Form Of Affiliation Agreement

AFFILIATION AND DISTRIBUTION AGREEMENT,
DATED AS OF ___________ ___, 2001,
BY AND BETWEEN
ICN PHARMACEUTICALS, INC.
AND
RIBAPHARM INC. 2
AFFILIATION AND DISTRIBUTION AGREEMENT


This AFFILIATION AND DISTRIBUTION AGREEMENT (the "Agreement") is made and entered into as of _________ ___, 2001, by and between ICN Pharmaceuticals, Inc., a Delaware corporation ("ICN"), and Ribapharm Inc., a Delaware corporation and a wholly owned subsidiary of ICN ("Ribapharm"). Certain capitalized terms used herein are defined in Section 1 of this Agreement.


RECITALS


WHEREAS, the Board of Directors of ICN has determined that it would be in the best interests of ICN and its stockholders to separate certain assets and businesses from ICN;


WHEREAS, ICN has caused Ribapharm to be incorporated in order to effect such separation;


WHEREAS, ICN has, pursuant to resolutions of its Board of Directors adopted on August 7, 2000 (the "ICN Contribution Resolutions"), contributed to Ribapharm, certain assets (the "Contributed Assets"), including its nucleoside analog library, subject to certain consents, the Exclusive License and Supply Agreement between ICN and Schering-Plough Ltd. Dated July 28, 1995, as amended, and ICN's corporate headquarters in Costa Mesa, California;


WHEREAS, Ribapharm has previously filed the IPO Registration Statement (as herein defined) with the Securities and Exchange Commission but it has not yet become effective;


WHEREAS, immediately following the consummation of the Initial Public Offering (as herein defined), ICN will own all of the Class B Common Stock, par value $.01 per share, of Ribapharm (the "Ribapharm Class B Common Stock");


WHEREAS, ICN currently intends to divest itself, following the Initial Public Offering, of its entire ownership of Ribapharm by distributing in the Distribution (as herein defined) all of its shares of Ribapharm Common Stock to holders of ICN Common Stock;


WHEREAS, ICN and Ribapharm intend that the Distribution will be tax-free to ICN and its stockholders under Section 355 of the Code;


WHEREAS, in the Tax Sharing Agreement to be made and entered into by ICN and Ribapharm concurrent with this Agreement, ICN and Ribapharm have provided for and agreed upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the Distribution, and have provided for and agreed upon other matters relating to Taxes; and


WHEREAS, the parties hereto have determined that in order to accomplish the objectives of the Initial Public Offering and the Distribution and to facilitate the consummation thereof, it is necessary and desirable to restructure certain intercompany relationships, provide working capital


-1- 3 financing to Ribapharm, allocate certain liabilities and provide for certain indemnification, all as set forth herein;


NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows:


1. DEFINITIONS.


"Abandonment Notice" has the meaning set forth in Section 3.4.


"Affiliate" means a Ribapharm Affiliate or an ICN Affiliate, as the case may be.


"Annual Financial Statements" has the meaning set forth in Section 5.1(a)(v).


"Bankruptcy Code" shall mean the United States Bankruptcy Code, as amended, 11 U.S.C. Section 101, et seq., as amended from time to time and any successor act thereto.


"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions located in the State of California or London, England are authorized or obligated by law or executive order to close.


"Claim" has the meaning set forth in Section 6.5.


"Class B Director" means the director which the holders of Ribapharm Class B Common Stock have the sole power to elect pursuant to Ribapharm's Certificate of Incorporation.


"Commitment" means the obligation of ICN to make loans to Ribapharm from time to time in an aggregate principal amount not to exceed $25,000,000 (Twenty-Five Million dollars) at any time outstanding.


"Contribution" means the transfer of certain assets by ICN to Ribapharm pursuant to the ICN Contribution Resolutions.


"Contributed Assets" has the meaning set forth in the recitals.


"Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.


"Controlled" has the meaning correlative to the definition of "Control."


-2- 4
"Dispute Notice" means written notice of any dispute between ICN and Ribapharm arising out of or relating to this Agreement, which shall set forth, in reasonable detail, the nature of the dispute.


"Disputes" has the meaning set forth in Section 7.1.


"Distribution" means the distribution of Ribapharm Common Stock by ICN in one or more transactions occurring after the Initial Public Offering that collectively have the effect that all shares of Ribapharm Common Stock held by ICN are distributed to ICN stockholders, pro rata, whenever such transaction(s) shall occur.


