Warring Khan, ICN Await Day in Court : Management: Firm will urge court to block dissident shareholder’s bid for proxy vote to oust founder Milan Panic, claiming Khan was involved in British fraud.
He only half-jokingly calls it “the war room.”
From a study in his posh hillside home northwest of Pasadena, Rafi M. Khan is mapping out a strategy to force a proxy vote in his effort to take control of Costa Mesa-based ICN Pharmaceuticals Inc. and oust its founder, Milan Panic.
Khan, a minor ICN shareholder, blames Panic--who served as a prime minister of Yugoslavia for seven months last year--for his decision to leave a lucrative position at a Beverly Hills brokerage last spring. It is now Panic, he said, whose turn it is to leave a job.
“The man (Panic) does not want to face an election,” Khan said. “He preaches democracy in Yugoslavia and he practices the worst type of dictatorship in Costa Mesa.”
Meanwile, ICN officials are busy preparing for what they hope will be a showdown on Thursday. They want to short-circuit Khan’s attempt to garner shareholder support by persuading a New York federal judge that Khan was involved in British securities fraud in the mid-1980s and may be a fugitive from Scotland Yard.
It is not mud they are hurling at Khan, company officials said. These are legitimate issues that need to be addressed.
“If somebody, anybody, proposes a change in leadership, it is appropriate to ask about the quality, the capabilities, of the person proposing those changes,” said David Calef, ICN vice president for communications. “We are not trying to beat up Rafi. We want (shareholders) to know what is going on.”
And so it goes in the increasingly venomous war for control of ICN Pharmaceuticals, the $500-million multinational drug company that is parent to three subsidiaries: SPI Pharmaceuticals Inc., ICN Biomedicals Inc. and Viratek Inc. As ICN’s Dec. 15 annual meeting nears, both sides are taking off the gloves, slugging it out in the media, in court and in letters and phone calls with shareholders.
Most owners of ICN’s 20.4 million outstanding shares say they have not yet made up their minds about who to support. But Khan and ICN are making sure the issues they consider important are well known before investors vote. Panic himself has declined to comment for this article.
Sitting behind a desk strewn with stacks of faxes and legal documents, Khan argued that Panic is the key to his discontent with the 33-year-old company, of which Khan owns 120,000 shares.
He rapidly ticks off reasons why he has taken it upon himself to unseat Panic, a man he publicly lauded as “a proven deal maker” who had God on his side while Khan was selling company stock at the Beverly Hills brokerage H.J. Meyers & Sons Inc.
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Khan, now suggesting that Panic committed financial deviltry, said his change of heart came gradually.
After Panic left for Yugoslavia in July, 1992, Khan said, he became increasingly disgruntled with the man who founded ICN. In March, Khan expressed discontent with Panic and quit his brokerage job when, according to Khan, ICN threatened to withhold a 200,000-share commission of Viratek stock--valued at $2.5 million--from Meyers & Sons if the brokerage did not silence him.
The company said it indeed complained to Meyers & Sons--but only because of Khan’s trademark, flamboyant company reports that ICN did not endorse. ICN strongly denies threatening to withhold stock commissions from Meyers & Sons.
An outraged Khan went to work for a competing brokerage in Beverly Hills, Reynolds Kendrick & Stratton, and began threatening to replace Panic. He has since left Reynolds Kendrick and Stratton, saying he needed more time to concentrate on the proxy battle.
He is now brokering for Phoenix-based Desert Mountain Securities Inc., and his series of moves has prompted ICN officials to suggest that he cannot hold a job.
Khan complains that Panic should not have received a stock bonus originally valued at $5.7 million--but worth $3.6 million when the option was exercised--for orchestrating the 1991 acquisition of ICN Galenika in Belgrade.
He further cites Panic’s decision to purchase Flow Laboratories, a Virginia drug development firm, in 1989, which resulted in a $73-million write-off earlier this year at ICN Biomedicals.
Khan also accuses Panic of using ICN money to pay a Yugoslav entourage--a charge company officials vehemently deny--and collecting $530,000 in annual salary from ICN while serving as prime minister.
