprietary information about ICN while working for three years as a stockbroker for H.J. Meyers & Co. in Beverly Hills, which was lead underwriter on a public offering in January by Viratek Inc., one of three major ICN subsidiaries.
Believing that ICN was undervalued, Khan then orchestrated a conspiracy with friends and business associates to gain control of the company, according to the suit, without disclosing the group’s intentions to the SEC.
It alleges that Khan attended four presentations that the company made to institutional investors with the hope of interesting them them in buying blocks of Viratek stock.
“Khan’s true intent was not to just solicit interest in the Viratek stock, but to persuade certain institutional investors to purchase the stock of ICN and to conspire with him in his attempt to effectuate a change in control of the ICN companies,” the suit reads.
In the process, Khan allegedly learned the company’s progress in testing its anti-viral drug Virazole and disclosed the non-public information to investors to try to convince them that the stock was undervalued and that they should join his conspiracy, according to the suit.
Kahn, who left the Meyers firm last month to join the brokerage firm of Reynolds Kendrick & Stratton, also in Beverly Hills, said he was not in a position of fiduciary trust regarding the Viratek offering. That duty, he said, fell chiefly to brokerage founder and principal H.J. (Bud) Meyers, who Khan said acted honorably in fulfilling his responsibilities. Meyers officials could not be reached for comment.
“I had absolutely no inside information,” Kahn said. “All information I had was information provided by ICN management and given by ICN management to shareholders.”
Kahn said there is ample evidence of how ICN has acted against shareholders’ interests. ICN officials should not talk of breaching fiduciary responsibility, he said, when they have increased the number of company shares by 60% in two years, paid salaries to people other than Panic working full time in the government of Yugoslavia and written off $100 million in assets.
Last week, ICN reported a 1992 loss of $65 million on record sales of $552 million. The company blamed the loss on a special non-cash charge on its biomedicals subsidiary and on currency translation losses on Eastern European operations. ICN shares closed at $11.62 Monday, down 12 cents.
Kahn said ICN offered not to file the lawsuit against him if he gave proxy on the 120,000 shares he owns to Panic, gave Panic first right to buy his shares and promised to limit his activity as a shareholder. Kahn declined the offer.
Instead, Kahn has put forth his own slate of candidates for the ICN board. In addition to Kahn, they include Peter T. Caserta of New York and Dana C. Verrill of Dallas, president and chairman respectively of Spectrum Information Technologies, a publicly traded wireless communications company; Howard K. Cooper, president of Cardiac Science Inc. of Irvine; Andrew Z. Furtak, a Milwaukee-based vice president of the investment banking firm of R.W. Baird; Charles M. Mehlhouse, former managing director of Texas Commerce Investment Co. in Houston; and David B. Musket, principal of the DBM Corporate Consulting Group in Boston.
Kahn said each member of his proposed board is a successful businessman. ICN lawyer Burns, however, said he questions why Kahn would want to put a panel of unknowns in charge of a major company.
“It’s apparent on its face that this slate is wholly incapable of running a $500-million pharmaceutical company,” Burns said.