"Distribution Date" means any date or dates, as the case may be, determined by ICN, in its sole and absolute discretion, to be a date on which shares of Ribapharm Common Stock held by ICN are distributed in connection with the Distribution.


"Event of Default" has the meaning set forth in Section 2.6(a).


"Exchange Act" means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.


"Expiration Date" means the first day of the month immediately following the month during which the first royalty payment under the Schering-Plough License is required to be made after the consummation of the Initial Public Offering.


"GAAP" means generally accepted accounting principles, consistently applied.


"ICN Affiliate" means a Person that, directly or indirectly through one or more intermediaries, is Controlled by ICN (other than Ribapharm and any Subsidiary of Ribapharm).


"ICN Annual Statements" has the meaning set forth in Section 5.1(a)(v).


"ICN Business" means the business or operations of ICN or any ICN Affiliate, including, in all cases, any predecessor entities, but excluding the Ribapharm Business.


"ICN Public Filings" has the meaning set forth in Section 5.1(b)(ii).


"ICN Transfer Agent" means the American Stock Transfer and Trust Company or any other person that acts as transfer agent and registrar for the ICN Common Stock.


"ICN's Auditors" has the meaning set forth in Section 5.1(a)(v).


"Indemnifying Party" means a Person that is obligated to provide indemnification under this Agreement.


-3- 5
"Indemnitee" means a Person that is entitled to seek indemnification under this Agreement.


"Indemnity Payment" means an amount that an Indemnifying Party is required to pay to an Indemnitee under this Agreement.


"Initial Public Offering" means the initial public offering by ICN of shares of Ribapharm Class A Common Stock as contemplated by the IPO Registration Statement.


"Insurance Proceeds" means the payment received by an insured from an insurance carrier or paid by an insurance carrier on behalf of the insured, net of any applicable premium adjustment and tax effect.


"IPO Registration Statement" means the Registration Statement on Form S-1, Registration No. 333-39350, of Ribapharm, as supplemented and amended from time to time.


"IRS Private Letter Ruling" has the meaning set forth in the Tax Sharing Agreement.


"LIBOR Rate" means, for any day, the rate for six-month U.S. Dollar deposits which appears on Telerate Page 3750 (as defined in the International Swaps and Derivatives Association, Inc. 1991 Interest Rate and Currency Exchange Definitions), or such page as may replace Telerate Page 3750, as of 11:00 a.m. (London time) on such date, or, such day is nor a Business Day, then the immediately preceeding Business Day (or if not so reported then from another recognized source or interbank quotation).


"Loans" has the meaning set forth in Section 2.1.


"Losses" means all losses, liabilities, claims, obligations, demands, judgments, damages, dues, penalties, assessments, fines (civil or criminal), costs, liens, expenses, forfeitures, settlements, or fees, reasonable attorneys' fees and expenses and court costs, of any nature or kind, whether or not the same would properly be reflected on a balance sheet, and "Loss" means any of these.


"Notice" means any notice, request, claim, demand, or other communication under this Agreement.


"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization of a governmental entity or any department, agency or political subdivision thereof.


"Pre-Distribution Period" means the period of time from the date hereof until completion of the Distribution.


"PwC" has the meaning set forth in Section 5.1(a)(iii).


-4- 6
"Quarterly Financial Statements" has the meaning set forth in Section 5.1(a)(iv).


"Registration Rights Agreement" means that certain Registration Rights Agreement dated as of _____________ ____, 2001 by and between Ribapharm and ICN.


"Regulation S-K" means Regulation S-K of the General Rules and Regulations promulgated by the SEC (as in effect from time to time) and any successor thereto.


"Regulation S-X" means Regulation S-X of the General Rules and Regulations promulgated by the SEC (as in effect from time to time) and any successor thereto.


"Request" has the meaning set forth in Section 6.5.


"Ribapharm Affiliate" means a Person that, directly or indirectly through one or more intermediaries, is Controlled by Ribapharm.


"Ribapharm's Auditors" has the meaning set forth in Section 5.1(a)(iii).


"Ribapharm Business" means any business or operations of Ribapharm or any Ribapharm Affiliates, including, in all cases, any predecessor entities.