Company officials acknowledge that Panic received his base salary while in Yugoslavia, but said it was guaranteed under a longstanding employment contract.
They also defend the ICN Galenika bonus, saying it was reasonable considering that the acquisition resulted in more than $88 million in profit in 1991 and 1992. The company has been slowed by the Balkan civil war, but continues as a break-even operation.
Khan said the latest ICN allegations that he was involved in criminal activities surrounding the 1986 privatization of British Gas PLC have distracted from his message.
“It’s a nuisance,” Khan said, when asked about the toll the charges have taken on him personally. “It’s tough, and it’s really scandalous.”
The accusations came after Khan’s cousin, Tahir Rafiq Khan, signed an affidavit that described a plot to illegally purchase shares in British Gas.
Tahir Khan, who was found guilty in the British Gas scheme and paid a $20,000 fine in 1988, said Rafi Khan was the mastermind. Rafi Khan said, however, that he will present evidence to show otherwise, including stamps on his British passport that prove he was out of the country during periods when Tahir swears he was there, and credit card slips that offer further proof.
Khan’s attorney, Robert Hasday, has collected his own affidavits from six people who know both cousins, including a former employer of Tahir Khan.
Peter McGill said in his affidavit that he helped Tahir Khan with the scheme, which involved four men, none of whom was Rafi Khan. McGill was also found guilty and paid a fine similar to Tahir Khan’s, he said in the affidavit.
“Ultimately Panic will be shown for what he is, a man who will stop at nothing to try to crush me, simply because I was crazy enough to suggest there should be a vote” to replace him, Khan said.
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Khan hopes that if he is successful, Panic will eventually lose control of subsidiaries SPI, ICN Biomedicals and Viratek. Khan also says he would take an unpaid seat on the ICN board of directors and help choose a new chief executive to restructure the complex financial arrangements between ICN and its family of subsidiaries.
Panic has so far elected to stay uncharacteristically quiet in the proxy battle, but is reportedly seething over Khan’s claims that he ignored the company while in Yugoslavia. He was eventually ousted from his post there by a vote of no confidence in the Yugoslav Parliament, and returned to Costa Mesa in February.
Company officials, however, are anxious to get across their message that neither Khan nor his proposed slate of six directors has the experience to lead the four interlinked drug companies. Khan denies that his slate is inexperienced, noting that three are top managers of medical firms.
But ICN says it would be disastrous to have a new board take over at a time when ICN is in the midst of an important, long-term expansion in Eastern Europe that was started several years ago and still is only half completed.
Although the company has signed deals in Yugoslavia and St. Petersburg, Russia, it is still negotiating new enterprises in Hungary, Poland and the Czech Republic.
The company is also undergoing detailed clinical trials in which the Washington-based National Institutes for Health is testing whether its anti-viral drug, Virazole, works on combatting hepatitis C, which causes inflammation of the liver. A favorable finding could mean millions of dollars in profit each year.
To protect itself and its shareholders from an eventual takeover, ICN promises to launch a frontal assault on Khan at a Thursday hearing in U.S. District Court in New York, where it will ask Judge John Sprizzo to issue an injunction against Khan, prohibiting him from carrying out his proxy fight.
If ICN attorneys are successful in persuading Sprizzo that Khan had a role in the British Gas scam, Khan could also be deported, sources said.
Among witnesses ICN attorneys expect to call to the stand is Jackie Morton, a Scotland Yard inspector who was named in Tahir Khan’s affidavit as the lead investigator in the British Gas case. She has been been subpoenaed and is expected to testify that an arrest warrant had been issued for Khan. No warrant has been found, however.
ICN attorney David Watt said recently that the battle has indeed prompted some soul searching at ICN headquarters. If the company has learned anything from the experience, he said, is that it must improve relationships with shareholders.
“We need to do a better job of communicating the fundamentals of the company,” Watt said.
ICN in Play:
Here is how ICN Pharmaceuticals stock has fared since the beginning of the year. Investor Rafi M. Khan initiated a proxy fight in April. Highest monthly closing prices:
Tuesday’s close: $10.88
Source: Dow Jones; Researched by JANICE L. JONES / Los Angeles Times