"Ribapharm Capital Stock" means all classes or series of capital stock of Ribapharm authorized by Ribapharm's Certificate of Incorporation.


"Ribapharm's Certificate of Incorporation" means Ribapharm's Amended and Restated Certificate of Incorporation, as in effect upon the closing of the Initial Public Offering.


"Ribapharm Class A Common Stock" means the Class A Common Stock, par value $.01 per share, of Ribapharm.


"Ribapharm Class B Common Stock" has the meaning set forth in the Recitals hereto.


"Ribapharm Combined Common Stock" means the Ribapharm Class A Common Stock and the Ribapharm Class B Common Stock.


"Ribapharm Public Filings" has the meaning set forth in Section 5.1(a)(vii).


"Ribapharm Subsidiary" means all direct or indirect subsidiaries of Ribapharm.


"Ribapharm Transfer Agent" means the American Stock Transfer and Trust Company or any other person that acts as the transfer agent and registrar for the Ribapharm Common Stock.


"SEC" means the United States Securities and Exchange Commission or any successor agency.


-5- 7
"Section 355(e) Event" has the meaning set forth in the Tax Sharing Agreement.


"Securities Act" means the Securities Act of 1933, as amended from time to time, together with the rules and regulations promulgated thereunder, and any successor thereto.


"Separate Counsel" has the meaning set forth in Section 6.4(b).


"Service Agent" means (i) for ICN, The Corporation Trust Company, with offices on the date hereof at 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801; and (ii) for Ribapharm, The Corporation Trust Company, with offices on the date hereof at 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801.


"Subsidiary" means with respect to any specified Person, any corporation or other legal entity of which such Person or any of its Subsidiaries Controls or owns, directly or indirectly, more than 50% of the stock or other equity interest entitled to vote with respect to the election of members to the board of directors or similar governing body; provided, however, that for the purposes of this Agreement, neither Ribapharm nor any of the Subsidiaries of Ribapharm shall be deemed to be Subsidiaries of ICN or of any of the Subsidiaries of ICN.


"Tainting Event" has the meaning set forth in the Tax Sharing Agreement.


"Tax" or "Taxes" has the meaning set forth in the Tax Sharing Agreement.


"Tax Opinion" means an opinion of counsel selected by ICN, in its sole discretion, confirming in form and substance reasonably satisfactory to ICN, that no income, gain or loss for U.S. federal income tax purposes will be recognized by ICN, the stockholders or former stockholders of ICN, or any ICN Affiliate with respect to the Distribution.


"Tax-Related Losses" means (i) all federal, state and local Taxes (including interest and penalties thereon) imposed pursuant to any settlement, final determination, judgment or otherwise; (ii) all accounting, legal and other professional fees, and court costs incurred in connection with such taxes; and (iii) all costs and expenses that may result from adverse tax consequences to ICN payable by ICN or ICN Affiliates.


"Tax Sharing Agreement" means the Tax Sharing Agreement between ICN and Ribapharm dated as of the date hereof.


"Third-Party Claim" means any claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission or any arbitration tribunal asserted by a Person other than ICN or any ICN Affiliate or Ribapharm or any Ribapharm Affiliate which gives rise to a right of indemnification hereunder.


"Underwriting Agreement" means the Underwriting Agreement, dated _____________ ____, 2001, among Ribapharm, ICN and the underwriters relating to the Initial Public Offering.


-6- 8
"Voting Stock" means with respect to any Person, all classes and series of the capital stock of such Person entitled to vote generally in the election of directors.


2. WORKING CAPITAL FACILITY


2.1. REVOLVING CREDIT.


(a) Subject to the terms and conditions of this Section 2, and provided that no Event of Default has occurred and is continuing, ICN agrees to make loans (the "Loans") to Ribapharm from time to time prior to the Expiration Date in an aggregate principal amount not to exceed at any time the Commitment. The Loans shall be evidenced by a note in the form of Exhibit 1 to be executed and delivered by Ribapharm upon the making of the initial Loan. Subject to the terms and conditions of this Section 2, Ribapharm may borrow under this Section 2.1, prepay Loans as contemplated by Section 2.3(b) and reborrow under this Section 2.1.


(b) Ribapharm may borrow hereunder from ICN at any time prior to the Expiration Date upon giving to ICN advance notice of the date of borrowing and the amount to be borrowed.


2.2. INTEREST.


(a) Ribapharm shall pay interest on the aggregate amount of the Loans outstanding, calculated in accordance with the provisions of Section 2.2(b), payable monthly in arrears on the last day of each calendar month.


(b) The rate of interest payable on the aggregate amount of the Loans with respect to each day the Loans are outstanding shall be the LIBOR Rate plus 200 basis points. Interest shall be computed upon the actual number of days elapsed.


2.3. REPAYMENT OF THE LOAN AND CANCELLATION.


(a) Ribapharm undertakes to repay in full the amount of the Loans outstanding hereunder, together with all interest accrued and outstanding thereon, on -----------, 2002.


(b) Ribapharm, without premium or penalty and on two (2) days prior notice to ICN of its intention to do so, may, at any time and from time to time, prepay to ICN part or all of the aggregate amount of the Loans outstanding, together with all interest accrued and outstanding thereon, to the date of such repayment. Except as contemplated by clause (c) of this Section 2.3, the prepayment of the Loans shall not reduce the amount of the Commitment.


(c) Ribapharm shall have the right at any time or from time to time to terminate in whole or in part that part of the Commitment not drawn down by it by giving prior notice thereof to ICN specifying the amount of the Commitment to be terminated and the effective date thereof.


-7- 9 2.4. PAYMENT PROVISIONS.


(a) If any payment due to be made by Ribapharm in accordance with this Section 2 is to be made on a day which is not a Business Day, such payment shall be made to ICN on the next succeeding Business Day, the sums to be paid being in all instances calculated by reference to the actual date of payment.


(b) Ribapharm shall not be entitled to deduct or set off any amounts which may be owed or claimed to be owed to it by ICN from any amounts payable by Ribapharm to ICN under this Section 2.


(c) All payments by Ribapharm shall be made directly to ICN or as ICN shall otherwise notify Ribapharm in writing.


2.5. NOTIFICATION. Ribapharm hereby covenants with ICN that from and after the date hereof and for so long as any amount remains unpaid in respect of principal of, or interest on, the outstanding borrowings or otherwise pursuant to this Section 2, it will give ICN prompt notice in writing of the occurrence of any Event of Default.


2.6. DEFAULT.


(a) An "Event of Default" shall mean any of the following:


(i) Ribapharm fails to pay when due any principal of, or interest on, the Loans, or any other amounts payable under this Section 2, and shall fail to make such payments within fifteen (15) Business Days of written notification thereof by ICN; or


(ii) an order is made or an effective resolution is passed for winding up Ribapharm other than for the sole purpose of a merger or consolidation; or


(iii) Ribapharm shall default in the payment when due of any principal of or interest on any of its other indebtedness having an aggregate principal amount of at least $3 million or any event specified in any note, agreement, indenture or other document evidencing or relating to any such indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such indebtedness having an aggregate principal amount of at least $3 million to become due, or to be prepaid in full (whether by redemption, purchase or otherwise), prior to its stated maturity; or


(iv) Ribapharm shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or


(v) Ribapharm shall (a) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (b) make a general assignment for the benefit of its creditors, (c) commence a


-8- 10 voluntary case under the Bankruptcy Code, (d) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (e) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code, or (f) take any corporate action for the purpose of effecting any of the foregoing; or


(vi) A proceeding or case shall be commenced, without the application or consent of Ribapharm, in any court of competent jurisdiction, seeking (a) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (b) the appointment of a trustee, receiver, custodian, liquidator or the like of Ribapharm or of all or any substantial part of its assets, or (c) similar relief in respect of Ribapharm under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against Ribapharm shall be entered in an involuntary case under the Bankruptcy Code.


(b) Upon the occurrence of an Event of Default specified in Section 2.6(a)(v) or Section 2.6(a)(iv), or upon delivery of notice thereof in writing by ICN after the occurrence of any other Event of Default, the Commitment shall terminate (if then in existence) and the aggregate amount of the Loans at the time outstanding shall be declared immediately due and payable with interest thereon to the date of actual payment. Any such termination and declaration shall be effective and binding on Ribapharm.


2.7 FACILITY COSTS. Ribapharm agrees to reimburse ICN for the actual costs and expenses (including reasonable legal fees) reasonably incurred by ICN in connection with the enforcement or attempted enforcement of, or the preservation or attempted preservation of, any of its rights under this Section 2. These costs and expenses shall become due as soon as notice thereof has been served on Ribapharm and shall be paid by Ribapharm within fifteen (15) Business Days thereof.


3. THE DISTRIBUTION.


3.1. THE DISTRIBUTION. ICN currently intends, following the consummation of the Initial Public Offering, to complete the Distribution as promptly as practicable after receipt of an IRS Private Letter Ruling. Notwithstanding the foregoing, ICN may, in its sole discretion, complete the Distribution following receipt of a satisfactory Tax Opinion. ICN intends to complete the Distribution through means of a spin-off. ICN shall, in its sole and absolute discretion, determine whether to proceed with all or part of the Distribution and all terms of the Distribution, including, without limitation, the form, structure and terms of any transaction(s) and/or offering(s) to effect the Distribution and the timing of and conditions to the consummation of the Distribution. In addition, ICN may at any time and from time to time until the completion of the Distribution modify or change the terms of the Distribution, including, without limitation, by accelerating or delaying the timing of the consummation of all or part of the Distribution. Ribapharm shall cooperate with ICN in all respects to accomplish the Distribution and shall, at


-9- 11 ICN's direction, promptly take any and all actions necessary or desirable to effect the Distribution, including, without limitation, the registration under the Securities Act and the Exchange Act, as required under applicable law, of Ribapharm Common Stock on an appropriate registration form or forms to be designated by ICN. ICN shall select, in its sole discretion, in connection with the Distribution, such investment banker(s), manager(s), financial printer, solicitation and/or exchange agent and outside counsel to effect the Distribution as it deems necessary or desirable; provided that nothing herein shall prohibit Ribapharm from engaging (at its own expense) its own financial, legal, accounting and other advisors in connection with the Distribution.


3.2. CERTAIN STOCKHOLDER MATTERS. From and after the distribution of Ribapharm Common Stock in connection with any transaction(s) included as part of the Distribution and until such Ribapharm Common Stock is duly transferred in accordance with applicable law, Ribapharm shall regard the Persons receiving Ribapharm Common Stock in such transaction(s) as record holders of Ribapharm Common Stock in accordance with the terms of such transaction(s) without requiring any action on the part of such Persons. Ribapharm agrees that, subject to any transfers of such stock, (a) each such holder shall be entitled to receive all dividends payable on, and exercise voting rights and all other rights and privileges with respect to, the shares of Ribapharm Common Stock then held by such holder and (b) each such holder shall be entitled, without any action on the part of such holder, to receive one or more certificates representing, or other evidence of ownership of, the shares of Ribapharm Common Stock then held by such holder. ICN shall cooperate, and shall instruct the ICN Transfer Agent to cooperate, with Ribapharm and the Ribapharm Transfer Agent, and Ribapharm shall cooperate, and shall instruct the Ribapharm Transfer Agent to cooperate, with ICN and the ICN Transfer Agent, in connection with all aspects of the Distribution and all other matters relating to the issuance and delivery of certificates representing, or other evidence of ownership of, the shares of Ribapharm Common Stock distributed to the holders of ICN Common Stock in connection with any transaction(s) included as part of the Distribution. Following the Distribution, ICN shall instruct the ICN Transfer Agent to deliver to the Ribapharm Transfer Agent true, correct and complete copies of the stock and transfer records reflecting the holders of ICN Common Stock receiving shares of Ribapharm Common Stock in connection with any transaction(s) included as part of the Distribution.


3.3. FURTHER ASSURANCES REGARDING THE DISTRIBUTION. In addition to the actions specifically provided for elsewhere in this Agreement, Ribapharm shall, at ICN's direction, use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things commercially reasonably necessary, proper or expeditious under applicable laws, regulations and agreements in order to consummate and make effective the Distribution as promptly as reasonably practicable. Without limiting the generality of the foregoing, Ribapharm shall, at ICN's direction, cooperate with ICN, and execute and deliver, or use all commercially reasonable efforts to cause to have executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any domestic or foreign governmental or regulatory authority requested by ICN in order to consummate and make effective the Distribution.


-10- 12 3.4. ABANDONMENT OF THE DISTRIBUTION. The parties expressly acknowledge and agree that ICN is not obligated in any respect to proceed with or complete the Distribution and that ICN may, in its sole and absolute discreti ...